Running Rebels Losing in Employment Race



College of Business

Western Carolina University




This paper forecasts the unemployment rate in the state of Mississippi for the years 2000 and 2001.  The paper is based on utilization of the Phillips Curve and its explanation of the relationship between inflation and unemployment. The explanatory variables used are the Consumer Price Index For All Urban Consumers and the Unemployment Rate for Mississippi 1990 to 1999.  Mississippi’s unemployment is forecasted to be 5.14% in 2000 and 5.11% in 2001. The government, citizens, and industries of Mississippi should be concerned with the future of its unemployment rate.  (JEL: E24, E31)


Part 1. Introduction


This paper’s forecast horizon is two years into the future.  A short-term horizon was chosen to keep the forecast as accurate as possible.  Further forecasting is guaranteed to increase the risk of inaccuracy.  This paper forecasts Mississippi’s unemployment rate for the years 2000 and 2001.  The explanatory variables used are the Consumer Price Index and the unemployment rate.  This paper assesses the relationship between unemployment and the Consumer Price Index employing the Phillips Curve tactics.  This method of forecasting is appropriate due to the ease of use and level of comprehension.


This forecast of Mississippi’s unemployment will be helpful to those considering entering the workforce in Mississippi.  The forecast will also be useful to Mississippi’s firms by giving them an idea about the future of the state’s employment pool and wage rate.  The state government will also benefit from the forecast in areas such as unemployment compensation and job training programs.


The remainder of this paper is arranged as follows:  Part 2. displays the data used to compute the inflation rate and forecast the unemployment rate for 2000 and 2001;  Part 3. illustrates the theoretical basis for the approach utilized in forecasting the unemployment rate;  Part 4. presents the actual forecasts of the unemployment rates for 2000 and 2001;  Part 5. assesses the forecasts’ importance for the economy;  Part 6. discusses conclusions of economic policy. 


Part 2. Data


All data was taken from the website of the Federal Reserve Bank of St. Louis Federal Reserve Economic Data (FRED).  The data for Mississippi’s unemployment rate is FRED variable MSUR.  The data for the Consumer Price Index is FRED variable CPIAUCSL.  The unemployment rate is published monthly and is seasonally adjusted.  The unemployment rate is presented as a percentage of Mississippi’s total population.  The Consumer Price Index is also seasonally adjusted and is calculated from the base years of 1982-1984 = 100. 


The Phillips Curve suggests a negative relationship between inflation and unemployment.  The data for inflation was obtained from manipulation of the Consumer Price Index.  The data for inflation can be calculated by subtracting the previous Consumer Price Index from the current Consumer Price Index and then by dividing by the previous Consumer Price Index.


Both inflation and unemployment data are believed to be good variables to use in forecasting future unemployment rates.  The short-run Phillips Curve implies an inverse relationship between inflation and unemployment, suggesting that one can be used to predict the other.  Also, historical unemployment data can be analyzed and any prevailing trends can be used to aid in forecasting.  Both data variables are readily available from the website of the Federal Reserve Bank of St. Louis.


Part 3. Economic Theory

How the Phillips Curve Forecasts Unemployment


Mississippi’s monthly unemployment rates and inflation rates are used to forecast future state unemployment rates for 2000 and 2001.  The Phillips Curve estimates the relationship between inflation and unemployment.  According to A. W. Phillips theory, in the short run, inflation and unemployment are inversely related.  Thus, this paper assumes that present unemployment, (U), is a function of inflation, (I):

U = f ( I )


Since the Consumer Price Index, ( CPI ), is used as a measure of inflation ( I ), the following manipulation must occur to obtain a usable inflation rate:

I = %DCPI = [(CPI t - CPI t-1) / CPI t-1]


By substituting this definition of inflation into the Phillips Curve assumption, the following new equation demonstrates that present unemployment, (U t) is a function of past inflation,( CPI t-1):

U t = f (CPI t-1)


Subsequently, lagging the inflation rate and unemployment rate by twelve months provides the following forecasting equation used to predict the unemployment rate two years into the future:

U t = f (CPI t-12, Ut-12 )


Part 4. Empirical Results

Predictions about Mississippi’s unemployment rate for 2000 and 2001


The unemployment forecasting equation was estimated with 1990 to 1999 annual data.  The least squares regression method was used.  The results from the regression are shown in Table 1.


Table 1

Regression results of Unemployment Rate Forecasting Equation: 1990-1999

Explanatory Variable

Estimated Coefficient







Lagged Inflation




Lagged unemployment




R2 = 0.53




F-value = 52.79





The R2 value is 0.53, indicating that 53% of the variation in the unemployment data is explainable by the variation in the lagged data.  Also, the F-value of 52.79 suggests a strong relationship between the two variables.  The P-value of 1.47^-9 for lagged inflation and 2.83^-8 for lagged unemployment are far below the significance testing level of 0.05, allowing rejection of the null hypothesis which states that no relationship exists. Furthermore, considering the theories presented by the Phillips Curve, a known relationship does exist between the unemployment rate and inflation; therefore, this paper will continue with the forecast.


From the regression analysis the following forecasting equation is obtained:

U = 2.39 + 0.45Ut-12 + 21.76It-12

Using the forecasting equation, future monthly predictions were made for Mississippi’s unemployment rate and placed into Table 2.


Table 2

Forecast Unemployment for Mississippi, 2000-2001



Unemployment Rate

January 2000


February 2000



Unemployment Rate

March 2000


April 2000


May 2000


June 2000


July 2000


August 2000


September 2000


October 2000


November 2000


December 2000


January 2001


February 2001


March 2001


April 2001


May 2001


June 2001


July 2001


August 2001


September 2001


October 2001


November 2001


December 2001



Part 5. Forecast Implications

Mississippi is Losing More Ground in the Unemployment Race


Governments, industries, and individuals for making decisions at both macroeconomic and microeconomic levels use unemployment forecasts.  The unemployment forecast for Mississippi is an important measure of the performance of the state’s economy.  When the unemployment rate declines, firms hire more workers and pay higher wages.  More jobs and higher wages result in  an increase in household welfare.  Also, higher wages insinuate higher tax revenues for the state government, and there will be fewer demands on the government for unemployment compensation and welfare benefits. Unfortunately for Mississippi, this does not seem to be the case for its future.


Part 6.  Policy Conclusions

Mississippi’s Fate?



The unemployment rate for Mississippi is forecasted to fluctuate between 4.4% and 6.25% over the next twenty-four months. The averaged annual forecast for 2000, is 5.14%; the averaged annual forecast for 2001, is 5.11%.


Industry in Mississippi will benefit in the short-run from an unemployment rate that appears to lag behind the national unemployment rate. Industry will have a larger employee pool from which to select new employees and will be able to pay lower wages relative to similar industries outside of Mississippi. Eventually, employees will begin to notice better job markets in neighboring states and will possibly leave Mississippi. This will definitely decrease the size of Mississippi’s employment pool, which will hurt the industries in the long run. Industries will need to do some investigation into what factors, other than the inflation rate, are affecting the unemployment rate. A few extra dollars spent now will help to alleviate future economic problems.

The government needs to investigate the state’s high unemployment rate as well because if workers do leave Mississippi in search of better job markets, tax revenues will obviously decline. Fewer tax dollars result in fewer or lower quality of state funded programs, such as education, road maintenance, and unemployment compensation benefits. The government could possibly help improve the unemployment rate by subsidizing the use of Mississippi-made products. An increase in the demand for Mississippi-made products would cause a need for more in-state production, leading to a need for more employees. The Fed appears to be doing all it can to keep inflation steady and keep unemployment low. The problem in Mississippi appears to be an in-state economic issue.




Federal Reserve Bank of St. Louis, Federal Reserve Economic Data (FRED) (01-00), (02-25-00).