Tuesday, December 8, 2009

When is 10.2 > 10.7?

Apparently during the current recession. Let me explain. According to current statistics, the average unemployment rate was 10.2% in October (now 10.0). In 1983, the unemployment rate peaked at about 10.8%. There have been a lot of bogus comparisons of the current recession to past ones designed to support the claim that the current recession is somehow "worse" than previous ones by looking at the change in jobs instead of the total number of jobs.
But, it turns out that there might be a good reason to believe that these folks are correct, even if their metric is bad. If we disaggregate by education (or age), we find that the unemployment rate now is higher at every level of education than it was at the peak of the 1982-4 recession. How? Simpson's paradox. Demographics have shifted towards an older, more educated work force. Older, more educated workers have historically enjoyed lower rates of unemployment.

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