Shrinking labor force from reduced participation Steps:

• Labor force equals employed plus unemployed individuals actively seeking work.
• Both numbers decreasing means total labor force is shrinking.
• Shrinking occurs via falling participation rate, where people exit the workforce.
• Evaluate options for factors lowering participation without boosting employment.

Why D is correct:

• Higher unemployment benefits reduce labor force participation by incentivizing some to stop job searching and live off benefits, dropping them from unemployed counts; lower overall participation shrinks employed numbers too, per Okun's law linking participation to output and jobs.

Why the others are wrong:

• A: Net inward immigration adds workers, expanding labor force and likely raising both employed and unemployed numbers.
• B: Higher pension age keeps seniors working longer, increasing labor force participation and employed numbers.
• C: More university students exclude youth from labor force, potentially cutting unemployed but not necessarily employed, as it mainly affects new entrants.

Final answer: D