North Carolina Unemployment

Rate

Presenters:
x

Outline
Introduction
Data Analysis
Forecasting Models
Summary

Why do people work?

Meet your needs
Jobs pay salary
The greater the
responsibility of job
higher the salary
Socially meet new
people
People enjoy working
Purpose of life

What is Unemployment?
People able,
available and willing
to find work and
actively seeking
work, but not
employed
The unemployed are
included in the labor
force

Types of Unemployment
Who Is NOT
Counted as
unemployed?
The
The
Underemployed
Underemployed

Those with
with part-time
part-time
Those
or seasonal
seasonal jobs
jobs who
who
or
would rather
rather have
have
would
full-time jobs.
jobs.
full-time

Discouraged
Discouraged
Workers Those
Those who
who
Workers
have officially
officially given
given
have
up looking
looking for
for work
work
up
and are
are discouraged.
discouraged.
and

Measuring
As of February 2015, NC
Unemployment
US Bureau of Labor Statistics measures
unemployment was 5.3% of the
unemployment using Current popular
survey(CPS) and Current employment
statistics survey (CES)

To be counted in CPS
employment data, surveyed
persons must be
age 16 or older
Unemployed
includes
surveyed persons who are
jobless and actively seeking a
job
Surveyed persons
who are

neither employed nor

unemployed are considered
not in the labor force

labor force
Totals in Thousands, values seasonally adjusted

8.7

148.3

92.9

Unemploye
d

Employed

Not in
labor
force

Source : http://www.bls.gov/eag/eag.nc.htm

http://www.frbsf.org/education/teacher-resources/datapost
Education Group

FRBSF Economic

Unemployment Rate
Seasonally adjusted (%), Jan. 2005-Dec. 2014

10.0

8.0

6.0
Unemployment rate %
4.0

2.0

Great Recession

12.0

0.0

Time

Source : http://data.bls.gov/timeseries/LASST370000000000003?
data_tool=XGtable

Mar
2010
11.3%

Dec
2014
5.4%

Data Analysis
First dataset
represents the
monthly
unemployment rate
from January 2009 to
Unemployment Rate (%)
December
2014
Data after the great
recession
12
11
10

Rate

8
7
6
5
Jan-09

Jan-10

Jan-11

Jan-12

Time

Jan-13

Jan-14

Jan-15

Data Analysis

Outside
UCL

Autocorrelation Function for Monthly Unemployment Rate

1.2

0.8

0.4

Autocorrelation

Trend
pattern

0.0

-0.4

-0.8

-1.2

Lag

Forecasting Models
considered
Decomposition Method
Multiple Linear Regression Method
Month, Year and Labor Force
United State Unemployment, North
Carolina Population Growth Rate and
Time
United States Unemployment and Time

Decomposition MethodLinear
Unemployment Rate(%)
12

f(x) = - 0.08x + 11.89

10 R = 0.87
8

Unemployment rate

6
4
2
0
Time

Decomposition Method
-Exponential
Unemployment Rate(%)
12
10

f(x) = 12.44 exp( -0.01 x )

R = 0.84

Unemployment rate

6
4
2
0

10

20

30

40

Time

50

60

70

80

Decomposition Method
Polynomial
Unemployment Rate(%)
12
10
8

Unemployment Rate

f(x) = - 0x^2 + 0.03x + 10.59

R = 0.98

6
4
2
0

Time

Decomposition method
Forecasting Errors
Errors

Linear

Exponenti Polynomia
al
l

MAD

0.061

0.609

0.203

MSE

0.372

0.561

0.072

MAPE %

0.061

0.071

0.023

MPE %

-0.007

-0.013

-0.011

Polynomial Fitting Line

Equation is
y = -0.0014x2 + 0.0279x +
10.591

Lowest
Errors

Forecasting Using Polynomial

Decomposition Method
Unemployment Rate(%)
12
10
8

f(x) = - 0x^2 + 0.03x + 10.59

R = 0.98

6
4
2
0

This model does not catch

the cyclic pattern and keep
on decreasing

Month
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

UR %
5.17
4.99
4.81
4.63
4.44
4.25
4.06
3.86
3.67
3.47
3.26
3.06

Multiple Linear Regression

Method Model-1
Predictor Variables used
- Year (X1), Month(X2) and Labor
Force(X3)

May have multicollinearity between

Year & Labor force

Regression Analysis Result

Model-1

High R2 Value
Significance
values not in the
critical range
No sign change
between UL and
LL
Reject H0
4 outliers, Removing
outliers might misrepresent the data pattern

Validation of Model

R22 =0.98
C00 0
C11 1
Which is good

Spread
Around not
random and
seems to
follow a
pattern which
is not good

Forecasting using Model1

Forecasting equation
Model Predicts unemployment rate will go down

Data Analysis

Second dataset represents the annually

Unemployement rate (%)
unemployment rate from 1990 to 2013
To ensure to see long term pattern
Rate

12
11
10
9
8 f(x) = 0.19x - 383.47
R = 0.39
7
6
5
4
1990
1993
1996
1999

2002

Year

2005

2008

2011

2014

Data Analysis

Cyclical
pattern
(uneven
distance
Autocorrelation Function for Annually Unemployment Rate
peaks and
lows)

1.0
0.8
0.6
0.4
0.2
0.0

Autocorrelation
-0.2
-0.4
-0.6
-0.8
-1.0
1

10

11

12

Lag

13

14

15

16

17

18

19

20

21

22

23

Multiple linear Regression

Method Model-2
Predictor Variables used
-

Time (X1), NC Population growth rate(X2) and US

unemployment rate (X3)

Collinearity
MatrixY

X1

X2

X3

NC Unemployment rate
(Y)

Time (X1)

-0.439

0.373

-0.504

NC Population growth
rate (X2)
US Unemployment rate
(X3)

0.623 -0.606

0.938

Regression Analysis Result,

Model-2
High R2 value shows high
correlation between Y and
Xs

Significance value greater

than 5% , Sign change
between upper and Lower
limits
Fails Durbin Watson Test
which means data could
have auto-correlation

Dropping NC population Growth

rate and re-doing regression
analysis

Regression Analysis with Time &

US unemployment rate Model 3
High R2 value shows high
correlation between Y and
Xs
Significance values for all
variables below 5%
No sign change between
upper and lower limits for
variables
Passes Durbin-Watson
test
Model looks good after
removing certain outliers

Calculation of US
Unemployment rate

Only

problem with the previous model

is US unemployment rate should be
known
US unemployment rate predicted using
a polynomial equation
Forecast for US unemployment for
2015 using polynomial Equation is
Errors for this
5.59%.
decomposition model
is reasonably low

Forecasting using Model-3

linear Regression equation for
Multiple

model is

Which can be used to forecast Future years

using forecast of US unemployment rate
Forecasted NC unemployment rate for
2015 = 7.15%

Discussion of the Results

Decomposition predicts an average
of 4.14% unemployment rate using
short-term data
Multiple regression predicts 7.15%
unemployment rate using long-term
data
Important difference between the
two forecasts

Discussion of the Results

Reasons of the differences
Decomposition model does not include
old data and the cyclical pattern.
The multiple regression use a forecast
value as a variable in the model which
create repeating errors
Cyclical pattern hard to predict because
it is hard to know when a peak or a low
will occur.

Conclusions
Two models may be used for
forecasting
1.
fitting
Pros:Decomposition Polynomial
Cons:
Low Errors and may be useful for
predicting for near future

Does not capture cyclic factor

not good for predicting far future

2. Multiple Linear Regression ( Time &

Pros:
Cons:
US
unemployment
High
correlation between NC rate)
unemployment rate and
variables.
Predicted values fairly close
enough

Depend on US unemployment
prediction
Does not capture cyclic
patterns