Project By Vishnu Narasimhan Elizabeth Stillwell Aditya Dhirani Unemployment in the United States

Unemployment Research Question: What factors affect the unemployment rate in the United States? Dependent Variable is the Unemployment Rate Time-Series Data -Information from

Factors Considered Inflation rate Real GDP growth rate Labor force participation rate Productivity Index (Trend)

Initially we considered 50 years (1958 to 2007) as a time series for our data. While this was a good sample, the stagflation in the 1970s led to skewed results in our regression model. After discussing our results, we decided to reduce our data set to include only the years after the 1970s – Reagan years onward (1980 to 2007).

Hypothesis We predict that Inflation and unemployment have an inverse relationship. This is described in the Philips Curve GDP growth and unemployment have an inverse relationship We believe that productivity and unemployment also have an inverse relationship.

Descriptive Statistics for 1980 to 2007 Unemployment RateInflation Rate Mean Mean Standard Error Standard Error Median5.7Median3.125 Mode7.5Mode#N/A Standard Deviation Standard Deviation Sample Variance Sample Variance Range5.7Range12.03 Minimum Maximum9.7Maximum13.58

Real GDP Growth Rate based on 2000 dollarsProductivity Index Mean Mean Standard Error Standard Error Median3.35Median1.7 Mode2.5Mode1.6 Standard Deviation Standard Deviation Sample Variance Sample Variance Range9.1Range5.6 Minimum-1.9Minimum-1.1 Maximum7.2Maximum4.5

Labor Force Participation Rate Mean Standard Error Median66.2 Mode67.1 Standard Deviation Sample Variance Range3.3 Minimum63.8 Maximum67.1

Correlation Matrix Correlation between the dependent variables. There is a moderate negative correlation between Labor Force Participation and Inflation.

Regression Results for 1958 to 2007 SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations50 ANOVA dfSSMSF Significance F Regression Residual Total Coefficients Standard Errort StatP-valueLower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept Inflation GDP Growth Labor Force Participation Productivity Trend

Regression Results(1980 to 2007) SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations28 ANOVA dfSSMSF Significance F Regression E-09 Residual Total Coefficients Standard Errort StatP-valueLower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept E Inflation GDP growth Labor Force E Productivity Trend

Residual Plots

Conclusion The 4 independent variables form a good model to predict unemployment with R square = Inflation, GDP growth, and Labor Force Productivity have a strong negative relationship with the unemployment rate. Interestingly, Productivity has a weak positive relationship with unemployment. Possible Problems with the Model : Since this is time series data, there was a chance that we would run into an auto correlation problem with residuals. This seems to be the case with Inflation