Holding the working-age population constant, if the labor force participation ratio declines while the number of people employed remains unchanged, the unemployment rate will most likely:
B is correct. For a given working-age population, a decline in the labor force participation rate, often the result of an increase in discouraged workers, reduces the labor force. If the number of people employed remains the same while the labor force is smaller, the number of workers defined to be unemployed must be smaller and the unemployment rate lower.
The following example illustrates the direction of change:
| Initial case | After change | |
| Working-age population | 100 | 100 |
| Labor force=Employed+Unemployed | 60+20=80 | 60+15=75 |
| Labor force participation rate | 80% | 75% |
| Unemployment rate | 20/80=25% | 15/75=20% |
Labor force participation rate = Labor force÷Working age population.
Unemployment rate = Unemployed ÷ Labor force.