2009 versus 1982 – which year really has the higher unemployment rate?

In October, the United States unemployment rate reached 10.2 percent. In November and December of 1982, the unemployment rate peaked at 10.8 percent. So which is worse – our current economy or the recession in the early 1980s? The answer lies in a Wall Street Journal article titled, “When Combined Data Reveal the Flaw of Averages”.

Looking at the percentage, the 1982 unemployment rate is higher; however, these percentages are misleading due to a statistical anomaly called Simpson’s Paradox. Cari Tuna, the author of the article, explains:

“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.”

Tuna discusses the research of Princeton University economics professor Henry Farber who analyzed data from the Labor Department:

“The reason the current overall rate looks better: College graduates, who have the lowest unemployment rate, are now more than a third of the work force, compared with roughly 25% in 1983, says the Labor Department. Meanwhile, the share of high-school dropouts has shrunk to roughly 10% of the work force, from nearly 20% in 1983.

That means the paradox will persist until the total current unemployment rate surpasses the high watermark of the early 1980s. Economists don’t expect the November unemployment rate — due out Friday — to reach those heights.”

This anomaly doesn’t just exist in unemployment rates but in a variety of fields – including baseball batting averages, flight-delay data and university admission rates. For more examples of Simpson’s Paradox, check out the article here.

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