Thursday, May 28, 2015

Good news for labor economists: LA raises minimum wage to $15!

The LA city council recently decided to raise the minimum wage to $15, joining San Francisco and Seattle in the battle to help the working poor.  I was resisting further commentary on the minimum wage until I saw todays Robert Samuelson column in WP.

Each side on the minimum wage debate cherry picks the economics research to support their politics. Samuelson provides a good summary of mainstream findings: there is some job displacement but it has been modest.  However, this is based on historical evidence for the nation as a whole or for entire states.  What is unique about these cases is that (1) the increases are quite large (67%) compared to historical changes (10 to 15%) and (2) there is much more room for employers to move jobs across city boundaries as compared to state or national boundaries.   Samuelson speculates that restaurant employment will not be affected as much as hotels and manufacturing.  (Who wants to drive 10 miles in LA traffic to save 50 cents on a cheeseburger?)

One guaranteed winner from all this: labor economists who will have a lab experiment for evaluating the impact of the $15 minimum wage.

Tuesday, May 26, 2015

Would we better off without PowerPoint slides?

WP headline: "PowerPoint should be banned."  Click through to see slides from actual presentations that should never have seen the light of day.  Slides are useful tools for summarizing information, but not so useful for audience engagement (but maybe that's the point).  Amazon and LinkedIn have banned slide presentations. Is this the beginning of a trend?  

Monday, May 25, 2015

Has the financial sector fully recovered from the Great Recession?

So says NYT financial columnist Neil Irwin.  The evidence:

  • Employment has returned to 2007 levels
  • The pay gap between financial services and the rest of the economy has recovered; it is now a 3.6:1 ratio!
  • Entry level pay for Ivy League grads at investment banks went from $70k to $85k this spring
  • Vacancy rates at prime Wall St real estate are down to 5%
This is obviously good news for those with aspirations of working in this sector.  But is it good news or bad news for the economy?  The article cites research by economists at the Brandeis, Chicago and NYU b-schools which suggests that the size of the financial services sector does not appear correlated with economic performance.  Financial markets are supposed to reallocate capital to firms with profit-making opportunity from those that are tapped-out.  In theory this should lead to increased productivity, but in practice the data show that a large financial sector leads to weaker productivity growth.  

One fear is that the recent rebound in employment is associated with regulatory compliance in an industry that now bears a more than striking resemblance to a public utility, thanks to Dodd-Frank.  If so, then the allocation of more resources to financial services should be lamented, not cheered.  

Sunday, May 24, 2015

John Nash has passed away

Nobel laureate John Nash passed away yesterday in an auto accident on the New Jersey Turnpike.  Veterans of MBA 505 will all certainly recall the Nash equilibrium concept in game theory.  Others will remember the movie "A Beautiful Mind," where Nash was played by Russell Crowe.  See the NYT obit for a solid recap of Nash's contributions to economics and mathematics.

Tuesday, May 12, 2015

Another top 20 ranking for NC State Jenkins MBA

Princeton Review today released its first ranking of the top 25 online MBA programs.  The NC State Jenkins MBA came in at #20.  This is the third top 20 ranking the program has received in the last year and a half, joining a #9 online MBA ranking from US News this year and a #20 ranking of the Professional MBA from Bloomberg Businessweek in November 2013.

Princeton Review's rankings are based on surveys of students and school administrators.  UNC-Chapel Hill was rated the #1 online MBA, followed by Indiana, IE (Spain), Arizona State and Temple.

Click here to see what NC State Jenkins Online MBA students have to say about academics and here to see what they say about how the program has helped their careers.

Thursday, April 30, 2015

Do low wage employers get subsidized?

So claims a study from UC-Berkeley that was summarized recently by NYT.  It is true that many employees of companies such as McDonalds and Walmart receive some form of public assistance.  But when economists think of subsidies, we usually think of payments designed to encourage production of certain activities, such as higher education and corn.  In other words the more the company produces the more the government pays them!

The situation with low wage employers (large and small) is fundamentally different.  Public assistance programs are designed so that as people work more hours their assistance levels go down.  A low wage worker at McDonalds does not make enough money to be off public assistance, but the public assistance payments are LOWER than if he or she were not employed at all.  How this gets translated into a subsidy is beyond my comprehension.

Nonetheless I find the picture painted in this story very disturbing.  In a well functioning labor market, single mothers in their 30s should have better options than working in fast food or greeting shoppers at Walmart.  Part of the problem is that globalization and technological change have eliminated a lot of jobs.  Another part is that these workers do not have enough skills to qualify for whatever better paying jobs might be available.

How can we devise a way to get these workers the education or applied skill training that would open more opportunities?  I expect more creative use of online learning opportunities could make a difference.  But that does not seem to fit into the platform of either major political party; one seems to want to turn back the clock while the other is under the illusion that markets solve all ills.  

Saturday, April 25, 2015

How testing is changing hiring

Companies have used personality tests to screen job applicants since the 1950s.  But now the tests have evolved and, because of advances in information technology, become cheaper to administer and more effective predictors of performance.  A recent WSJ article reports that eight of the ten largest employers in the US are using personality assessments to fill some jobs.

Employers are taking longer to fill positions, according to research done by Booth Chicago economist  Steven Davis.  They see how their best employees do on the tests and then seek applicants who give similar answers.  If companies have trouble filling a position, they simply post on more jobs boards until they find someone who is a good fit.

A key benefit of more careful selection is that turnover (both quits and layoffs) has gone down by about 25% over the last 10 years, according to Davis' research.

Sunday, April 19, 2015

To tip or not to tip

Tipping is expected in restaurants, cabs, and a variety of other service industries.  At its most basic, the concept is simple -- the customer is in the best position to judge service quality, so why not have an incentive scheme where the voice of the customer speaks loudly?

Once you think more deeply about the motives associated with tipping, it starts to sound less appealing.  In many cases a customer will be at a particular establishment only once, so there is no financial penalty if the customer is a cheapskate and leaves no tip at all.  Also, service depends on a number of factors beyond the control of the person being tipped; the waiter cannot control backups in the kitchen and cabbies cannot control crosstown traffic.  Customers do not know that and penalize waiters unjustly.

A recent WP article reports that more restaurants are moving to a flat 20% service charge, and some are using this revenue stream to raise wages.  The benefit to employees is quite clear -- a steadier and larger stream of income.  Also most customers tip the same percentage (around 20% actually) all the time, so this process is not such a radical departure.

But what do customers get?  Now instead of voting with their tip dollars, customers would have to communicate directly with management about good and not so good service.  If they speak up, this would actually help management make more informed personnel decisions.  However, a customer might just as easily keep quiet about poor service and simply take his business elsewhere.

Shared tips or a flat fee also create incentives for waiters to cooperate, something management should encourage.  Finally, regardless of whether the waits get paid by tips or a percentage fee, I will still usually hear "Dr. Allen would you like to see the dessert menu?"  Restaurant owners will still have an incentive to get you to buy more.

Tuesday, April 14, 2015

Glaxo changes compensation plan for sales employees

Companies adopt compensation plans to better align the incentives of employees with those of the owners.  Commissions have traditionally been used in many sales jobs to encourage employees to sell as much as they can.  But that can lead the sales team to push product to every potential customer, regardless of whether the customer can use the product or not.

Bloomberg reports that GlaxoSmithKline is considering changes in its Patients First pay plan for sales employees.  The plan, launched in 2011, shifted the emphasis away from sales and toward "scientific knowledge, selling competency, customer evaluations, and overall performance of the representative's business unit."  The general idea is to reward the competencies that are believed to lead to strong customer relationships, as opposed to rewarding short-term, hardball sales tactics.  GSK is looking at making some adjustments to Patients First, including testing sales reps for product knowledge.  Looks like remembering those organic chemistry formulas has a payoff after all!

Wednesday, April 8, 2015

Is Uncle Sam the most predatory lender? A rant on student loans

Ran across this from a link today on the Real Clear Politics website
While our federal government continues to chase many mortgage lenders for so-called "predatory lending" practices, perhaps we should check in on the situation of far and away the biggest predatory lender of all, the federal government itself.  Its most odious practices are in the area of student loans.  I find the term "predatory" a stretch when applied to a mortgage loan for a house, given that in the worst case the borrower got to live in the house, and even if he gets foreclosed and has a deficiency balance he can normally discharge that in bankruptcy.  Not a pleasant process, but sometimes life can be tough.  Compare that to federal student loans, where the government lends inexperienced 18 - 24 year-olds open-ended amounts, often for dubious and overpriced trade schools, and then flatly forbids discharge in bankruptcy.   Many borrowers' finances are ruined for life, and they don't even have marketable job skills to show for it.  Now that's predatory!