Wednesday, August 24, 2016

Aging populations and the slow recovery

Macroeconomic analysis typically focuses on money markets, government spending, private saving, and the like.  When explaining the causes of recessions and recoveries, the analysis typically looks at variables such as exchange rates, interest rates, and tax policy.  Demographic factors typically receive scant attention.

But we know we have an aging society.  Japan has faced this challenge for 20 years and has had flat growth.  Most European countries are in the same boat, at least for their native populations.  So could aging have something to do with the not-so-hot recovery we have experienced over the last seven years?

A study by economists in the RAND Corporation and Harvard Medical School suggests there could be something to this.  (Click here for a WP summary.)  They explored different states of the US and found that the regions with the most aging had the slowest growth.

What might be going on here?  Obviously with more retirees, the labor force shrinks and that hurts economic growth.  Maybe today's more elderly population saves more because of uncertainty about Social Security, pensions, longevity and their own savings.  With an apparent surplus of savings chasing ever lower yields, this also could be a drag on growth.  The study finds that productivity falls with aging, a wrinkle that is hard to easily rationalize.

Bottom line: if this study is correct, then we may be in for a longer period of slow growth than anyone has anticipated.

Saturday, August 20, 2016

Tuition: at private schools it is just the sticker price

Harvard's Danielle Allen (no relation) has a great WP op-ed today about tuition.  At private schools tuition is just the sticker price paid by the students with the wealthiest parents and little athletic ability.  Most students get some scholarship funding, which acts as a discount.  Those from low-income families pay no tuition.  At prestigious private schools, the posted tuition number is actually well below the full cost of schooling; the rest is paid through endowment income, grants, and other sources.

Allen argues that publishing a single tuition number has adverse effects.  When private schools increase their tuition, it also increases the demand for public universities, thereby allowing them to charge more tuition as well.  But in the publics, financial aid is much more limited and a much higher percentage of students are paying the sticker price.

Instead of publishing a single tuition number, Allen would have universities publish the full cost of education, the range of aid options, and how much aid the average student gets.

Friday, August 19, 2016

Job gains in the middle of the wage distribution

For at least two decades the data have shown a hollowing out of jobs in the middle of the wage distribution.  Job growth has been concentrated in the two extremes: the high end and the low end.

But that trend may be coming to an end.  Today's WP has a short article summarizing research by the New York Fed on job growth by wage tiers.  There was much more job growth in middle-wage jobs between 2013 and 2015 than there was in the low and high wage tiers.  Industries such as construction, education and transportation led the way.

Monday, August 15, 2016

Court ruling allows more MBAs to take tax deduction

Saturday's WSJ reports great news for MBAs for the coming school year: more of you will be able to write off your tuition against your tax liability.  Here are the rules as stated by the IRS:
To be deductible, your expenses must be for education that (1) maintains or improves your job skills or (2) that your employer or a law requires to keep your salary, status, or job. However, even if the education meets either of these tests, the education cannot be part of a program that will qualify you for a new trade or business or that you need to meet the minimal educational requirements of your trade or business.
Professional MBA programs, such as NC STate's evening and online MBA, have qualified for some time, especially for those who plan to stay with their current firm.  The new ruling apparently opens the door for Executive MBA programs too.  Also, the new ruling allows a deduction even for those who are unemployed part of the year.

I am not sure these changes will make a big difference for NC State MBAs, but all MBA students need to be aware of the opportunity to take a tax deduction for their schooling expenses, including tuition, books and transportation.  

Friday, July 22, 2016

Join Amazon "Prime Student," get a deal on a student loan

I'm not making this up.  See WSJ for more details.  This is a partnership between Wells Fargo and Amazon.  Binge watch and binge borrow at the same time?

Sunday, July 17, 2016

Fewer young men are working or in school. What are they doing?

Playing video games.  Seriously.  See this blog post about Booth Chicago's Erik Hurst in Marginal Revolution for details.

Apparently able to depend on parents, spouses or significant others, it is a bit hard to imagine these young men are going to be qualified for jobs or even looking for jobs anytime soon.  I am reluctantly concluding that we are getting as close to full employment as we are going to get.

Saturday, July 16, 2016

How to Misuse Analytics

Catherine Tucker at MIT Sloan and Anja Lambrecht of London Business School have a great HBR piece on how to make big mistakes with analytics.  Here are what they see as the biggest challenges:

  1. Size isn't everything.  Usually managers have to merge data sets from different sources that were designed for different purposes.  If the data sets cannot be cross-referenced in a meaningful way, their usefulness can be limited.  
  2. Our ability to analyze structured data is well ahead of our ability to analyze unstructured data.  The authors observe that firms have had more success with unstructured data when analyzed in conjunction with structured data.  
  3. Data processing skills are more critical to reaching meaningful conclusions than bigger data sets.  Companies need to invest in both.
  4. Correlation is not causation.  Any well-trained PhD in economics has had this drummed into their head all the way through graduate school.  But now lots of employees are looking at computer-generated results, see a correlation and think they have something.  Field experiments on relatively small amounts of data are likely to lead to greater insight.  

Sunday, July 10, 2016

NC legislature experiments with teacher incentives

Pay for public school teachers in North Carolina has been a big focus for the legislature over the last two years.  After no raises for many years, pay for starting teachers received a boost last year and pay for more experienced teachers is scheduled to increase this coming year.

This coming year's budget also includes two incentive plans that I would call unique.  One would allocate $10m to give a bonus to third grade teachers whose student growth scores place in the top 25%.  Bonus plans for individuals make sense when the employee has some control over the work environment and the metrics map reasonably well with employee effort and performance.  Although well-intentioned, I cannot help but wonder why the legislature did not consider two obvious problems with their scheme:
(1) Why put all the money on third grade teachers? Don't the other grades matter at least a little?
(2) Why didn't they select a more objective measure of actual learning?  The reward goes to the top 25%, regardless of how much or how little student growth took place.

The second plan pays a $50 bonus to Advanced Placement teachers for each student who passes the AP test.  So a student passes the AP Calculus test with flying colors, but is that because the AP teacher was so great or did it have something to do with the Algebra 1 and other teachers that they had before AP?  Also, what happens in parts of the state where school systems lack the budget to offer AP courses?  And should we be focusing incentive dollars on AP students or on those who are struggling to graduate?

The big mistake that legislators are making is the decision to use individual as opposed to group incentives.  Student achievement hinges on a collective effort of teachers from K to 12.  School-based plans are likely to be more effective than individual-based plans.

However, the third grade plan will solve one problem -- principals will not have any trouble filling open third grade positions!

Wednesday, June 22, 2016

Using workplace incentives to reduce carbon footprint

In a fascinating new NBER research paper by economists at Chicago and LSE, pilots at Virgin Atlantic Airways were offered recognition and incentives if they successfully took steps to reduce fuel consumption.  Separate targets were developed for pre-flight (how much fuel to load), during flight (course corrections), and runway decisions.  Over the eight month study, the researchers found a robust response to the incentive programs, saving Virgin over $500k.

Usually when the topic of carbon abatement comes up, the response from economists and policy makers alike is to impose caps, require new equipment or charge a tax.  This paper shows that there is another avenue that should be considered: adjust management decisions!

Sunday, June 19, 2016

Why are waiters so anxious to grab your plates?

Have you noticed how quickly your plate disappears once you have finished?  Regardless of whether others in your party have finished or not!  This sends an awkward social signal, according to this recent WP blog entry:
When a server clears a plate before everyone is finished, he or she leaves the table with a mess of subtle but important signals. Those who are still eating are made to feel as though they are holding others up; those who are not are made to feel as though they have rushed the meal. What was originally a group dining experience becomes a group exercise in guilt.
So what is going on here?  Are restaurants running lean inventories of plates and tableware?  Do customers get really upset if their empty plate isn't removed instantly?

George Mason economist and Marginal Revolution blogger Tyler Cowen thinks that economic forces are at work.  Land prices in urban areas are going up and that means higher rents.  As a result, restaurants feel more pressure to turn tables so that they can get more customers per day.