Corporate America fighting obesity by shrinking serving sizes

Well not exactly.  Today's NYT (now a paysite, so there will be fewer links) discusses how food portions in the grocery school are shrinking.  The motivation is not the obesity epidemic; instead it is the rising cost of many raw materials.  Fearful of raising prices and losing market share, companies are reducing the number of saltines in a box, the number of ounces in an orange juice container, and the size of the can for fruits and vegetables. 

But wait, there's more good news -- the smaller packages use less material and thus have a smaller carbon footprint. 

Why is this happening -- I say it is a combination of economics and psychology.  Business school professors weigh in:

“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, said. “And companies try to do it in such a way that you don’t notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size.”

Thomas J. Alexander, a finance professor at Northwood University, said that businesses had little choice these days when faced with increases in the costs of their raw goods. “Companies only have pricing power when wages are also increasing, and we’re not seeing that right now because of the high unemployment,” he said.

 Any link to quantitative easing by the Fed is purely coincidental.   Or is it?

AT&T + T-Mobile = ????

Surprise merger proposal involving AT&T and T-Mobile.  T-Mobile had been thought to be in talks with Sprint to create a strong #3 in the US market behind AT&T and Verizon.  Most news accounts (e.g., this one from NYT) focus on the loss of a major competitor and the possibility of higher prices for consumers. 

Another possible scenario: the combined company achieves economies of scale that actually pushes prices down, small carriers in various markets continue to provide low-cost options for those not tethered to iPhones and global competitors ponder entering the US market, creating further competitive pressure.  New network technologies are another competitive threat. 

This deal will definitely get close scrutiny from the antitrust folks. 

US News rankings

US News and World Report issued their 2012 rankings of business schools last week.  NC State's Jenkins MBA was tied with William and Mary for 83rd in the full-time rankings and tied with 13 other schools for 59th in the part-time rankings.

Last year, we were 66th in the full-time rankings and we have always been in between 59th and 74th place, so what happened?  Forty percent of the rankings are based on two surveys, one of deans and one of recruiters, where they rank 400+ programs on a 1-5 scale.  The dean evaluations of NC State's MBA have held steady at 2.7-2.8 for years, but it appears that the recruiter evaluation dropped by about 0.2-0.3 points this time around.

Another 35% of the rankings are based on the employment results for May 2010 graduates.  The percentage with jobs at graduation fell from 65 to 44%, which definitely hurt.  Starting salaries and the percentage with jobs 90 days after graduation were basically the same as the year before.

The final 25% of the rankings hinge on three numerical indicators of the quality of the students who entered in August 2010: GPA, GMAT and percentage admitted.  There was a modest slip in the mean GMAT score from 616 to 603.

One other note: when all of the scores are aggregated together we received an overall score of 35.  The distribution of schools by scores is highly bunched in this range of the distribution; schools with a score of 38 were tied for 73rd whereas schools with a score of 41 were tied for 63rd.  Small differences in recruiter evaluations, GMAT scores and placement rates yield large changes in the rankings.  This is why I have always thought it would be better to categorize schools into five or six groups instead of ranking them.  There really is not that much difference between the schools in 60th and 80th places.  (On the other hand, Stanford had a score of 100 and Harvard had 98 and I would say they are quite different from schools below the top 10.) 

My reaction: I am disappointed in this year's results, but I tend to take the long-run view of things and am confident that the program will do better in the future.  All Jenkins MBA stakeholders -- students, alumni, faculty, and staff -- can have a positive impact on future rankings by helping us recruit the best students and prepare them for the challenges they will face upon graduation. 

Risk assessment for nuclear plants

Lots of questions now being asked about location of nuclear power plants near fault lines.  Today's NYT has a nice piece on the overall difficulties of risk assessment for nuclear power plants in general and the consequences of the recent earthquake/tsunami in Northern Japan.  Now we know that the Fukushima Daiichi plant was designed to withstand large quakes, but not for 9.0 on the Richter scale followed by a tsunami. 

A nuclear power plant is supposed to last a long time, so one would need to design it to withstand not just an average earthquake, but a much-worse-than-average one.  The tough question: how much worse?  Do we go to the worst quake one would expect with a 10% p-value, or 5% or 1%. 

Another tough question: who makes this decision?  Do we trust the power plant owners, or do we need regulations?  And how can we trust the regulators?  (The Securities and Exchange Commission was supposed to watch the financial markets and we know how well that worked.) 

Thoughts on "Waiting for Superman"

Watched this documentary about five students' attempts to enroll in charter schools in various cities across the country.  One wins the lottery, another gets in via waiting list and the other three -- well, tough luck kid but we have a failing public school that has a guaranteed spot for you. 

From an economic standpoint, the most frustrating aspect of the movie is that there is clear excess demand for innovative, academically-focused schools but school boards across the country fail to provide such schools.  We see the same thing here in Wake County with Raleigh Charter and magnet schools such as Enloe.  I wonder what will happen in Wake County once we finally have a new student assignment plan -- will regular schools start to offer courses currently restricted to magnets? 

I do not pretend to be an expert in education research, but I am skeptical of the movie's persistent claim that "we know what works."  This would be a first in any field of social science research.  It is heartening to see academically successful schools in tough neighborhoods.  But I am skeptical about how much this can be scaled.  The parents of these five students really cared about their children's education.  Not all do. 

One labor market quibble: there was a graphic that claimed we would more than double the number of high-paying high-tech STEM jobs if the public schools would simply supply enough tech-savvy graduates -- not sure where they got that.

I give the movie a "thumbs up;" I hope the issues it raises get a wide airing.

More union unrest -- this time it's on the gridiron

Yesterday the NFL and its players union broke off talks, the union dissolved itself and the owners locked out the players.  A few observations:

• The dissolution of the union is a bargaining ploy that will allow 10 players (including Tom Brady, Peyton Manning and Drew Brees according to NYT) to sue the NFL for antitrust violations.   Antitrust cases and possible appeals can take 5 to 10 years to be litigated.  I doubt the owners are worried about this. 
• Today's WSJ says that the average career of an NFL player is 3.5 years.  The players are not likely to support a season-ending strike.  
• The owners are offering less money and a longer season.  The league is enjoying record-high levels of fan support and revenue.  The players know that better offers will eventually be made. 

Strikes rarely make economic sense because they prevent both sides from enjoying gains from contracting with each other.  Also strikes in the US are quite rare; we are not France or Argentina.  Panthers fans beware -- I bet the regular season starts on schedule.   

Podcast discussion on unions

Today I participated in a panel discussion about unions, collective bargaining and employee rights on WUNC-FM's "State of Things" show with Frank Stasio.  I was joined by MaryBe McMillan from the state AFL-CIO, John Hood of the John Locke Foundation, and Bob Korstad from Duke's Sanford School.  I tried to use by airtime to show how economic research (including my own) helps inform the discussion of the role of unions in our society.  People tend to have strong opinions about unions and often those on either side do not pay enough attention to some basic facts. 

Merit pay versus collective bargaining

One of many issues embedded in the recent controversy over collective bargaining rights for state employees is how should pay be determined.  Typically under union contracts, pay raise are given out across the board, either in percentage terms or absolute dollar amounts.  Critics say this is unfair because the best and worst performers get the same reward.  Far better to have merit pay, they say.

I generally support that argument, but merit pay in the public sector is no slam dunk either, as pointed out in a recent NYT op-ed by UCLA management prof Sam Culbert.  As Jenkins MBAs all learn in their first semester, it is not easy to define performance and it is even more difficult to adopt appropriate metrics. 

Performance reviews corrupt the system by getting employees to focus on pleasing the boss, rather than on achieving desired results. 

Culbert thinks performance reviews should be replaced by a process he calls "performance previews" where the boss and the employee agree on goals and metrics, followed by regular consultations to make sure the targets are being met (or, if need be, readjusted). 

EU signals interest rate shift

The European Central Bank is sending signals that its two year commitment to 1% interest rates is nearly over.  Bank President Jean-Claude Trichet did not signal how much rates would rise, but the consequences for the Fed's policy of zero interest rates are clear -- the dollar will weaken, making imports more expensive and exposing the US to greater risk of inflation.  Bernanke may be forced to move US rates up as well to prevent this from happening. 

Still not the jobs report we want to see

The good news - 192k new jobs on February and unemployment down to 8.9%.  The not so good news - unemployment is down because more and more people are leaving the labor force.  WSJ reports the labor force participation rate (employed plus unemployed divided by adult population) is at a 25 year low and that disability rolls are at an all-time high.  Many older workers who have lost their jobs have become de facto retired. 

Here come the Mexican trucks

The US has finally decided to live up to its NAFTA obligations and allow Mexican trucks to operate in the US.  They will soon be allowed to make cross-border runs, but not domestic (US) runs.  Electronic recorders will be used to make sure they are used for import-export activity only.  Safety and driver experience requirements will be at least as rigid as those for US trucking companies. 

This has been a very emotional issue for US labor unions, and I must admit I am somewhat surprised that the current White House took a step that previous administrations were unwilling to take.  Part of the explanation may be that another round of punative Mexican retaliatory tariffs were on the way.  But it also may be a hard political calculation -- Obama is unlikely to face a primary threat next year and no one in the current set of GOP candidates looks like a working man's hero.  The unions may be unhappy but Obama is unlikely to lose their support over this move. 

In terms of the economics, this is good news for most.  The retaliatory tariffs will soon fade away, thus opening up greater export opportunities for American firms.  Importers will save transportation costs, given the wage differentials between the US and Mexico for truck drivers.  Obviously this is not good news for the American trucking companies and their drivers who were getting extra business because of the ban on Mexican trucks. 

It will be interesting to see if the Obama administration will take the next logical step for an export-job-creating, free-trade agenda:  trade agreements with Colombia, S. Korea and Panama. 

Do business schools need to offer more humanities courses?

Yes, according to Santiago Iñiguez de Ozoño, dean of the IE Business School in Madrid, which is one of the very top tier European b-schools.  In a recent piece he did for Business Week, he sees two needs.  First b-schools should help students develop "managerial virtues," which he defines as "operative good habits that are not innate but achieved through constant exercise," including "hard work, endurance, self-organization, sociability, curiosity, modesty, and common sense." To do this, traditional classes need to be augmented by one-on-one and small group sessions with faculty and coaches. 

Second, he would add humanities-based instruction to the curriculum, such as courses on modern art, critical thinking or foreign cultures.  IE has formed a partnership with Brown University to offer a unique executive MBA with an enhanced humanities perspective.

I am curious as to whether Jenkins MBA faculty and students think we need to be thinking about these issues.  Please comment.  

Two different takes on state employee benefits

Today's N&O runs a front-page story about retirement benefits for state and local government workers which can best be summed up as "What? Me Worry?" The article notes that pensions account for a mere three percent of budgets, which is close to what the private sector spends.  The pensions are 78% funded, which on the surface looks ok, or at least no worse that Social Security. 

Bill Gates sees things a bit differently, as reported in WSJ and his Gates Notes website, emphasizing accounting gimmicks that are being used to vastly underestimate the true cost of future benefits.  Gates has been looking at this issue carefully for over a year because he sees burgeoning benefit obligations crowding out future spending on education.  He has been advised by a number of top experts on pensions (including my NC State colleague Bob Clark) and has picked up on the key concerns: failure to make sufficient contributions, unrealistically high interest rate assumptions (which make future costs look unrealistically low), and the real ticking-time-bomb of retiree health insurance.  Of course none of this is mentioned by the N&O, which confuses what state and local governments are currently spending with what they should be spending if they are going to meet future obligations.