QUESTION TEXT: Economist: Although average hourly wages vary…
QUESTION TYPE: Paradox
PARADOX: In all regions, the average hourly wage went up. In the country, the average hourly wage went down.
ANALYSIS: Sometimes, I see how to solve the paradox, and I prephrase the right answer. In this case, however, I couldn’t see how to solve the paradox.
When that happens, the key is to load the two facts into your brain, and see which answer can explain both of them:
- Average wages are up in each region.
- Average wages in the country went down.
___________
- This just tells us about past history. It says the national trends has been continuing. So? This tells us nothing about regions.
- CORRECT. This solves it. Imagine that there are two regions: povertyland, and mansionland. There are 100 people working in each area. The average wage in povertyland is 10, in mansionland, 50.
Now imagine that employers move 99 jobs from mansionland to povertyland. Now if jobs in povertyland pay 15, then that will be a raise for the former workers of povertyland, but a large pay cut for the mansionland workers who had to move to povertyland.
If we also imagine that the one remaining worker in mansionland now earns 60, then it’s true that in both regions the average wage is higher, but it’s also true that the average wage in the country as a whole is lower. - Unemployment is irrelevant. We care about the average wage, not how many people have jobs.
(No, you can’t assume that unemployment affects average wages) - So? This doesn’t explain anything. It’s normal for there to be different rates of change in different regions.
- So? It doesn’t matter how wages in different industries change. We only care about the overall change of all wages.
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