Wednesday, February 25, 2015

A different take on student loan defaults

Stereotype: student loan debt is at all time high levels and is now larger than credit card debt.  Defaults are rising mainly because of the rising cost of four-year colleges and graduate schools.  

Not so fast, says the NY Fed in a post yesterday on Marginal Revolution.  It turns out that default rates are highly correlated with balance due at the end of schooling.  The default rate is over 30% among those with a balance of $5k, whereas it is between 15 and 20% for those with a balance due of $100k or more.  Those with very high balances tend to be those who completed school, whereas those with the lowest balances tend to be predominantly those who lasted only a semester or two.  

Turns out that there are a lot more student borrowers in the low balance category (72% owe $25k or less) than the high balance one (3% owe $100k or more).  One of the commentators on the NY Fed blog offers a possible explanation of what is going on:
Bad credit seems to correlate with bad academics. Many seem concerned more with paying bills than paying education. Sometimes they are just out of jail and no one will hire them. Their probation requires they work or get a job which the later is nearly impossible. Other times we have people so deep in the hole in debt already that the student loans was a way to buy more time. The word is out if you have bad credit and are desperate for funds just go to a community college where tuition is low and borrow the maximum. We noticed in our data pull many students graduated from high school or received their GED up to 10 years ago or more! 
I should emphasize that correlation is not causation, but these results raise serious questions about how the US is structuring its student loan programs at the federal level.

Friday, February 20, 2015

Raleigh labor market #3 in US

According to the latest ratings in Forbes, Raleigh clocks in as the #3 labor market in the US out of 150 metropolitan areas.  Yet another reason to come here to get your MBA!

Thursday, February 19, 2015

Walmart boosts wages

Big news from Walmart, on top of falling prices we now have rising wages!  Today the nation's largest retailer announced that it was going to make sure that all of its US workers would earn at least $9 an hour by April.  According to NYT, this is likely to affect half a million employees.  It will certainly be a big boost to those earning the minimum wage.

Walmart's motivation is most likely competitive pressure.  The unemployment rate keeps dropping, which means employers are competing for fewer applicants.  Walmart's move is likely to put more pressure on firms such as Target and Home Depot to raise pay.

There also is a chance that the wage increase pay for itself.  As MBA 505 students know, a higher wage reduces turnover and thus reduces hiring and training costs.  A higher wage also should be associated with higher standards for individual productivity.

Tuesday, February 17, 2015

MBA alum recognized by CNN Money

Scott Bolin, an NC State Jenkins MBA from the class of 2012, is the subject of a CNN Money story on Five Startups that are Reimagining the World.  Scott is co-founder of Tethis, a company that has developed a way to treat wastewater.  Applications range from fracking to city sewers.  Tethis has raised almost $2 million from investors.

Scott concentrated in entrepreneurship in the MBA program and has been able to put what he has learned into practice.  Typical NC State -- Think and Do!

Thursday, January 29, 2015

What we do not know about the minimum wage

We were discussing the minimum wage last week in my MBA 505 Global Economics for Managers class.  Bloomberg columnist Megan McArdle did a nice job in a recent column summarizing the economics research literature.  Did she read literally 100s of papers?  I kind of doubt it, but she reaches three main conclusions:
1) Most people have their own opinions about whether the minimum wage is a good or not so good idea and they naturally seek out and site research that supports their own opinions.  Psychologists call this confirmation bias.  As is always the case in economics, you do not have to search very hard to find a study that matches your views.  Some find big job losses, others find small job losses and one very famous study found no job losses.  Out of these 100s of papers, guess which study gets cited as hard evidence by minimum wage proponents!  (Overall, the literature seems to indicate small job losses, by the way.)
2) Historically most changes in the US minimum wage have been modest, e.g. an increase from $2.65 in 1978 to $3.35 in 1981.  Some states and cities are now contemplating much larger changes, from the current $7.25 to $15.  It is quite possible that research done on small hikes does not translate into larger ones.  For instance, automation opportunities that McDonalds would ignore at a $1 increase may be too tempting to pass up at the President's proposed $3 increase. 
3) None of the minimum wage studies have been able to deal with long term consequences, such as how many McDonalds might end up closing or and how many never open because of higher labor costs. 

Sunday, January 25, 2015

Understanding the drop in the labor force

Just ran across two items from Marginal Revolution dealing with the drop in the labor force participation rate.  Stanford econ prof Robert Hall has taken a careful look at personal and household factors and has found that most of the drop has taken place among teens and young adults.  More intriguing is the finding that the drop is greater among households in the upper half of the income distribution than the lower half, casting doubt on the theory that more generous income maintenance programs (food stamps and unemployment insurance would be the most likely culprits) are driving the shrinkage of the labor force.

A recent article in BloombergBusinessweek reaches a simular conclusion.  Young people in high income households are staying in school longer and more of them are not working.  The article also notes the growing share of the labor force claiming disability benefits; these individuals are unlikely to return to work even if the unemployment rate dips below 5 percent.

Thursday, January 8, 2015

NC State Online MBA ranked #9 by US News

What a way to start the year -- US News announced yesterday that NC State's online Jenkins MBA program ranked #9 in the US.  This is the first top ten ranking for any platform of our MBA program. A year ago the online MBA program was ranked #36.

NC State's overall score was based on four components: student services and technology (#13), student engagement (#13), admissions selectivity (#16), faculty credentials and training (#69) and peer reputation (no rank reported).

What were some of the secrets to our success?  Our student retention and graduation rates have been near 100%, so that definitely gave us a leg up on the student engagement score.  As is the case with our full-time and Professional Evening platforms, our online student credentials are quite high, especially in terms of work experience.  The faculty score is a bit of a head-scratcher -- I have a hard time believing NC State and UNC-Chapel Hill (#120 on faculty credentials) are really behind Gardner-Webb and the University of the Cumberlands on this dimension.

Kudos as well to UNC-Chapel Hill for being tied with Indiana and Temple for #1.  Both of our programs have come a long way in just three years (we both started in 2012).  North Carolina residents have two outstanding choices.  Compare the programs, compare the costs, and decide which best fits your needs!

Thursday, December 11, 2014

November job numbers: Let's party like its 1999!

I have always been cautious about making too much out of one jobs report, but the numbers reported last Friday merit serious attention.  We now have a string of consecutive months with strong increases in employment.  Unless the last 20 days of December turn out to be an unforeseen disaster, 2014 will be the best year for job growth since 1999.  

Two more reasons for optimism:
1) Wage growth is becoming more widespread.  More jobs is nice; more people making more money is even nicer.
2) The unemployment rate did not go down.  This is good news because it means that more people have entered the labor force looking for jobs.

Friday, December 5, 2014

Supply and demand for truckers

Spending the morning at the NC State Poole College of Management's semi-annual Supply Chain Resource Cooperative meeting.  Lots of great student projects for companies like CAT, Duke Energy, GSK, MetLife and others.

One topic that has come up repeatedly is the shortage of truckers and the increasing difficulty firms are having with this critical transportation mode.  At the same time, the percentage of young people who are participating in the labor force is at a 30 year low.

So what is stopping young people (or even not so young) from entering the profession?  (I have posted on this topic before.) Lots of theories were offered.  Part of the story is that training is expensive to obtain (but there are student loans); another part is that many potential job candidates cannot pass background checks and drug tests (maybe, but I would like to see some numbers).  One new theory offered by Jason Schenker (economist and regular SCRC speaker) -- Xbox addiction.

Friday, November 28, 2014

Labor market impact of immigration exec order

Legal analyses of the President's executive order on immigration are a dime a dozen; economic analyses  are much rarer (this WSJ piece is the only one I have seen).  The courts and voters will ultimately work out the legal end, so what are the economic takeaways?
1) Most illegal immigrants face skill and language barriers in the labor market and end up taking relatively unskilled jobs.  The increased supply of such labor leads to lower wages for natives who compete in the same markets.  Most economic estimates find the wage impact is modest (a 10% increase supply leads to a 2-4% cut in wages for natives), but tell that to someone who is having trouble making ends meet.  
2) Do not be surprised to see the rate of illegal immigration accelerate since the order could be reversed on Inauguration Day 2017.  But wait, those who cross borders after the order aren't covered, right?  True, but perception is everything.  Do you seriously believe that someone in a dirt poor village in Guatemala thinks the odds of being deported have gone up?  What matters is what potential immigrants believe, not what the order actually says.  
3) To the extent that employers have used fear of deportation to keep illegals from quitting to find a better job, the order should open up some mobility options.  Illegals who have learned valuable skills and who speak/write decent English will now start competing with more skilled natives.  
4) The most critical immigration issue is making it easier for highly educated STEM students to stay in the US.  The President punted on this one.