The data shown in Table 4.15 shows average weekly earnings for all adults, weekl
ID: 3299774 • Letter: T
Question
The data shown in Table 4.15 shows average weekly earnings for all adults, weekly rate of unemployment benefit for adults and the retail price index for the UK for the period 1994-2003.
Using this data comment on any trends in earnings and benefits. Do you think the RPI is the most appropriate index for deflating the unemployment benefit series?
Table 4.15- Earnings, unemployment benefit, retail price index: UK
Weekly
Average
weekly Unemployment
earnings £ benefit £
RPI 1987=100
1994
325.7
45.45
144.1
1995
336.3
46.45
149.1
1996
351.7
48.25
152.7
1997
367.6
49.15
157.5
1998
384.5
50.35
162.9
1999
400.1
51.40
165.4
2000
416.0
52.20
170.3
2001
441.0
53.05
173.3
2002
461.1
53.95
176.2
2003
472.5
54.65
181.3
Note: Unemployment benefit was replaced in October 1996 by the Jobseeker’s allowance.
Data available in file 4X9.
Weekly
Average
weekly Unemployment
earnings £ benefit £
RPI 1987=100
1994
325.7
45.45
144.1
1995
336.3
46.45
149.1
1996
351.7
48.25
152.7
1997
367.6
49.15
157.5
1998
384.5
50.35
162.9
1999
400.1
51.40
165.4
2000
416.0
52.20
170.3
2001
441.0
53.05
173.3
2002
461.1
53.95
176.2
2003
472.5
54.65
181.3
Explanation / Answer
Solution
Let
x = average weekly earnings for all adults,
y = weekly rate of unemployment benefit for adults and
z = the retail price index
Using Excel Function on correlation coefficient, the correlation coefficient, r1 between x and y is found to be 0.9831, which is quite high suggesting that there is a positive trend in earnings and benefits. This is further strengthened by the fact that r12 = 0.9665 which implies that 96.65% of variation in benefits is explained by earnings.
Similarly, Excel Function on correlation coefficient shows that the correlation coefficient, r2 between y and z is 0.9961, which is quite high suggesting that RPI can be effectively employed for deflating the unemployment benefit series. Further, the fact that r22 = 0.9922 implies that 99.22% of variation in benefits is explained by RPI.
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