Description: 1. Use of a shifting reference value. Percentage is calculated with regards to a reference value. Undisclosed shift in reference values for two different percentages may lead to distorted perception of what the percentages tell. A situation is show below.
Example: A certain savvy Businessman offers the following proposal to his employees:
“ This year, owing to economic downturn, you wages are to be lowered by 10%, but worry not, next year you will be duly compensated with an increase by 11%. ”
Should this be a sensible proposition for the employees?
We analyze this by taking the case of an arbitrary sample worker. Suppose the Current Wage of an employee is $50,000. The Revised Wage after reduction by 10% is:
Revised Wage = Current Wage – ( Current Wage x percentage change )
= $50000 – ( $50000 x 10/100 )
The Next Year’s wage increase of 11% is calculated with Revised Wage as reference:
Next Year’s Wage = Revised Wage + (Revised Wage x percentage change )
= $45000 + ( $45000 x 11/100 )
= $49950 ,Which is less than current wage of $50000
Thus we seen an increase of 11% does not compensate for a decrease of 10% in wage as they are calculated with different reference values and hence the proposal should not be acceptable for the employees.
The proposal above shows how shifting reference values of percentages can be misuse
THIS IS A RESPONSE QUESTION NEEDED BY TOMORROW NIGHT ASKED MY THE PROFESSOR PLEASE EXPLAIN IN TWO TO FOUR SENTENCES OR FIGURES TO BE CLEAR .
‘The proposal above shows how shifting reference values of percentages can be misuse’
How could you change this?