Two Sample Test Comparing the Gross Income

of Different Owner-Driver Groups

By: Dustin Wong

The firm needs to figure out if there is a significant difference between the gross
incomes of subsidized mixer truck drivers and that of non-subsidized drivers. If there
is a significant difference in the average gross incomes, new policies need to put in
place to ensure that drivers from either category receive a fair compensation. If the
average gross incomes from the subsidized drivers are lower than the average of the
non-subsidized drivers, an increase in subsidy amount per truckload may warrant
consideration. Conversely, if the average gross incomes of non-subsidized ownerdrivers are lower than that of subsidized drivers, it may be necessary to reduce
company-sponsored subsidies.
In order to test if there is a significant difference in average gross income
between the two groups, a two-sample test will be performed at a 95% confidence
level. It is important to keep in mind that the sample sizes are small; each group only
has information from an accounting period between 2013-2014. Additionally, samples
from each group contain outliers that are likely to skew end results. Normally, these
outlier values would be culled from the data set. However, due to the small sample
size and relatively weak nature of the outliers, they will be included in the experiment
with caution.

I.

Given Information and Assumptions

Alpha = .05 or 95% confidence interval

N = 12 for both samples
Degrees of Freedom is N1 = 11
Critical Value at a = .05 and df = 11 is 1.796 (See: Appendix-A)
Assume the data is normally distributed
Data for drivers monthly average gross income are as follows:
A. Gross income for Non-subsidized drivers for accounting period 2013-2014
June

30,962.48

July

34,197.58

August

32,313.33

September

28,503.01

October

30,042.88

November

32,764.65

December

31,570.95

January (2014)

29,730.21

February *

24,684.25

March *

38,301.52

April

31,285.68

May

33,582.90

B. Gross income for subsidized drivers for accounting period 2013-2014

June

25,270.36

July

24,791.66

August

27,703.50

September

25,619.26

October

27,538.68

November

30,665.56

December

24,464.99

January (2014)

24,346.51

February *

19,080.75

March

33,724.27

April

26,556.40

May

29,229.37

* = Calculated outliers

II. Testing for Outliers

95% percent of the data is represented within 2 standard deviations from the mean.
Data points outside of this range can be considered outliers.

Gross income for Non-Subsidized Trucks for accounting period 2013-2014

Sum of all Average NI

377,939.45

Average of NI sums

31,494.95

STDEV of NI sums

3,318.93

2 times STDEV

6,637.86

Outlier range

24,857.09

38,132.81

Gross income for Subsidized Trucks for accounting period 2013-2014

Sum of all Average NI

318,991.30

Average of NI sums

26,582.61

STDEV of NI sums

3,673.87

2 times STDEV

7,347.73

Outlier range

19,234.87

33,930.34

Conclusion: Outliers for Non-Subsidized Drivers February and March

Outliers for Subsidized Drivers

February

III.

Statement of Hypothesis

Null hypothesis: There is no significant difference between the two groups

(The average Non-Subsidized gross income = average Subsidized gross income)
Alternative Hypothesis: There is a significant difference between the two groups
(The average Non-Subsidized gross income average Subsidized gross income)

IV. Performing the t- Test

One tailed t-test formula used to test
given data at a 95% confidence level.

Difference in Means X1 -X2

Subsidized

STDEV Squared/ N1

Non Subsidized STDEV Squared/N2

Sum of STDEV Squared/N
Square root of (Sum of STDEV Squared/N)

4,912
917,941
1,124,774
2,042,716
1,429

Test Statistic

3.437

Critical Value of a=.05, df= 11

1.796

Test Statistic 3.437 > P Value 1.796

Since the test statistic is greater than the critical value we reject the null
hypothesis.

V.

Limitations of Analysis

It is observed that outliers in both groups occurred during February, likely due to
drivers taking days off work for Chinese New Year. Consequently, the subsidized
drivers may not meet quotas based on number of jobs completed and thus receive a
lower monthly subsidy. This occurrence is more detrimental to the gross income of
subsidized drivers than to that of the non-subsidized drivers, and likely plays a role in
the difference between the two means.
It is important to keep in mind that outliers and small sample size are expected to
skew results. If more data points were given and extreme outliers removed, the study
would provide a better understanding of the differing gross incomes between
subsidized drivers and their non-subsidized owner-driver counterparts.

VI. Conclusion
Based on the two-sample t-test conducted in the course of the study, the test
statistic calculated from the given information is much greater than the P value at a
95% confidence level. Therefore, we reject the null hypothesis and recognize a
statistically significant difference between the mean gross incomes of the two groups.

VII. Recommendation based on Analysis

In order to improve delivery performance in the business, new procedures could
be put in place to increase efficiency and strengthen the relationship between the firm
and its mixer truck drivers. According to the data, the mean gross incomes of the
subsidized drivers are lower than that of non-subsidized drivers by around 15% (See
Appendix-C). Therefore, the firm should consider implementing various incentive
schemes in order to improve driver loyalty and to provide subsidized drivers with a
more fair income. Obviously there are many possible solutions to the given problem,
but presented below is one potential resolution.
- Increasing Subsidy Amounts at a Greater Number of Jobs Completed One solution is for the firm to offer a different subsidy plan for workers,
especially during the holiday weeks. Increasing the subsidy amounts as well as
increasing the jump in compensation between upper delivery tiers would encourage
drivers to do more deliveries and meet the new bar (See Appendix-B). This new
scheme could be used year-round but may be better served as a type of Holiday
Bonus subsidy scheme. Since deliveries during February are at a yearly low, this new
scheme would reduce the noticeably lower gross income amounts seen in both groups
around February, and could be employed again during other slow holiday seasons.
Holding all other factors constant, if the new chart is enacted and delivery numbers
are expected to be at least the same as deliveries numbers in other months, delivery
efficiency in February alone would see an increase of about 30% (See Appendix-C).
To further reinforce the previous idea, it is also important to visually recognize
top hardworking drivers for their efforts. One solution to align the delivery system
with company culture would be to promote friendly competition between drivers. The
top three performers of the subsidized driver group would be awarded prizes and all
drivers publicly recognized by management at the companys annual dinner in July or
August.
Admittedly, one potential long-term pitfall to a new subsidy chart would be for
drivers to collectively decrease their delivery performance expecting higher subsidy
schemes in the future. Regardless, this associated risk is also in place with any reallife subsidy system and would ultimately depend on the mentality of the subsidized
drivers. More analysis is needed to conclude.