Navigate to Explore Hypotheses, View Visualizations and Dashboards, and Open Jupyter Notebooks:

Hypothesis 5 (Labor Force Participation & Economic Cycles)

  • Hypothesis 5: “The labor force participation rate (LNU02300000) decreases during economic recessions and increases during periods of economic recovery.”
  • Rationale: During recessions, people might drop out of the labor force due to discouragement, and return during recoveries.

PROJECT GLOSSARY:

COMING SOON – follow links to read informative blog posts:

FREDtools

The line chart visualizes the Employment-Population Ratio (LNU02300000) over time, emphasizing the changes during recession periods (highlighted in magenta). Key takeaways from this chart include:

  • Employment-Population Ratio (Cyan Line): This metric represents the percentage of the population that is employed. The chart reveals notable fluctuations over time, with particularly sharp declines during recession periods, such as the global financial crisis in 2008 and the COVID-19 pandemic in 2020.

  • Recession Shading (Magenta): The shaded magenta bars indicate periods of economic recession. These periods consistently align with significant drops in the employment-population ratio, suggesting that recessions have a direct negative impact on employment.

Observations:

  1. Sharp Declines in Recession Periods: The employment-population ratio drops sharply during recessions, demonstrating the sensitivity of employment to economic downturns.
  2. Post-Recession Recovery: The employment-population ratio shows a tendency to recover post-recession, though the recovery time varies based on the severity of the recession and other economic factors.
  3. Long-Term Trends: Over the long term, the employment-population ratio generally trends upwards, but recession periods create distinct troughs that highlight employment vulnerabilities during economic downturns.

The box plot compares the distribution of the Employment-Population Ratio during recession periods (recession = 1) and non-recession periods (recession = 0). Key takeaways from this visualization include:

  • Non-Recession Periods (Cyan): The box plot for non-recession periods shows a higher median Employment-Population Ratio, with a relatively tighter range of values, suggesting more stability during periods of economic growth.

  • Recession Periods (Magenta): The box plot for recession periods reveals a lower median Employment-Population Ratio, with a wider spread of values. This indicates greater variability and a drop in employment during economic downturns.

Observations:

  1. Lower Median During Recessions: The median Employment-Population Ratio is noticeably lower during recessions, supporting the idea that economic downturns negatively impact employment levels.
  2. Wider Spread During Recessions: The greater spread of values during recessions suggests that the employment-population ratio is more volatile in these periods, reflecting the uncertainty and job losses typically associated with economic slowdowns.
  3. Outliers: The presence of outliers in the data, particularly during recessions, indicates occasional extreme values where the employment-population ratio deviated significantly from the norm, further illustrating the impact of economic shocks.

The bar chart displays the mean Employment-Population Ratio during recession and non-recession periods.

  • The cyan bar represents the mean ratio during non-recession periods, while the magenta bar shows the mean ratio during recession periods.

  • Observations:
    The mean Employment-Population Ratio is slightly higher during non-recession periods compared to recession periods. Although the difference between the two bars appears small, this still supports the hypothesis that recessions negatively affect employment levels, as the ratio tends to decrease during economic downturns.

This chart highlights that while the impact of recessions on employment is evident, it may not be as pronounced when looking at long-term averages. However, the decrease in the ratio during recessions remains consistent with the expected trend.

The statistical summary provides key results from the t-test and linear regression analysis, which were conducted to examine the relationship between the Employment-Population Ratio and economic recessions.

  • T-statistic: The negative t-statistic of -3.5799 suggests a significant difference between the means of the Employment-Population Ratio during recession and non-recession periods.

  • P-value: The p-value of 3.6170e-04 is well below the typical significance threshold of 0.05, indicating that the observed difference between recession and non-recession employment participation is statistically significant. This supports the hypothesis that labor force participation tends to decrease during recessions.

  • R² Value: The R² value of 0.0138 reflects the proportion of variance explained by the model. This relatively low value suggests that while the relationship is significant, other factors beyond recession status likely play a substantial role in determining employment participation.

Project Brief

This project involves a detailed economic analysis using data from the Federal Reserve Economic Data (FRED) database. The study explores a variety of economic hypotheses that examine employment patterns, inflation, wage growth, and broader macroeconomic trends. By leveraging historical data, the project aims to identify significant relationships that provide insight into economic cycles and policy impacts.

One of the key hypotheses explored in this study, Hypothesis 5, examines the labor force participation rate (LNU02300000) and how it behaves during economic recessions and recoveries. The analysis aims to understand how labor force participation fluctuates in response to economic conditions, providing valuable insights into workforce dynamics during periods of economic contraction and expansion.

Project Info

Client : N/A (Personal Project)

Date : August 2024

Category : Economic/Financial