Tuesday, November 28, 2006

Averages [Non-Colorado Specific]


Averages are nice to know but sometimes I feel like a lot of people don't realize how limited they are. For example, realators seem to love using averages when talking about housing prices. Even though the median price would much better reflect what's going on in the market. I ran across this discussion of averages with an excellent example that both addresses why they're tricky and more so how a dropping average wage would have a limited meaning.


The same problem with averages arises when discussing average wage rates. The average wage rate can fall even though everyone's wages rise. Here's how. Suppose that America's average wage rate is now $18 per hour. Now suppose that many low-skilled immigrants arrive and find employment here at wages higher than they could earn in their home countries. Possessing lower-than-average skills means that the wages these immigrant workers earn will likely be lower than the U.S. average -- say $10 per hour.

America's average wage rate will be pulled down even though no individual's wages fall. Indeed, it is possible for every American's wages to rise and the average still fall.

Let's be clear: A change in an average might be evidence of changes in the fortunes of the individuals who compose the group for which the average is calculated. But it need not be so.

Statistics seem like straightforward, unambiguous facts; they're not. Care is required not only in their gathering but also in your interpretation of them.

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