Fighting city hall for transportation innovation

WSJ ran a lengthy profile of Travis Kalanick, CEO of Uber, this past weekend.  Uber operates an on demand city transportation service.  The basic idea: need a cab or limo right now -- we have an app for that.  Available in 25 cities, you can click on your iPhone or Android and your ride shows up shortly. 

Great idea, right?  Actually Uber has received a less than welcome reception in some cities because it provides competition to the taxicab establishment.  Wonder why it is so hard to get a cab in some cities?  The reason is that the licensing board and the cab companies have restricted supply artificially.  Uber has had to battle transportation bureaucracies in a number of cities, but so far has prevailed.  A key part of their business model is to use analytics to forecast demand and have enough capacity in place when needed.  Also, drivers are evaluated by customers -- a revolutionary idea in this relatively backward industry -- and those with poor reviews are replaced. 

Money quote: "I'm pro-efficiency.  I want the most economic activity at the lowest price possible.  It's good for everybody; it's not red or blue." 

Hiring: that's what friends are for

Sunday's NYT ran a story about how companies increasingly are relying on employee referrals to make hiring decisions.  From a company perspective, the challenge is how to find the optimal employee for a position and make the decision regarding that hire in a cost-effective fashion.  Large firms literally receive thousands of resumes per week, more than they could ever hope to carefully review one by one. 

So what sources of information can simultaneously best identify the applicants who will be the best fit and be inexpensive to collect?  Whether backed up by research or their own gut feel, more and more companies have concluded that employee referrals are the way to go.

The downside: referrals will tend to be very much like the people already on payroll, not a great move if a company is looking to develop true intellectual and social diversity.  That is why some companies are capping the number of openings they fill through referrals. 

Tough choices in NC on unemployment insurance

Today's N&O runs two stories on the unemployment insurance system in NC, one focusing on an unemployed Durham worker and the other looking at a small Raleigh firm.  The system is broken, with a negative balance owed to the federal government of $2.5 billion (to cover benefits paid to NC residents that could not be covered by UI payroll taxes), the largest of any state.  Assuming the feds insist on being paid back, some painful adjustments will be necessary.

Unemployment benefits are mostly funded by a state tax levied on employers.  In normal times, the tax paid by a firm will be sufficient to cover the benefits received by its employees.  Taxes are levied on the first $20,900 earned by each employee; the rate in NC can be as low as zero (for someone who has been open two years or more and never had an employee claim benefits) to as high as 6.84%.  The federal government also administers a tax of 1.2% on the first $7,000 earned by each employee.

The NC General Assembly is likely to cut benefits and raise taxes later this year.  Maximum weekly benefits are likely to be cut from $535 to $350 and eligibility for benefits is proposed to be cut from 26 weeks to a range of 12 to 20 weeks.  There is a proposal to increase the employer tax by 0.06%, which amounts to no more than $12 per employee.  Of course, even though this tax is not withheld from wages and salaries, employees end up paying most of this tax because it gets shifted back to them via lower wages or salaries. 
 
The economics of unemployment insurance are straightforward: we face a tough tradeoff between compassion and incentives to get back to work.  Higher benefits over a longer period have been shown, time after time, to lead to higher unemployment rates; more generous benefits reduce the incentive to search for a job.  However, the system was designed to be a form of social insurance to provide a buffer against unemployment risk.  If skilled workers end up taking minimum wage jobs out of desperation, the incentives for finding a job fast run counter to maintaining incentives to invest in skills and education.  (Aside: I always have wondered why we do not insist on school or training for workers collecting benefits more than six months so they can get an extra boost toward employability.) 

Higher employer taxes spread the pain of adjustment across all employees and businesses.  Cuts in benefits and their duration focus the pain on those who become unemployed after July 1.  My take: right now the bill is being shifted to those who can least afford it; employer taxes should be raised more and benefits be reduced less. 

Wisconsin offers innovative degree option

The University of Wisconsin system has introduced a potentially revolutionary way to make college degrees more accessible, reports today's WSJ.  The UW Flexible Option will allow students to take modular online courses when they want to.  It will allow them to take tests that certify they have mastered course material and get college credit.  So if you learned something through your own reading or experience or took a MOOC course, now you can get academic credit certifying that you have that knowledge.  Various UW campuses will be rolling out degree programs based entirely on a combination of flexible online courses and credit by exam.

The program is being seen as a big plus for the 20% of Wisconsin residents who have some college credits but lack a degree.  UW-Milwaukee will be the first school to offer degrees this fall with undergraduate degrees in diagnostic imaging, information science, and nursing plus masters degrees in nursing.

I looked very hard and could find no information on tuition rates for these new programs (aside: this tends to be the most difficult bit of data to obtain on any university website).  WSJ reports that tuition will be significantly cheaper than the $6900/year average for undergrads in the UW system. 

I applaud the innovative approach.  I also hope the online students can still find the time to head to the UW-Madison student union and enjoy a pitcher of Ale Asylum Hopalicious with classmates on the shore of Lake Mendota.  

Employers looking for BFFs

Great recent piece in Bloomberg Businessweek on what employers are looking for.  Although spreadsheet skills, a firm handshake, and eye contact are still on the list, more and more are looking for whether you are a good "cultural fit."  First interviews now are likely to contain questions such as "What's your favorite movie? What's your favorite website? What's the last book you read for fun? What makes you uncomfortable?," all of which are in the 50 most common interview questions. 

The article cites a recent study by Kellogg's Lauren Rivera which concludes that employers do not necessarily hire the most skilled candidates. One also must wonder if this interviewing process results in greater conformity and less true diversity. 

By the way, my answers are "The Godfather," Kentucky Sports Radio, Solzhenitsyn's "Cancer Ward," and blood.  Think I could get hired anywhere?

US News ranks online program #42

US News came out with its first ranking of online MBA programs this week.  In a ranking of 128 schools, the Jenkins MBA came in at #42.   We scored well on faculty credentials and admissions selectivity; we have work to do on student engagement and technology, at least according to US News. 

Washington State clocked in at #1, followed by Arizona State, Indiana, Florida and Cal State-Fullerton.  UNC-Chapel Hill declined to participate. 

With an online program that has only been in existence for 16 months, I think this is a reasonably good showing.  I also am confident that we will do much better the next time around. 

College still worth a lot

I have seen dozens of stories over the last four years that purport to show that a college degree is not as valuable as it used to be.  It is true that unemployment of college grads has gone up and salaries have fallen off.  But this does not mean college has become a poor investment.  One must compare how college grads fare compare to those without college degrees to see the full picture.

Last week NYT ran a story about a study supported by Pew Charitable Trust that focused on those age 21 to 24 in the current recession.  Here are the key findings:

People with four-year college degrees saw a 5 percent drop in wages, compared with a 12 percent decrease for their peers with associate’s degrees, and a 10 percent decline for high school graduates.

Among those whose highest degree was a high school diploma, only 55 percent had jobs even before the downturn, and that fell to 47 percent after it. For young people with an associate’s degree, the employment rate fell from 64 percent to 57 percent.  But those with a bachelor’s degree started off in the strongest position and weathered the downturn best, with employment slipping from 69 percent to 65 percent. 

College grads are having a harder time, but others are having a much harder time.  

Is there still a payoff to the MBA?

Monday's WSJ ran a front page article about how MBAs are having such a tough time in the job market.  Two facts are undeniable: (1) student debt levels are rising and (2) MBA salaries are flat.  This certainly implies that the return on investment has declined.  What it does NOT imply is that the return on investment is zero. 

The article makes the common journalistic fallacy of not asking the key question: compared to what?  For those contemplating the MBA, the key comparison is the income path with an MBA versus the income path without one.  Even if MBA salaries are about the same as they were five years ago, they continue to be considerably higher than salaries of college graduates without a graduate degree. 

Still, the MBA is not an instant ticket to success for everyone.  The article points out that while companies value the skills associated with the degree, they value work experience even more. 

Fiscal cliff notes

I was asked repeatedly by family and friends over the holidays whether their taxes were going to skyrocket if Washington failed to get a deal before the year ended.  My answer: As long as neither party saw a clear gain from going over the cliff, you can count on a deal.  Just as in the case of the debt limit deal in summer 2011, both sides waited until the last minute to cut a deal.  Just as in every case when there is a big deal in Washington, lots of pork (that has received next to zero publicity from mainstream media) was shoveled in at the last minute.  And even better, the general public was greatly relieved that, at least for 99% of Americans, taxes would not be going up. 

Here is where you have to give the Washington pols a lot of credit: the drama over the extension of the Bush tax cuts kept everyone's eyes off of all of the other tax increases that kick in with the arrival of 2013: a 2% increase in the payroll tax for everyone, a 2.3% tax on medical devices, and a 3.8% tax on investment income for those in high income brackets. 

Of course the revenue generated from all of the new taxes, including those imposed on the top 1%, will not come anywhere close to keeping up with the growth of spending on entitlement programs.  If anything, each party seems to have hardened its position in the last go around of talks with Republicans saying that this is all the extra revenue they will sign off on from tax increases and Democrats refusing to make any serious compromises on the growth of entitlement spending.