Consider the following regression results.* (The actual data are in Table 9.7.)
U^Nt = 2.7491 + 1.1507Dt - 1.5294Vt - 0.8511(DtVt)
t = (26.896) (3.6288) (-12.5552) (-1.9819)
R2 = 0.9128
|
|
Unem-
|
Job
|
|
|
|
Unem-
|
Job
|
|
Year
|
ployment
|
vacancy
|
|
|
Year
|
ployment
|
vacancy
|
|
and
|
rate UN,
|
rate V,
|
|
|
and
|
rate UN,
|
rate V,
|
|
quarter
|
%
|
%
|
D
|
DV
|
quarter
|
%
|
% D DV
|
|
|
TABLE 9.7 DATA MATRIX FOR REGRESSION, IN EXERCISE 9.3
|
1958-IV
|
1.915
|
0.510
|
0
|
0
|
1965-I
|
1.201
|
0.997
|
0
|
0
|
|
1959-I
|
1.876
|
0.541
|
0
|
0
|
-II
|
1.192
|
1.035
|
0
|
0
|
|
-II
|
1.842
|
0.541
|
0
|
0
|
-III
|
1.259
|
1.040
|
0
|
0
|
|
-III
|
1.750
|
0.690
|
0
|
0
|
-IV
|
1.192
|
1.086
|
0
|
0
|
|
-IV
|
1.648
|
0.771
|
0
|
0
|
1966-I
|
1.089
|
1.101
|
0
|
0
|
|
1960-I
|
1.450
|
0.836
|
0
|
0
|
-II
|
1.101
|
1.058
|
0
|
0
|
|
-II
|
1.393
|
0.908
|
0
|
0
|
-III
|
1.243
|
0.987
|
0
|
0
|
|
-III
|
1.322
|
0.968
|
0
|
0
|
-IV
|
1.623
|
0.819
|
1
|
0.819
|
|
-IV
|
1.260
|
0.998
|
0
|
0
|
1967-I
|
1.821
|
0.740
|
1
|
0.740
|
|
1961-I
|
1.171
|
0.968
|
0
|
0
|
-II
|
1.990
|
0.661
|
1
|
0.661
|
|
-II
|
1.182
|
0.964
|
0
|
0
|
-III
|
2.114
|
0.660
|
1
|
0.660
|
|
-III
|
1.221
|
0.952
|
0
|
0
|
-IV
|
2.115
|
0.698
|
1
|
0.698
|
|
-IV
|
1.340
|
0.849
|
0
|
0
|
1968-I
|
2.150
|
0.695
|
1
|
0.695
|
|
1962-I
|
1.411
|
0.748
|
0
|
0
|
-II
|
2.141
|
0.732
|
1
|
0.732
|
|
-II
|
1.600
|
0.658
|
0
|
0
|
-III
|
2.167
|
0.749
|
1
|
0.749
|
|
-III
|
1.780
|
0.562
|
0
|
0
|
-IV
|
2.107
|
0.800
|
1
|
0.800
|
|
-IV
|
1.941
|
0.510
|
0
|
0
|
1969-I
|
2.104
|
0.783
|
1
|
0.783
|
|
1963-I
|
2.178
|
0.510
|
0
|
0
|
-II
|
2.056
|
0.800
|
1
|
0.800
|
|
-II
|
2.067
|
0.544
|
0
|
0
|
-III
|
2.170
|
0.794
|
1
|
0.794
|
|
-III
|
1.942
|
0.568
|
0
|
0
|
-IV
|
2.161
|
0.790
|
1
|
0.790
|
|
-IV
|
1.764
|
0.677
|
0
|
0
|
1970-I
|
2.225
|
0.757
|
1
|
0.757
|
|
1964-I
|
1.532
|
0.794
|
0
|
0
|
-II
|
2.241
|
0.746
|
1
|
0.746
|
|
-II
|
1.455
|
0.838
|
0
|
0
|
-III
|
2.366
|
0.739
|
1
|
0.739
|
|
-III
|
1.409
|
0.885
|
0
|
0
|
-IV
|
2.324
|
0.707
|
1
|
0.707
|
|
-IV
|
1.296
|
0.978
|
0
|
0
|
1971-I
|
2.516*
|
0.583*
|
1
|
0.583*
|
|
|
|
|
|
|
-II
|
2.909*
|
o.524*
|
1
|
0.524*
|
where UN = unemployment rate, %
V = job vacancy rate, %
D = 1, for period beginning in 1966-IV
= 0, for period before 1966-IV
t = time, measured in quarters
Note: In the fourth quarter of 1966, the then Labor government liberal- ized the National Insurance Act by replacing the ?at-rate system of short- term unemployment bene?ts by a mixed system of ?at-rate and (previous) earnings-related bene?ts, which increased the level of unemployment bene?ts.
a. What are your prior expectations about the relationship between the unemployment and vacancy rates?
b. Holding the job vacancy rate constant, what is the average unemploy- ment rate in the period beginning in the fourth quarter of 1966? Is it statistically different from the period before 1966 fourth quarter? How do you know?
c. Are the slopes in the pre- and post-1966 fourth quarter statistically dif- ferent? How do you know?
d. Is it safe to conclude from this study that generous unemployment bene?ts lead to higher unemployment rates? Does this make economic sense?