Cost of health care mandate: not an easy exercise

Yesterday's WSJ ran a piece that gave some new insights into how the new health insurance mandate will affect employer costs and insurance coverage.  Fast food chains such as Wendy's, Chipotle, Popeye's and Jack in the Box are now lowering their cost estimates because they think many employees will decline the opportunity to have employer-sponsored health insurance.  The premiums charged by these companies will end up being cheaper than the fine on the employee for not being covered, so many will just pay the fine.  Others will rely on Medicaid or coverage from other family members. 

Recall, however, that other chains are doing everything they can to keep worker hours under 30 per week so they are not covered by the new mandate.  So the overall effect on disposable income for employees and cost to employers remains to be seen.  And at the end of the day, how much will health insurance coverage actually expand?

Another hopeful sign

The labor market is still mired deep in the Great Recession, but we are starting to see some signs of hope.  Housing is taking off in some parts of the country.  Today's WSJ reports that businesses are increasing capital investment in the first quarter.  This is a good sign for two reasons: (1) more private sector spending of any kind means more job opportunities and (2) it signals that businesses are becoming more confident that a real recovery is around the corner.  Let's keep our fingers crossed. 

Reversal of the gender gap

Today's NYT summarizes research by MIT economist David Autor that examines why men have been losing ground economically over the last three decades while women have been advancing.  (Click here for the full study.) The raw data show that women are now much more likely to attend and complete college than men, the percentage of men who are in the labor force has been falling, and male earnings have been falling. 

There is a real puzzle here: we all know the returns to higher education have grown tremendously over the last 50 years.  So why would men not take advantage of this opportunity?  Theories abound.  Some think women are more adaptable; others think men have become less industrious.  Autor thinks changes in family structure may be partly to blame.  More and more children grow up in single parent households (where the parent is female most of the time) and some research has shown that boys in these households do worse than girls. 

A vicious cycle also ensues: with fewer men available who can contribute economically to a marriage, more women in all socio-economic strata are having children on their own.  Which naturally creates another generation of boys and young men who are economically disadvantaged. 

Although overall men still earn more than women, among younger workers the gap is narrowing and may soon reverse. 

Crude Keynesianism

Columbia Professor Jeffrey Sachs wrote a persuasive critique of what he calls "crude Keynesianism" (for a leading example, see NYT columnist Paul Krugman) in the Huffington Post last week.  Sachs goes after four central concepts:

(1) The belief that multipliers on tax cuts and transfers are stable, predictable and large;
(2) The belief that America's employment and growth problems are overwhelmingly cyclical, not structural, and therefore remediable by short-term aggregate demand management;
(3) The belief that a growing debt burden is a minor nuisance as long as the economy is in recession;
(4) The belief that for practical purposes, the most urgent need is to raise aggregate demand rather than to focus on the quality and type of public spending

For each one, he makes a strong case that the government's ability to stimulate the economy through fiscal policy is quite limited.  Not sure I buy into Sachs' ideas on what we should be doing instead (renewable energy??), but the article is well worth a quick read. 

More Obamacare surprises

Two recent pieces about hidden aspects of the Affordable Care Act that are just coming to light, almost three years after the law was passed.  Friday's WSJ reported that employers are just now learning about a $63 per person fee that companies will have to pay for each person they insure.  The proceeds will go to insurance companies to cover the higher medical costs they will face when they can no longer bar coverage to people with pre-existing conditions.  Naturally employers will pass some of this tax on to their workers, either through smaller raises or reduced health benefits.

Unions, once strong proponents of ACA, are now having second thoughts, reports the Weekly Standard.  Some union leaders expected that their plans would be given waivers from ACA requirements, but so far most of them are still waiting for their waiver.  Also, the most generous plans are subject to the "Cadillac tax," and -- surprise, surprise -- employers are not too crazy about paying union workers extra money to cover the tax. 

Developing farm to table supply chains

Do you want your tomatoes from a local farmer, picked within the last 48 hours?  Or would you rather have them come from California or Mexico, picked within the last month, or two?  For the discerning food buyer, this is an easy choice.  However the supply is not there right now to meet the demand. 

Supply chain Professor Rob Handfield is working with NC State's Center for Environmental Farming Systems on a five year $4m grant from the US Department of Agriculture that will help local farmers develop distribution channels to plug into local restaurants and groceries.  Right now local farmers are not large enough and dependable enough to meet the needs of major grocery chains and large food distributors.  Their option is to sell at farmer's markets or roadside stands.  Is there a way that farmers can work together and develop distribution networks that would give farmers access to the retail market?  MBA students will be working with Professor Handfield to find out the answer. 

To learn more about the project, read today's story in the N&O. 

Cable TV bundles about to unravel?

There once was a time when there were four major television networks and no recording devices.  Now there are 100s of networks and all sorts of opportunities to watch any show at any time.  But consumers of satellite and cable TV do not have the opportunity for a la carte pricing.  Instead they must select among various bundles of channels.  In Raleigh, Time Warner is the largest service provider and consumers choose between basic cable, various tiers of digital cable, along with HD options and premium channels. 

In essence cable and satellite TV is like a restaurant where everyone must order a full meal at a set price rather than being allowed to pick and choose which dishes they want.  This is not necessarily bad for consumers; imagine a menu where appetizers are $8, dinners are $15 and desserts are $6.  If you can get a three course meal for $25 and you were going to get all three courses anyway, then you are better off than buying each course separately.  So if basic cable is $25 per month and the 200 channel package is $45, a lot of people think they are getting a bargain with the extra surcharge. 

But cable has become so specialized that many viewers do not watch more than 10 channels, which makes them wonder why they should pay for 200.  Some watchers are cutting the cord altogether and relying on broadcast channels, Hulu and Netflix for their TV fix.  WSJ recently reported that Cablevision Systems sued Viacom for antitrust violations because Viacom was forcing them to buy channels they really do not want in order to keep carrying Nickelodeon and MTV. 

My take: over the next five years TV is going to go through the same revolution as the music industry.  Consumers will select the shows they want and watch them when they want.  The companies that catch onto this first will be the winners. 

MBA still a smart investment?

Not according to Dale Stephens who, in a recent WSJ weekend essay, claims that young people can do better investing MBA tuition in other activities.  Stephens shows a misunderstanding of today's MBA education at multiple levels.  He claims that students can get the same educational content through open courses.  There are many great online resources now for many subjects, but they lack opportunities to engage and get feedback from faculty and fellow students. 

Stephens also seems to think MBA education is nothing more than textbooks and case studies.  At NC State, students do research projects, often working with corporate sponsors, in most classes.  Our experience is much more like an apprenticeship, especially in the advanced courses.  Stephens suggests students focus on programming skills as they offer a higher return, and misinterprets MBA salary data in the process.

Stephens claims that students do not need MBA connections to network; I am guessing he must be much luckier than anyone else in getting Harvard and Stanford MBAs to return his emails and voice messages.  Stephens has a book to sell ("Hacking Your Education") and a website UnCollege.org that lists educational resources that may be helpful (it is down right now, so I cannot really tell).  He has no college degree, but he is an authority on MBA education -- somehow this does not add up.

Spain's paradors face austerity

The scope of government activity varies tremendously across different countries.  The US federal government spends most of its dollars on income maintenance programs (Social Security and Medicare mostly) and defense.  Except for USPS and the national park system, the feds tend to stay out of businesses that compete with private enterprise (ok, there's Government Motors too). 

Let's hop the pond and take a look at Spain where the national government runs a high end hotel chain.  For decades the government has purchased historic structures (churches, castles, convents, monasteries and the like) and turned them into upscale resorts.  NYT ran a travel piece last weekend about how these properties are holding up now that Spain has to make significant spending cuts.  The travel reviewer visited four properties and gave them all a thumbs up. 

The article also touched upon the business and political difficulties facing the paradors.  Initially Spain wanted to close seven paradors and have many more close for at least four months each year.  But this ran into a buzzsaw of criticism from the unions representing the employees and part of the plan was scuttled. The paradors do have new management and they are trying to update the marketing approach and manage costs more effectively.  They have their work cut out for them:

As a government enterprise, the paradors also have a bulky and inflexible staff ...  As government workers, they expect to be employed for life.  “If you have 12 people eating in the dining room, do you need 15 people in the kitchen? A private chain would adapt to the off-season numbers, cut back on staff or close for a time. But the paradors have not been doing that. They have been paying 200 people to work full time on union business alone.”

Yet as the Spaniards try to get more bang per buck on their paradors, what will happen to the staff who get downsized?  Will they be able to get jobs in hotels and restaurants in the private sector, or will they be stigmatized for their government employment?  No easy answers.   

Minimum wage in the news

President Obama has proposed that the federal minimum wage be increased from $7.25 to $9 and be indexed to automatically increase with inflation in the future.  The economic effects are straightforward: some low-skilled workers will be priced out of the market.  In cases where employers cannot find substitutes for labor, the result will be either higher prices or reduced profit margins. 

Christina Romer, Obama's chief economist in his first term, is not so sure that increasing the minimum wage is such a great idea.  Although intended to help the working poor, some of the beneficiaries are teenagers in well-to-do families.  She suggests that boosting the earned income tax credit would be a more effective approach.