Shifting Mix is Often Ignored as the Reason Behind A Shifting Mean











  1. bloke in france:


  2. paul:

    If an above median wage employee in Mexico moves to the US for a better paying job, but one below the median wage, then the median wage in both countries goes down but the person is better off. Nice paradox.

  3. cc:

    Some other aspects of the mix problem:
    Labor participation worries people. However, if you include people who have retired as "not participating", then generous pensions plus wealth that have allowed more people to retire early causes labor participation to go down.
    Likewise, if people are better off, this may cause more wives to be able to stay home (not forced to), thus reducing female labor participation in particular. Also, when families are better off they may decide to take their teenagers on vacation or have them take classes rather than getting a summer job--teenage "unemployment" goes up. I have noticed it being increasingly hard to find teens to do yard work--but that is just my experience.
    The US age distribution is never uniform. A bulge in young or older workers will distort average wages.
    A bulge in young people will cause home ownership % to fall since they are not ready to buy. This is not a "problem" that the gov needs to fix.
    A bulge in retirees will cause average wages to fall since they are living on pensions--but also are not paying for kids or trying to save for retirement. $70,000 annual income for a retiree is much more than for a 45 yr old with kids in college.
    All of these distribution effects tend to be ignored by the press and may falsely be claimed to be a "problem".

  4. antognini:

    In statistics this is known as Simpson's paradox. The most famous example was in a lawsuit alleging gender bias in graduate admissions at UC Berkeley. Overall, women had a lower acceptance rate to graduate programs than men. But nearly every department on its own actually had higher admission rates for women than men. It turned out that women applied to more competitive programs in greater numbers, so although they had higher admission rates to those particular programs than men, they had lower admission rates overall.

  5. stan:

    Point taken. However, using the unemployment rate to conclude that labor markets are tight is foolish.

  6. TruthisaPeskyThing:

    I have heard your line of argument used a lot to down play problems in unemployment and underemployment in the last 8 years. I think the analysis you present assumes a lot without data to back up your wishful assumptions. For example, your cases of generous pension plans allowing earlier retirement and women deciding to stay home. Yes, those movements would lower participation rates for "admirable and positive" reasons. However, such conjecture is more wishful thinking than reality. The labor participation rates for those over 55 -- and especially those over 62 -- have soared in the last 8 years. The plummeting labor participation rates is coming in the ages 25-54. Also, women with children are not decreasing their labor participation rates. Therefore, we have had PROBLEMS in the last 8 years.
    You are right in regards to average wages -- and that is a point that Coyote was making. As a bulge in workers retire, wage earnings will decrease because remaining workers will have less experience and command lower wages. However, that is not nearly the entire story. We have issues because lower educated people are now competing in a global market, and their wages are not keeping up with inflation. We seem to have a huge chunk of the population that apparently thinks that working at McDonald's should be sufficient to take care of a family.
    By the way, finance and tax experts have become much more sophisticated over the past few decades. The more educated workers often find ways to take income not in the form of wages -- so that depresses the reported level of wages in the U.S.