Kyle Lars Gjolberg April 25, 2013 Econometrics & Forecasting Unemployment

INTROUDCTION For this assignment, I have chosen the subject of unemployment. The Y variable is the unemployment rate, the percentage of unemployed people at a given time. The three X variables that influence this yield are the cost of living, inflation, and rapid changes in technology. I will first determine the X variable that suffers from the highest multicollinearity and eliminate it. Afterwards, I will test my hypotheses.

HYPOTHESES Null Hypothesis (H): x=x=x=0 Alternate Hypothesis (H): At least one x0.

VARIABLES Rate of Unemployment: Unemployment rates in 2012 are measured on a percentage scale. Cost of Living: Cost of living index in 2012 is measured on a scale where 100 is the national average. Numbers higher than 100 indicate a state that has a higher cost of living than the national average. Numbers lower than 100 indicate a state that is below average in terms of living cost. Rate of Inflation: The inflation rate in the US in 2012 varied between 1 and 2.5 percent. Technological Advances: Advances in technology in 2012 are measured on a scale where 52.38 is the national average. States above this number have more rapid and impactful changes in technology. States below this number have less frequent and important advances in technology.

DATA STATE Alabama UNEMP. 7.80 LIVING 92.00 INFLATION 2.10 TECHNOLOGY 47.29

Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland

7.30 8.20 7.20 10.70 8.20 8.10 6.70 9.10 8.60 7.70 8.70 8.00 5.20 6.10 8.20 7.50 7.50 6.90

126.00 104.00 90.00 135.00 102.00 125.00 100.00 101.00 90.00 92.00 96.00 92.00 93.00 91.00 90.00 95.00 115.00 125.00 113.00 96.00 105.00 102.00 91.00 102.00 90.00

1.70 1.10 2.30 2.00 1.40 1.90 1.00 1.60 2.30 2.40 1.00 1.50 1.40 1.80 2.10 1.50 1.80 1.60 2.10 2.50 2.30 1.70 1.20 1.90 1.00

42.79 60.21 25.63 73.85 75.73 66.56 63.26 39.96 51.71 49.84 57.13 49.70 46.59 55.48 32.70 35.27 37.56 77.05 82.61 50.74 62.65 32.43 48.44 44.37 45.53

Massachusetts 6.00 Michigan Minnesota Mississippi Missouri Montana Nebraska 8.60 5.60 8.80 7.10 6.30 3.80

Nevada New Jersey New Mexico New York

11.60 9.60 6.50 8.90

95.00 101.00 100.00 145.00

2.00 2.20 1.60 1.30

34.03 62.97 59.05 59.47

CONCLUSION After eliminating the Rapid Changes in Technology variable because of its high collinearity of 1.29, I proceeded to redo my multiple regression model. This led me to discover that the betas of the Cost of Living and Inflation Rate variables are 0.237 and 0.252, respectively. Relying solely on the data Ive examined in my project and not taking into account any outside influences, it would consequently seem that my alternate hypothesis that at least one x0 is true.