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

2. Unemployment Research Question: What factors affect the unemployment rate in the United States? Dependent Variable is the Unemployment Rate Time-Series Data -Information from www.bls.gov www.bea.gov www.census.gov

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

4. 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).

5. 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.

8. Descriptive Statistics for 1980 to 2007 Unemployment RateInflation Rate Mean6.089286Mean3.854643 Standard Error0.275707Standard Error0.484367 Median5.7Median3.125 Mode7.5Mode#N/A Standard Deviation1.458904Standard Deviation2.563028 Sample Variance2.128399Sample Variance6.569115 Range5.7Range12.03 Minimum4 1.55 Maximum9.7Maximum13.58

9. Real GDP Growth Rate based on 2000 dollarsProductivity Index Mean2.917857Mean1.917857 Standard Error0.336377Standard Error0.254746 Median3.35Median1.7 Mode2.5Mode1.6 Standard Deviation1.77994Standard Deviation1.34799 Sample Variance3.168188Sample Variance1.817077 Range9.1Range5.6 Minimum-1.9Minimum-1.1 Maximum7.2Maximum4.5

10. Labor Force Participation Rate Mean65.91786 Standard Error0.198743 Median66.2 Mode67.1 Standard Deviation1.051649 Sample Variance1.105966 Range3.3 Minimum63.8 Maximum67.1

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

12. Regression Results for 1958 to 2007 SUMMARY OUTPUT Regression Statistics Multiple R0.552282 R Square0.305015 Adjusted R Square0.226039 Standard Error1.233471 Observations50 ANOVA dfSSMSF Significance F Regression529.380335.8760663.8621450.005478 Residual4466.943871.521452 Total4996.3242 Coefficients Standard Errort StatP-valueLower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept-27.503710.82552-2.540630.014669-49.3211-5.68628-49.3211-5.68628 Inflation0.1572970.0770472.0415670.0472190.0020190.3125760.0020190.312576 GDP Growth-0.202420.097927-2.067070.044642-0.39978-0.00506-0.39978-0.00506 Labor Force Participation0.5593180.1838333.0425250.0039470.1888260.9298090.1888260.929809 Productivity0.3694410.1669752.2125540.0321640.0329250.7059560.0329250.705956 Trend-0.113160.038472-2.941270.005196-0.19069-0.03562-0.19069-0.03562

13. Regression Results(1980 to 2007) SUMMARY OUTPUT Regression Statistics Multiple R0.928632 R Square0.862357 Adjusted R Square0.831074 Standard Error0.599618 Observations28 ANOVA dfSSMSF Significance F Regression549.556869.91137227.566668.85E-09 Residual227.9099250.359542 Total2757.46679 Coefficients Standard Errort StatP-valueLower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept75.5198511.408896.6193861.18E-0651.8592599.1804451.8592599.18044 Inflation-0.279330.071784-3.891270.000786-0.4282-0.13046-0.4282-0.13046 GDP growth-0.263280.076831-3.42670.002412-0.42261-0.10394-0.42261-0.10394 Labor Force-0.974580.177487-5.490991.62E-05-1.34267-0.60649-1.34267-0.60649 Productivity0.1503170.1029141.460610.158258-0.063110.363748-0.063110.363748 Trend-0.09950.022045-4.513370.000172-0.14521-0.05378-0.14521-0.05378

14. Residual Plots

15. Conclusion The 4 independent variables form a good model to predict unemployment with R square = 0.86. 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