Monday, December 14, 2009

Simpson's Paradox Strikes Again

The Wall Street Journal published a recent article on Simpson's paradox and the jobless rate in the USA. When aggregated, the jobless rate is lower today than in the 1980s; however, when broken down by educational levels, the jobless rate for each educational group is higher. How can this be? The reason the overall rate is higher today is because college graduates, who tend to have a lower unemployment rate than other groups even in good economic times, are a larger proportion of the population today than in the past. Thus, the weighted average across all educational groups is weighted much more by college graduates today than in the 1980s, lifting the overall unemployment rate higher even though all educational groups are faring worse.