Thursday, January 28, 2010

"Simpson's Paradox" and comparing this recession with the early 1980s

From Cari Tuna in the WSJ (hat tip: Linda Christiansen)...

Is the current economic slump worse than the recession of the early 1980s?

Measured by unemployment, the answer appears to be no, or at least not yet. The jobless rate was 10.2% in October, compared with a peak of 10.8% in November and December of 1982.

But viewed another way, the current recession looks worse, not better. The unemployment rate among college graduates is higher than during the 1980s recession. Ditto for workers with some college, high-school graduates and high-school dropouts....

So how can the overall unemployment rate be lower today but higher among each group? The anomaly is an example of Simpson's Paradox -- a common but misleading statistical phenomenon rooted in the differing sizes of subgroups. Put simply, Simpson's Paradox reveals that aggregated data can appear to reverse important trends in the numbers being combined.

The jobless rates for each educational subgroup are higher today, but the overall rate is lower because workers are more educated. There are more college graduates, who have the lowest unemployment rate. And there are fewer high-school dropouts, who have the highest unemployment rate....


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