Understanding the Factors Affecting the Unemployment Rate Through Regression Analysis

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Understanding the Factors Affecting The Unemployment Rate Through Regression Analysis An Individual Report Presented to The Faculty of Economics Department

In Partial Fulfillment To The Requirements for ECONMET C31

Submitted to: Dr. Cesar Rufino

Submitted by: Aaron John Dee 10933557

April 8, 2011
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TABLE OF CONTENTS

I. INTRODUCTION A. Background of the Study B. Statement of the Problem C. Objective II. THEORETICAL FRAMEWORK AND RELATED LITERATURE A. GDP B. Average Years in School C. Population D. Literacy Rate III. OPERATIONAL FRAMEWORK A. Model Specification B. List and Description of Variables C. A-priori Expectations IV. METHODOLOGY V. EMPIRICAL RESULTS AND INTERPRETATIONS A. Regression of the Original Model

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B. Summary Statistics C. Testing for Misspecification in the Model D. Testing for Multicollinearity E. Testing for Heteroscedasticity VI. CONCLUSION VII. BIBLIOGRAPHY

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I. INTRODUCTION
A. Background of the Study When we were still kids, we dream of what we want to be in the future. Older people will usually ask us if what we want to be in the future. Most of us will say, they want to be a doctor, lawyer or engineer to name some. We think and think about our career, but once we are already in the college level, we now dream to become successful in life and have a stable job. But with the rate of unemployment here in country continue to increase, there are no guarantee that once we graduated we will have a job immediately. Unfortunately, many still fail to have stable jobs. Some even can’t find a job even though they graduated from top schools. Then we found ourselves ending in the pool of unemployment. Unemployment is indeed a very important issue all over the world. People are getting laid off, some cannot find a job, and the number is increasing. Government wants to achieve full employment but we all know that it will never happen simply because there are millions of people in country and the government or even the private sectors can provide for that huge number of laborers. The government cannot just expand and increase total output so that it will provide job opportunities to the unemployed because there also negative impact on the economy. I am aware that our country is suffering from high unemployment rate, because some workers are only on a contractual basis. Sure they can work but usually it is only for 6 months plus there are no benefits included. After the span of 6 months, they will find themselves unemployed again and they will have a difficult time especially if they did not finish schooling. Companies now a day are more sophisticated and competitive, they don’t just hire college

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graduate students even if you graduated from top schools. Having a master’s degree will surely be of help in finding a job for companies look only for the best. Some people engage in work that they are not inclined with like for past year, people work as call center agents even though their college degree is not mass communications or anything that has a connection of being a call center agent. They do this because they don’t want to be unemployed and do nothing for an extended period of time.

B. Statement of the Problem Unemployment is very important issue, not just here in our country but also for the rest of the world. This paper will seek to answer whether the literacy rate, average years in school, GDP and total population have a relationship with the total unemployment. Can these exogenous variables explain the unemployment that is happening all over the world?

C. Objective The objective of this paper is to (1) find out what are the determinants of unemployment. For this study, literacy rate, average years in school, GDP and total population will be considered as a determinant of unemployment. (2) Create an econometric model that will explain unemployment and (3) to give the readers idea what should be done to...
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