Many first-year university students quit their studies and choose to work instead because they find themselves not suitable to study. Explain why the unemployment rate may increase or decrease.

Initially, this group of students is not in the labour force. After they withdraw from school and decide to work, they become part of the labour force. Therefore, the number of people in labour force increases.

Moreover, although they withdraw from their studies, they are not guaranteed to secure a job and some of them may become unemployed. Therefore, the number of unemployed person in the population also increases.

Since both unemployed person and labour force increase, the change in unemployment rate can increase, decrease or do not change, depending on the magnitude of increase of unemployed person and labour force:

Case 1: If the percentage increase in unemployed person is greater than the percentage increase in labour force, then the unemployment rate will increase.

Case 2: If the percentage increase in unemployed person is smaller than the percentage increase in labour force, then the unemployment rate will decrease.

Case 3: If the percentage increase in unemployed person is equal to the percentage increase in labour force, then the unemployment rate will remain unchanged.