Sign-flip Simpson: experience and pay

Question

Across an entire company, plotting years of experience against salary gives a downward slope: more experienced employees earn less. Yet within each department taken separately, the slope is upward: more experience earns more.

Reconcile the negative company-wide slope with the positive within-department slopes. Which relationship reflects how an individual's pay grows with experience?

Accepted Answer

This is Simpson's paradox in continuous form. The confounder is department. What is happening. Suppose a large, high-paying division (say, a trading desk) is staffed mainly by younger, less experienced people, while a lower-paying division (say, back-office operations) is staffed by long-tenured veterans. Then across the company, "more experience" tends to mean "in the low-paying department," so experience travels with lower pay, a negative pooled slope, driven entirely by which department the experienced people sit in. Inside any one department, where the pay scale is fixed, more experience …

Sign-flip Simpson: experience and pay

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