Before comparing two indicator values, check that they cover the same period and the same population. If they do not, convert them to a common basis first, or say that the comparison cannot be made.
This lesson is part of reading national economic indicators carefully. It uses the idea of a base from reading growth indicators.
What is the two-step basis check?
Step 1 is the period. Write how long each figure covers: one month, one quarter or a year.
Step 2 is the population. Write who or what the figure counts: residents, households, firms or workers. Then convert one or both so that they match.
Worked example: new businesses in two fictional towns
A fictional Town P reports 240 new businesses in the first six months of a year. It has 20 000 residents. A fictional Town Q reports 400 new businesses over a full year. It has 50 000 residents.
At first glance Town Q started more businesses, since 400 is bigger than 240. Check the basis before you believe that.
Same period. Town P’s six-month figure, doubled to match a full year, is 480. This assumes the pattern is steady across the year.
Same population. Count per 1 000 residents. Town P: 480 ÷ 20 = 24. Town Q: 400 ÷ 50 = 8.
| Town P | Town Q | |
|---|---|---|
| Raw count | 240 (6 months) | 400 (12 months) |
| Count for a full year | 480 | 400 |
| Residents | 20 000 | 50 000 |
| Per 1 000 residents per year | 24 | 8 |
On a common basis, Town P started three times as many businesses for each 1 000 residents. The raw figures pointed the other way.
The mistake that costs marks
The common slip is to write “Town Q has more new businesses, so it is more active in starting businesses”. That one line compares two numbers that cover different periods and different populations.
The fix is to write the basis check before the conclusion: “The figures cover six months and twelve months, and populations of 20 000 and 50 000, so I convert both to a full year and to a count per 1 000 residents.”
A second slip is to convert without stating the assumption. Doubling six months to a year assumes the second half matches the first. Name that assumption in one clause.
Check yourself
Fictional Town R had 90 new businesses in three months and has 15 000 residents. Fictional Town S had 300 in a full year and has 60 000 residents. Compare them on a full year per 1 000 residents and state the assumption you made.
Answer
Town R, full year: 90 × 4 = 360. Per 1 000 residents: 360 ÷ 15 = 24.
Town S: 300 ÷ 60 = 5.
Town R started about five times as many businesses for each 1 000 residents (24 against 5). The assumption is that the next nine months for Town R follow the same pattern as the first three. If the three months were a busy season, the full-year figure would be too high.
What to study next
Continue with separating a descriptive statistical result from a policy preference, then try the cluster practice set. The percentage base and index comparison explorer helps with changing bases.
If you want a teacher to check the basis you choose, see online one-to-one Economics tuition.