Term Project Report:

The effect of unemployment of crime

Table of Contents

Background Regression Analysis Conclusion References Data

3-4 5-6 7 8 9

What affects do the unemployment rates have on crime level?

1. Purpose Statement
The purpose of this project is to determine how the rate of criminal activity (CRIME) is affected by the rate of unemployment (UNEMP), while also considering the affects of the fluctuation of Consumer Price Index (CPI). This study uses a The

time-series analysis with 30 annual observations, from 1969 to 2009.

information was taken from several sources; considering mainly: The Bureau of Labor Statistics and The Bureau of Justice web site. The model is:

CRIME = UNEMP+CPI

2. Definition of Variables
The dependent variable is defined as the Crime Rate (CRIME). This will take into account the annual rate of both violent and property crimes committed during a measurable time period, of 1970 to 2001. The independent variables are:

UNEMP (Unemployment Rate) This variable was chosen because when the lack of available opportunity exists to provide income and the means to provide for ones self and/or a family, it puts a negative pressure on an individual to resort to basic survival. We will look at the corresponding annual rate of unemployment over a period of time, from 1970 to 2001.

CPI is Consumer Price Index, which measures changes through time in the price level of consumer goods and services purchased by households. This variable was chosen because it is a determinant for the level of prices paid by urban consumers for a market basket of

consumer goods and services, which turns signifies how out of reach basic goods and services might be for those without resources of income. We will look at the corresponding annual consumer price

index over a period of time, from 1970 to 2001. The relationship between CRIME and the independent variables should be a positive one because when the unemployment rate and the consumer price index decreases, it increase the ability of the households to obtain goods and services, as mentioned before, puts reduces the pressure on the individual to resort to criminal activity.

3. Data Description
The data obtained for the purpose of this report was compiled by obtaining a sample of 30 years and obtaining an annual rate for CRIME, which includes both violent and property crimes. These statistics were obtained from the Bureau of

Justice and the online data collection. In addition, the independent variables data obtained include the rate of unemployment and consumer price index for each year selected, which was obtained from the U.S. Bureau of Labor.

4. Regression Analysis
The model was calculated using one period = 1 year for the CRIME variable. The results are shown in the table below: Crime = UNEMP(138.371725) +CPI (2.291143153)
Table 1

Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total Results Intercept Unemployment Rate Consumer Price Index

0.61890257 0.383040391 0.340491453 251.618294 32 df 2 29 31 Coefficients 1442.327763 138.3717525 2.291143153 SS 1139909 1836041 2975950 Standard Error 271.7669 33.31553 1.06965 MS 569954.6 63311.77 F 9.002349 Significance F 0.000909332

t Stat 5.307223 4.15037 1.06965

P-value 1.08E-05 0.000266 0.040725

The results of the regression analysis were close to expectations.

As

projected, there is a positive relationship between CRIME and the independent variables UNEMP and CPI. This indicates that as the rate of UNEMP and CPI (cost of goods) increases, the rate of CRIME will increase. We can also see that there is a stronger statistical significance for the relationship between CRIME and the variable UNEMP, while a weak statistical relationship between CRIME and the variables CPI exist. little to no correlation between the independent variables.
Table 2

In addition, there is a

Average Crime Rate Average Crime Rate UNEMP CPI 1 0.534259935 0.128746083

Unemployment Rate 1 -0.314181485

Consumer Price Index

We can also see through the meaning of t and/or P-Value how important the independent variables are to the dependent variable. In this case, the rate of UNEMP shows that the independent variable is very significant. While on the other hand, CPI could be considered a less significant independent variable. The value of Adjusted R2 of 0.3405 indicates that approximately 34.1% of the total variation in the dependent variable has been accounted for by the independent variables. Due to the level of significance of the independent variable, CPI, a second regression calculation was performed in which only CRIME (dependent) and UNEMP (independent) were recorded. The results are as follows: Crime = UNEMP(115.8516423)
Table 3

Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total Results Intercept Unemployment Rate

0.534259935 0.285433679 0.261614801 266.240114 32 df 1 30 31 Coefficients 1827.941247 115.8516423 SS 8494369.478 2126513.949 2975950.427 Standard Error 215.4157858 33.46649509 MS 849436.478 70883.79831 F 11.98350679 Significance F 0.001634512

t Stat 8.485642037 3.461720206

P-value 1.080852E09 0.001634512

In this regression where only the variable UNEMP was recorded, the coefficients and the t are positive, which still indicates that as the rat of UNEMP increases, the rate of CRIME will increase respectively. The significance of t tells us that the independent variable does have significance to the dependent variable.

However, the value for Adjusted R2 using the single variable decreased to 0.2616, which shows that only 26.2% of the total variation in the dependent variable has been accounted for by the independent variable. This reduction in this value indicates that the single variable might not fit the model as well as with the original two independent variables.

5. Conclusion
After evaluating the results of the two regressions, I arrived at the following conclusions:

1. The results on the first regression should not be improved. Despite the fact
that both outputs show a positive relationship between the independent and dependent variable, the positive relationship of the variables as well as the Adjusted R2 did not improve at all in the second regression.

2.

In fact the Adjusted R2 actually decreases significantly in the second regression, indicating that the data does not fit the function as well.

3. A positive correlation between the rate of CRIME and UNEMP and CPI existed
according to the results on the first regression even though CPI seemed to have less significance over the dependent variable. So, it might not affect the rate of the CRIME as much as the variable UNEMP does.

4. While the low R-Square value indicates additional variables could be added to
strengthen the model we can assert that the rate of CRIME is influenced by the rate of Unemployment and the Price of Goods.

6. Works Cited Page

1. Economic Report of the President 2010 pages 371-410. Retrieved on September 15, 2010 from: http://www.whitehouse.gov/sites/default/files/microsites/economic-reportpresident.pdf 2. Historical US Unemployment and Consumer Price Index Data Table Retrieved on September 9, 2010 from: http://www.bls.gov/data/ 3. Historical US Crime Rate Data Table Retrieved on September 9, 2010 from: http://bjs.ojp.usdoj.gov/dataonline/ 4. Raphael, S. & Winter-Ebmer R. [2001]. Identifying the Effect of Unemployment on Crime. Journal of Law and Economics

7. Data (see attached worksheet)

EC315 TermPaper Data-MSem rick.xls