Political Party Unemployment Econ 240A Professor Llad Phillips Group 5 Richard Baker Michael Jelmini Kenneth Morino Cambria Price You Ren James Young Objective Why Upcoming graduation Recent recession Recent increase in unemployment What Is there a correlation between unemployment and presidential party affiliation How Time series data of national unemployment rate Bernoulli distribution of party affiliation Hypothesis H0 When a republican is in presidential office the unemployment rate is higher than when a democrat is in office Ha There is no correlation between the political affiliation of the president and the unemployment rate Collected Data Unemployment Data from 1947 2002 Bureau of Labor Statistics http stats bls gov Presidential Party Affiliations The White House http www whitehouse gov history presidents Meet the Presidents Presidential Party Affiliation Time Series Data of Unemployment Rates Unemployment vs Presidential Party Affiliation 10 8 Democrat 6 Republican 4 2 Year 1999 1995 1991 1987 1983 1979 1975 1971 1967 1963 1959 1955 1951 0 1947 Unemployment 12 Linear Probability Model Regression Results Dependent Variable DEMOCRAT Method Least Squares Date 11 20 03 Time 14 34 Sample 1947 2002 Included observations 56 Variable Coefficient Std Error t Statistic Prob UNEMPLOYMENT C 0 117549 1 104073 0 041758 0 242009 2 815034 4 562109 0 0068 0 0000 R squared Adjusted R squared S E of regression Sum squared resid Log likelihood Durbin Watson stat 0 127969 0 111820 0 472744 12 06828 36 48697 0 626808 Mean dependent var S D dependent var Akaike info criterion Schwarz criterion F statistic Prob F statistic 0 446429 0 501621 1 374535 1 446869 7 924418 0 006793 Linear Probability Model Analysis Problem LPM not constrained within 0 P x 1 Solution model with Probit Model with Probit Probability President is Democrat Probability of Democrat President Given Unemployment Rate 1 2 1 0 8 Data Points 0 6 Logit Model 0 4 0 2 0 0 2 4 6 8 Unemployment Rate 10 12 Probit Regression Results Dependent Variable DEMOCRAT Method ML Binary Probit Quadratic hill climbing Date 11 20 03 Time 14 35 Sample 1947 2002 Included observations 56 Convergence achieved after 4 iterations Covariance matrix computed using second derivatives Variable Coefficient Std Error z Statistic Prob UNEMPLOYMENT C 0 348600 1 783351 0 132693 0 741412 2 627109 2 405344 0 0086 0 0162 Mean dependent var S E of regression Sum squared resid Log likelihood Restr log likelihood LR statistic 1 df Probability LR stat 0 446429 0 473574 12 11073 34 53379 38 49420 7 920804 0 004887 Obs with Dep 0 Obs with Dep 1 31 25 S D dependent var Akaike info criterion Schwarz criterion Hannan Quinn criter Avg log likelihood McFadden R squared Total obs 0 501621 1 304778 1 377112 1 332822 0 616675 0 102883 56 Further Analysis Is there an unemployment rate overlap due to previous presidential party affiliation If so how much overlap 1 year 2 years Will these models produce a better worse correlation Year 1999 1999 1995 1995 1991 1991 1987 1987 1983 1983 1979 1979 1975 1975 1971 1971 1967 1967 1963 1963 1959 1959 1955 1955 1951 1951 1947 1947 Unemployment One Year Forward Lag After Before 12 10 8 6 Democrat Republican 4 2 0 Probit Model of One Year Lag Probability of Democrat President Given Unemployment Rate One Year Lag Probability President is Democrat 1 2 1 0 8 0 6 Data Points 0 4 Probit Model 0 2 0 0 2 0 2 4 6 8 Unemployment Rate 10 12 One Year Lag Results Dependent Variable LAG1 Method ML Binary Probit Date 11 20 02 Time 21 14 Sample 1947 2002 Included observations 56 Convergence achieved after 4 iterations Covariance matrix computed using second derivatives Variable Coefficient Std Error z Statistic Prob UNEMPLOYMENT C 0 590586 3 162821 0 162483 0 905592 3 634743 3 492545 0 0003 0 0005 Mean dependent var S E of regression Sum squared resid Log likelihood Restr log likelihood LR statistic 1 df Probability LR stat 0 464286 0 430697 10 01698 29 67623 38 67326 17 99407 2 22E 05 Obs with Dep 0 Obs with Dep 1 30 26 S D dependent var Akaike info criterion Schwarz criterion Hannan Quinn criter Avg log likelihood McFadden R squared Total obs 0 503236 1 131294 1 203628 1 159338 0 529933 0 232642 56 Year Year 1999 1999 1991 1991 1995 1995 1987 1987 1983 1983 1979 1975 1971 1967 1963 1959 1955 1951 1947 Unemployment Unemployment Two Year Forward Lag After Before 12 12 10 10 88 66 Democrat Republican 44 22 00 Probit Model of Two Year Lag Probability of Democrat President Given Unemployment Rate Two Year Lag Probability President is Democrat 1 2 1 0 8 0 6 Data Points 0 4 Probit Model 0 2 0 0 2 0 2 4 6 8 Unemployment Rate 10 12 Two Year Lag Results Dependent Variable LAG2 Method ML Binary Probit Date 11 20 02 Time 21 16 Sample 1947 2002 Included observations 56 Convergence achieved after 3 iterations Covariance matrix computed using second derivatives Variable Coefficient Std Error z Statistic Prob UNEMPLOYMENT C 0 411472 2 257277 0 126972 0 733633 3 240644 3 076846 0 0012 0 0021 Mean dependent var S E of regression Sum squared resid Log likelihood Restr log likelihood LR statistic 1 df Probability LR stat 0 482143 0 448275 10 85131 32 90499 38 78052 11 75107 0 000608 Obs with Dep 0 Obs with Dep 1 29 27 S D dependent var Akaike info criterion Schwarz criterion Hannan Quinn criter Avg log likelihood McFadden R squared Total obs 0 504203 1 246607 1 318941 1 274650 0 587589 0 151507 56 Conclusions A significant correlation between unemployment rate and political party affiliation was discovered A stronger correlation was found when applying a one year lag and to a lesser degree a two year lag on this relationship Overall we conclude from our data that unemployment is significantly greater when a Republican president is in office when compared to a Democrat
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