An increase in the labor force participation rate
A) implies that the unemployment rate must fall.
B) implies that the unemployment rate must rise.
C) means there are more discouraged workers.
D) is consistent with either a rise or a fall in the unemployment rate.

Question

Quizplus · Accepted Answer

An increase in the labor force participation rate can be due to various reasons, such as an improving economy or changing demographics. If the increase is due to more people entering the labor force because they believe they can find a job (i.e., an increase in the number of employed persons), the unemployment rate will fall. However, if the increase is due to people who were previously not counted as part of the labor force (such as discouraged workers) re-entering the labor force, the unemployment rate may temporarily rise as they search for employment. Therefore, an increase in the labor force participation rate is consistent with either a rise or a fall in the unemployment rate.

An Increase in the Labor Force Participation Rate