Three Monkeys, Three Typewriters, Two Days

February 10, 2010

Unemployment statistics

There's a New York Times editorial that's been making the rounds that talks about a study showing that unemployment rates are quite different across the income spectrum. One first reaction on reading it that I encountered was: "Most people can't make 150k while not working for an entire quarter of the year, no?"

Today the study has actually been made public (nothing like giving the data to the press before publishing it publicly!). It looks like the basic methodology was to set up income decile boundaries based on 2008 data, then change them around somewhat in a completely opaque way not explained in the paper (it's not just inflation adjustment or something; some of the boundaries move by 2% and some move by 8%), then take people's self-reported income from a 2009 survey (for which year? doesn't say) to figure out which bin they go in.

The results have at least two interesting things going on:

  1. Since the deciles are household income, the number of workers actually varies by decile. The paper footnotes this, but gives no hint as to what the actual distribution of workers across these bins might be. In general, the most significant effect from this would be that a two-income household has a higher household income and places two workers into that higher decile, whereas a one-income household would typically place one worker into a lower decile.
  2. The obvious "if you're unemployed or not steadily employed you end up with a low household income" causation certainly accounts for some of the observed correlation, whether the incomes being reported are 2009 ones (in which case they would certainly be affected by being unemployed in Q42009) or 2008 ones (in which case the low incomes likely correlate somewhat with lack of steady employment in 2008, which one would expect to correlate well with a continuing lack of such in 2009).

Unfortunately, there's not much that can be done better here without asking the Q42009 unemployed specific questions about what their income was before they became unemployed and prorating that to the full year to figure out where to bin them. I'm fairly sure some of the observed disparity would remain; what I don't know how much. I see no indication that such a survey+prorate operation is what was performed here, unless the "categorical form" jargon on page 6 of the paper refers to something like that. Anyone know whether it does?

Posted by bzbarsky at February 10, 2010 2:43 PM