Question

is it possible for the unemployment rate to increase while the participation rate decrease?

Please explain your reasoning with the analysis of their respective formula. Be concise and logical about your explanation.

Answer 1

Participation rate= labor force / population above 16

Unemployment rate= unemployed/ Labour force

If we assume number of unemployed people are fixed ,then Decrease in participation rate will decrease labour force and thus lead to increase in unemployment rate.

For example: unemployed=10 , labor force =90

Participation rate=90%

Unemployment rate=10/90*100=11.11%

If participation rate Decreases to 80%,then new Labour force=80

Unemployment rate=10/80*100=12.5%