Has the rate of innovation slowed down?

Economists are having a hot debate on whether the economic payoff from innovation has slacked off and The Economist recently ran a long article summarizing the main issues.  Why, in an age of smart devices and gene mapping, would one think that innovation is slowing down?  One reason is the growth statistics; GDP per capita grew 2.5-5% annually in the 1950s and 1960s but only grew 1% annually so far in the 21st century.  The second argument is that today's innovations are less life changing than those of years past.  As cool as nanotechnology may be, it is not yet having the same effect on people's well being as indoor plumbing, air conditioning, kitchen appliances, and automobiles. 

So should we expect life in 2050 to be about the same as today?  I seriously doubt it.  Other economic research has shown that there are significant lags between the introduction of a new technology and its full adoption.  As the Economist notes, it took a full century for the steam engine to have its full effect; four decades for electricity.  Another reason to expect more innovation: rising levels of education in countries across the globe.  This means more researchers and more innovations.  We also should expect continued improvements in health and longevity, thanks to the innovations in IT and life sciences.  

More on holding colleges accountable

As a general rule, I think free markets work pretty well.  But they tend not to work so well when buyers lack critical information before they engage in a transaction.  Sometimes the private market does an excellent job of filling information gaps; examples include online reviews or car magazines.  Other times critical information is costly for outsiders to collect, (calorie counts, condition of a used car) and government regulation requiring disclosure can result in more informed decisions when the cost of data collection and dissemination is low compared to the gains from the information. 

The private market (US News) provides lots of data about colleges, but most of the guides and rankings focus on inputs (class size, SAT scores) rather than outcomes (learning, careers).  Senators Marco Rubio (R, FL) and Ron Wyden (D, OR) -- note the bipartisanship -- have introduced a bill ("The Right to Know Before You Go Act") that would require colleges to tabulate and publish placement rates and salaries by major.  Students and their families would then be better positioned to decide for themselves whether college is a wise investment. 

Obtaining and tabulating such data will not be an easy task.  Not all students will report post-graduation plans and salaries.  WSJ notes that publishing fresh data each year by major will raise privacy concerns in small departments and programs; a three year average makes more sense than annual numbers.  Ten states are already releasing such information; the other 40 (and DC) should join them. 

Jenkins MBAs win Microsoft-Lenovo case comp

Kudos to NC State Jenkins MBAs Patrick Ferguson, Eddie Jones, JJ Eve, and Caroline Chamblee for winning the first local Microsoft-Lenovo case competition.  UNC-Chapel Hill finished second and Duke was third. 

Economic effects of new immigration law

It is not a done deal by any means, but talk in Washington indicates a high probability of major changes in the nation's immigration laws.  Major provisions would include increased visas for graduates of US universities in STEM disciplines, temporary visas for certain types of workers (mainly agricultural), and steps toward legal status for those in the country illegally. 

This WSJ piece tries to sum up the overall impact.  Illegals become more likely to invest in themselves and their communities, so we should expect more spending on education and housing.  Their employment and salaries are unlikely to be immediately affected, because they are already here and employers accepted their fake IDs to begin with. Over time some will be able to shift from the cash only economy to regular employment. 

Government budgets will be affected, but it is hard to tell which way.  Illegals will have to pay an entrance fee and those formerly in the underground economy become more likely to pay taxes.  Simultaneously, illegals become eligible for a wide range of government benefits. 

No more Saturday mail

Although it has a monopoly on mail delivery and mailbox use, USPS continues to lose money and has recently announced plans to stop Saturday delivery.  Some commentators, including WP's Katrina vanden Heuvel, have noted that USPS faces extraordinarily high pension costs because of a law requiring full funding of pension and health care benefits (a law that applies to no other government or corporate entity).  But the ultimate problem is that USPS must break even, despite falling revenues and labor costs that it can't/won't control. 

Cornell professor Rick Geddes wrote a piece for CNN.com that gets to the more fundamental issues facing USPS and some imaginative ways of dealing with them.  He suggests the following steps be taken:

• End the monopolies so that USPS has to face competition, which will make it lower costs and improve service.  All 27 EU members have already done this.  
• Create incentives for USPS to become a global competitor in the mail and package delivery market.  That would mean the ability to enter new lines of business and make strategic alliances.  

USPS has assets, including a nationwide network of post offices (that could sell other things besides stamps), trucks and sorting centers.  Some could be sold to generate funds for investments elsewhere. 

One final thought: it seems like most of the mail I get these days is catalogs and solicitations, that use a lot of paper and fuel as they make their way to my mailbox.  Is it possible that, given the full environmental costs, the postage on these items is too low?  Maybe we could get by on three days of delivery?

Unemployed > 6 months and out of luck

Recently two Northeastern University economists (Rand Ghayad and William Dickens) sent out 4800 fictitious resumes to companies in 50 metropolitan areas.  The resumes varied in two important respects: whether the applicant had industry experience and how long the applicant had been out of work.  It was not much of a surprise that those with experience in the same industry had greater odds of being contacted than those with experience in a different industry. 

The key result related to time unemployed: applicants who had been out of work more than 6 months had virtually no chance of being called for an interview.  The long term unemployed represent about 38 percent of the total unemployment pool, which makes this a significant social problem. 

Why do employers lack interest in the long term unemployed?  Some economists think employers are using long term unemployment a signal of the applicant's capability; in other words, if you were any good, somebody else would have hired you by now.  Others think it is simple prejudice and argue that such discrimination should be illegal (the President's American Jobs Act included such a provision but it was not approved by Congress).  For more information see this article from Bloomberg Businessweek and this press release from Northeastern. 

Big changes in store for law schools?

The American Bar Association has appointed a task force on the future of legal education and much of the conversation is focusing on some pretty big changes.  Things like cutting the length of the degree from three years two, making law degrees an undergraduate degree option, and changing the mix of faculty to more practitioners and fewer academics. 

ABA can only make recommendations, as law schools are regulated by the state courts.  In a time when many law school graduates have had difficulty getting positions as practicing attorneys, it will be fascinating to see how this all plays out. 

Will feds let US Airways-American merger fly?

Sometime this week American Airlines is expected to merge with US Airways, with the combined airline using the American brand and US Airways CEO Doug Parker expected to run the enterprise.  The new American would be the world's largest airline, leaping over United (#1) and Delta (#2).  Currently American is #3 and US Airways is #5 in terms of US market share. 

Economically the deal makes lots of sense.  US Airways has a strong domestic presence but lacks American's international routes.  The two airlines do not have very many overlapping routes, but they would most likely eliminate some redundant hubs.

But will the deal pass the sniff test at the Department of Justice?  Delta was allowed to acquire Northwest in 2008 and United was allowed to acquire Continental in 2010, so one would think that this merger would be allowed to proceed based on these precedents.  On the other hand, DOJ has sued to stop the acquisition of small fry Corona by big-boy Ambev, as well as AT&T's bid to buy T-Mobile. WSJ reports that the European Union also would have to sign off because of the large number of trans-Atlantic routes involved.

Stay tuned.  To paraphrase Bette Davis in "All About Eve," fasten your seat belts, it's going to be a bumpy ride. 

Too old to work, too young to retire

Often when we talk to hiring managers and recruiters at the NC State Jenkins MBA, we hear a lot of worries about whether the young talent pipeline will be large enough and good enough to replace the soon-to-retire baby boomers.  Two recent NYT and WSJ pieces suggest that this is a problem that is not going to materialize -- the boomers cannot afford to retire. 

The WSJ piece focuses on a Conference Board survey of 45 to 60 year olds, two thirds of whom say they plan to delay retirement.  The culprits? Depleted portfolios, layoffs and stagnant earnings.  With smaller nest eggs and near-zero returns on safe assets, it makes sense to delay leaving the labor force.  Uncertainty about the future of employer health plans and Social Security also may play a role. 

NYT focuses on problems laid off older workers face, with many of them retiring or going on disability because their job prospects are so poor.  Those who do take new jobs end up making much less than before. 

This suit's for you

The U.S. Department of Justice has sued to stop Anheuser-Busch InBev's bid to buy Grupo Modelo (WSJ account here).  The two largest brewers ABI and MillerCoors control 39% and 26% of the US market; Modelo is a distant third at 7%.  DOJ fears that the merger would lead to higher prices and less choice.  DOJ claims to have data that show Modelo does not match price increases initiated by ABI, giving Modelo a stronger role in price setting than its market share would suggest.

I took a quick look at the DOJ brief and came away unconvinced.  There are two possible interpretations of Modelo's hesitancy to follow ABI's lead in rising prices: (1) Modelo sees itself as a competitor of ABI and wants to gain market share or (2) Modelo and ABI actually operate in separate markets and Modelo fears it would lose customers if it matched ABI's price increases.  DOJ is basing its case on #1.  Evidence on cross-price elasticity of demand would be needed to see if #2 is a more valid interpretation. 

ABI markets Bud, Bud Light, Michelob, Stella Artois, Becks and other brands across the globe; Modelo's brands include Corona, Modelo, Negra Modelo (my favorite of the bunch), and Victoria.  Notice any difference between the two brand portfolios?  This will be heavily debated should the case come to trial. 

One amusing insight from the DOJ brief was the description of the four major market segments subpremium (Natty Light, Keystone), premium (Bud, Miller Lite), premium plus (Bud Light Lime, Michelob Ultra), and high end.  The high end includes craft beers (Dogfish Head, Flying Dog) and imports (Heineken, Corona).  No argument on the first two segments, but I doubt many craft brewers pay attention to Corona prices.