Description

Assignment 1 (Labour Economic 8160)

Due 10pm, Tuesday, Oct. 6

Note: This assignment requires you to use Excel and STATA. Please submit your answer to the questions below. You also need to submit the STATA do file and log file. Please combine all files into a single PDF file.

Total mark: 40 marks

To answer the questions in A to D, you need to do the followings first:

1) Download the following time-series (monthly frequency) from FRED (Federal Reserve Economic Data) from 2000M12 to 2020M7.

a. Unemployment Level (both level and rate)

b. Job Openings: Total Nonfarm (both level and rate)

c. Number of Civilians Unemployed for Less Than 5 Weeks

d. Civilian Employment Level

2) Construct the time series for labour market tightness, job finding rate and job separation rates using the downloaded time-series.

Now consider the following four periods. Period 1: prior to the Great Recession (2000M12 to 2007M12); Period 2: the period after the Great Recession but prior to Covid-19 (2010M1 to 2020M2); Period 3: Great Recession period (2008M1 to 2009M12); Period 4: Covid-19 period (2010M3 to 2020M7).

A)     Compute the sample average for these periods and fill out Table 1 below. Comment on any labour market differences you have noticed across the four periods. (10 marks)

Table 1: Sample Average (Monthly Frequency)

Following the procedure used in class, convert all monthly data to quarterly data. Questions B)-D) are based on the quarterly data that you have constructed. B)-D) are about labour market fluctuations at the business cycle frequency and focus solely on Period 1 and Period 2 (excluding Great Recession and Covid-19 period).

B)     Using the procedure used in class, construct the trend and cyclical components of the following variables: unemployment (level), vacancy (level), tightness, job finding rate and job separation rate. Plot out the trend and cyclical components for each of them (use Figures in Slides 7 and 8 in lecture 2 as examples). Conduct the exercise for Periods 1 and 2. (10 marks)

C)     Slide 13 in Lecture 2 presents a table containing the volatilities of de-trended unemployment and vacancy time-series for 2000-20 and the correlation of these two variables. Construct a similar table containing all five labour market variables (the cyclical component of each variable): unemployment, vacancy, tightness, job finding rate and job separation rate. Conduct this exercise for Periods 1 and 2. (10 marks)

D)     Based on your graphs and tables in B) and C), comment on the labour market differences at the business cycle frequency (if any) between Period 1 and Period 2, that is, between the period prior to Great Recession and the period after the Great Recession. (10 marks)