Unemployment Model

Below are the results of running a linear regression model on various economic data (obtained from the Bureau of Economic Analysis [BEA] government site) from 1947 to the present solving for the unemployment economic parameter:

n 64

R2 0.79
Adjusted R2 0.74
SE 0.82

Term Coefficient 95% CI SE t statistic DF p
Intercept 5.545 1.916 to 9.175 1.8070 3.07 50 0.0035
Population 0.002931 -0.017709 to 0.023570 0.0102759 0.29 50 0.7767
Inflation -0.1406 -0.2205 to -0.0606 0.03980 -3.53 50 0.0009
GDP -0.00264 -0.00742 to 0.00214 0.002379 -1.11 50 0.2725
Debt -0.004598 -0.006006 to -0.003191 0.0007007 -6.56 50 <0.0001
Tax Receipts -0.001045 -0.009708 to 0.007618 0.0043131 -0.24 50 0.8095
Gov Spending 0.00789 -0.00145 to 0.01723 0.004649 1.70 50 0.0959
Budget -0.002198 -0.013211 to 0.008816 0.0054834 -0.40 50 0.6903
Trade Deficit 0.007352 0.000805 to 0.013899 0.0032594 2.26 50 0.0285
Consumer Spending 0.003819 -0.007226 to 0.014864 0.0054991 0.69 50 0.4906
State Deficit 0.01752 -0.00862 to 0.04366 0.013014 1.35 50 0.1843
State Social Payment -0.01106 -0.07132 to 0.04920 0.030001 -0.37 50 0.7139
Gov Social Benefits 0.03103 0.01167 to 0.05038 0.009637 3.22 50 0.0023
Personal Income -0.002082 -0.009859 to 0.005695 0.0038719 -0.54 50 0.5932


The economic parameters used to model unemployment over the past 64 (n) years are: the U.S. population, the inflation rate, personal income, the U.S. Gross Domestic Product (GDP), federal government debt, federal government tax receipts, federal government spending, the federal government budget levels, the federal trade deficit, consumer spending, state government budget levels, state government spending on social benefits, and federal government social benefit payments. The intercept value in the above table is not a parameter – it is the value of unemployment (in percent) if all other parameters equal zero. These economic parameters are denoted in the above table.

The R² statistic illustrates how closely the linear regression model resembles a straight line (the ideal condition). If R² equals one then the model is 100% linear and the parameters correlate 100%. On the other hand, if R² is equal to zero then there is no correlation and the data in the linear regression model is completely random. T statistics reveal which of the economic parameters has the best correlation to the parameter being tested (Unemployment in this case). The higher the absolute value of the t statistic, the better the correlation the corresponding economic parameter has to the tested variable (Unemployment in this case). If a coefficient value of an economic parameter is positive then it trends in the same direction of the tested variable (Unemployment in this case). If a coefficient value is negative then the corresponding variable trends in the opposite direction of the tested variable (Unemployment in this case). It is time to do some math to prove higher taxes and government spending cripple economies. What economic parameters have the biggest effect on unemployment?

In times of high unemployment the federal government debt is increased as it tries to spend its way out of a recession. Once inflation and GDP increase then unemployment levels decrease. But it is important to note that increased federal social benefit payments does not lead to lower unemployment.

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