Beware of simple figures

Many numbers reflect more than one obvious trend — sometimes even its exact opposite.

Noga O'Connor
Noga O'Connor

In the last couple of years, many Americans have turned into consumers of figures that tell us how the economy is doing, and many of us can quote figures of unemployment, foreclosures and home sales. But numbers are never simple, and reducing some economic trends into a single figure may be misleading.

Let’s take, for example, earnings data. Should we assume that the economy is getting stronger if weekly earnings go up? Interestingly enough, that could be the wrong assumption. As struggling employers choose to lay off more workers, they usually opt to dismiss workers on the low end of the earnings scale, resulting with the earnings average and median going up. Thus, a rise in earnings is more likely to reflect an economic weakening than an economic strength.

Hourly earnings data may be misleading as well, as it does not account for the impact of the recession on weekly work hours. Throughout recessions, employers cut down on hours, and the labor market share of part-time workers goes up. In this case, 40 states are showing a drop in the average number of weekly work hours between 2007 and 2009. When looking only at hourly earnings, though, a very different picture emerges:  the average hourly pay rose in 48 states between 2007 and 2009. Which one is it then? The bleak work hours figure, or the encouraging hourly pay figure?

This is a puzzle we should keep in mind whenever we consume, and then recite, workforce figures. Many numbers have the potential to reflect more than one obvious trend – sometimes even its exact opposite.

Posted by Noga O’Connor, Research Associate

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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