Simpson’s Paradox helps us understand US median wage trends

coins-currency-investment-insurance-128867Although we discussed Simpson’s Paradox in class, it still amazes me that it is at all possible for a trend to appear in different groups of data but disappear (or reverse) when these groups are combined. I especially could not believe how difficult it was to make our own example of Simpson’s Paradox. In fact, Cheyli and I went through several attempts before we made a functioning table for the in-class activity. My bewilderment, however, made me curious. So I asked myself, “What are some real-world scenarios influenced by Simpson’s Paradox?”

One of the most frequent examples I found while researching was the case of the US median wage. As outlined in this New York Times article, the median US wage has risen about 1 percent (adjusted for inflation) since 2000. However, over the same period, the median wage for high school dropouts, high school graduates with no college education, people with some college education, and people with a Bachelor’s degree or higher have all fallen.

This blog post from Revolution Analytics does a nice job of explaining how this is possible. According to the author, David Smith, part of the explanation, is that the education profile of the workforce has changed over the last two decades. There are now more college graduates than there were in 2000, and wages for this group have declined at a slower rate than the other groups I mentioned above—high school dropout, high school graduates only, and some college. As of 2013, wages for college graduates were down 1.2 percent, while wages for high school drop outs have fallen 7.9 percent in comparison. Essentially, growth in the proportion of college graduates overwhelms the wage decline for specific groups. There appears to be less of a decline overall because there are more people in the group that had the smallest decline in media wage.

–On a quick side note, most of the information and articles I found on this topic were over four years old. While I do not think this impacts our understanding of the scenario, it is important to note that this data may be out of date.–

An interesting takeaway from my research, is that Simpson’s Paradox reflects the fact that your perception of events can change depending on your viewpoint. It shows that while a headline might read, “Wages are increasing” that is not the reality for many people. At the end of the day, there can be a large discrepancy between what is reported by economists and journalists and what is being experienced by everyday citizens. Food for thought.

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