The New York Times ran an article last Friday proclaiming good news:
In the best report since the recession began two years ago, only 11,000 jobs disappeared last month, the government said on Friday, and the unemployment rate actually dipped, to 10 percent, from 10.2 percent the previous month.
Leaving aside the question of when the recession actually began, this doesn’t actually support the piece’s positive-thinking opening paragraph:
The nation’s employers not only have stopped eliminating large numbers of jobs, but appear to be on the verge of rebuilding the American work force, devastated by the recession.
“The rate of job destruction slowed” does not equal “the jobs are all about to come back,” even on its face. And here’s the kicker: what the numbers seem to say on their face isn’t what they actually say when you look at them closely. Rather, thanks to Simpson’s Paradox, the nature of aggregate statistics means that the overall unemployment rate makes things look better than they are. The Wall Street Journal explains:
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.
“It’s the magic of weighted averages,” says Princeton University economics professor Henry Farber. “We have more skilled workers than we had before, and more-skilled workers are less susceptible to unemployment.” Still, he adds, compared with a similarly educated worker in 1983, “the worker today has higher unemployment at every education level.”
In other words, regardless of the overall statistic, whoever you are, your chances of being unemployed now are greater, the unemployment rate is higher for people like you, now than in the depths of the recession of 1982-83. Which suggests that before you buy into the NYT’s optimism, you might want to look into the underlying numbers and see if they bear that optimism out.