Some uncomfortable data about earnings of university graduates

Over the last 40 years the earnings gap between workers with and without college degrees has steadily widened.  Even allowing for recent increases in tuition and student indebtedness, for the average student college continues to be one of the best investments he or she can make.

But is it still the case?  Weekend WSJ ran a piece by Jeffrey Selingo who raises some legitimate questions about returns to higher education.   Two of his key points have been established in a number of recent studies: (1) there is a lot of variation in earnings by major (engineers and business  do better than liberal arts) and (2) there is a lot of variation by university (Harvard grads do better than U of Phoenix grads).

The biggest surprise, however, is that in some states recent graduates from community and technical colleges are earning more than recent graduates from four-year schools.  A website called CollegeMeasures.org now tracks earnings data by school and major in five states and the community and technical college grads were doing better than the college grads in all five.  This is not an apples to apples comparison, because it does not take into account tuition costs, odds of finishing, odds of being employed, who was continuing their education after finishing school, and wages of graduates who move out-of-state.

The second biggest surprise is that some big-name schools had mediocre earnings records.  The University of Colorado at Boulder ranked sixth in the state, behind Metro State, Denver, Regis, UC-Denver, and Colorado School of Mines.  Colorado State was tenth, just behind Colorado Mesa.  

More on big data and hiring

Today's NYT business section has a lengthy article about how some firms are using big data to predict performance of job applicants.   Much of the piece centers on Gild, a new startup that has developed algorithms to review programmer code and expertise from a wide range of open source websites.  Gild identified a programmer with no college as the best available person in the LA area, interviewed him and hired him a $115k/year job.  So far he seems to be performing well on the technical aspects of his position. 

Two obvious caveats mentioned in the article: (1) this might work great for jobs where the skills necessary to be productive can be easily identified, but not so well for highly complex jobs and (2) the algorithm focuses on computer programming, not interpersonal skills. 

MBA team takes 1st place in Poole Leadership Showcase

Kudos to 2nd year NC State Jenkins MBAs Caroline Chamblee Lewis and Mike Westrich for winning first place in the Poole College of Management leadership showcase earlier this week.  Caroline and Mike project came from their Product Innovation Lab class last fall.  Working with students from the Colleges of Design and Engineering, they developed a personal health monitoring device for Chronc Obstructive Pulmonary Disease.  The device provides comfortable, continual monitoring along with automatic alerts to medical personnel if needed.  Another great example of MBA students learning by working on real world research projects. 

Free gas in Caracas

Gas in Venezuela costs less than six cents per gallon.  This has helped maintain political support for the ruling party, but as a recent WSJ piece points out, has been ruinous for the economy.  Every gallon of gas sold is a missed opportunity for government revenue; Venezuela's budget deficit represents 12% of GDP.  Consuming gasoline at home rather than exporting it means that the country has shortages of goods such as milk and flour.  Another example of the extortions resulting from price controls. 

Big data and human resource management

Two recent pieces on how analytics and big data sets are being used to make more informed decisions about employees:

(1) Today's NYT cites how companies are starting to take a more scientific approach to measuring and evaluating human resource decisions.  Not only are big data dogs IBM, Oracle and SAP in the chase; eHarmony also is looking at how to make better employee-employer matches.  Initial applications appear to be focusing on high-turnover service jobs in places like fast-food restaurants and call centers.  The story is full of anecdotes; the most insightful one for me was Google's decision to stop worrying about GPAs and SAT scores in deciding who to hire.  I wonder what they use now?

(2) A recent piece in the Economist (link courtesy of Freakonomics) also discussed how big data capabilities are being used in HR.  Two of the examples came from Evolv, a San Francisco company that has become recognized as a leader in work place analytics.  One client learned that the choice of browswer used by a job applicant was correlated with higher job performance and less turnover (those who used preinstalled browsers like IE and Safari do not do as well as those who installed their own browser, such as Firefox or Chrome).  Another learned that there was no real difference in performance between those with criminal records and those without. 

Disability benefits and the labor market

Great in-depth WSJ analysis last week about the growing percentage of the labor force going on disability.  Originally designed to protect employees who have suffered severe injuries or illnesses that preclude them from working, the eligibility criteria were widened in 1984 "to place greater weight on applicants’ own assessments of their disability, especially when it came to pain and discomfort; to replace the government’s medical assessments with those of the applicants’ own doctors; and to loosen the screening criteria for mental illness, among other things."

Historically, workers are much more likely to apply for disability during recessions.  In December 2007 there were 7.1m workers on disability, which increased to 7.6m at the "official" end of the recession in June 2009 and to 8.9m in March 2013.  The ratio of those receiving disability to the size of the adult labor force (employed plus unemployed) rose from 1.7% in 1970 to 5.4% in March 2013, despite significant improvements in health and workplace safety. 

The benefits are far from generous, averaging $13,650 per year.  But combined with other social insurance programs, the payoff to searching for work appears to be quite modest.  In 2011, only 0.5% of beneficiaries got jobs.  Assuming this pattern continues, we should not count on very many of those who lost their jobs in the recession and ended up on disability to return to the labor force. 

Time to sell?

All stock indexes are at historic highs.  We have seen this movie before; remember 1987, 1999 and 2007?  A sharp drop has to be around the corner, right?

Not so fast, say some financial experts at leading business schools quoted in a recent NYT story.  NYU Stern's Richard Sylla (formerly a colleague here at NC State) has shown that buying at market highs sometimes ends up being a wise strategy.  Wharton's Jeremy Siegel says potential buyers need to look carefully at market fundamentals, which he thinks support further increases in stock prices. 

JC Penney believes in pay for performance

JC Penney recruited former Apple exec Ron Johnson to turn the company around.  And he did, albeit not in the direction that the JCP Board had in mind. 

Usually when we see a CEO depart, we also hear about a 7 or 8 figure separation package.  Johnson walks away with the stock he received when he became CEO -- stock that is worth 50% less.  Nothing more, unless he qualifies for unemployment benefits.  WSJ reports that Johnson walked away from $107m of Apple stock when he became JCP CEO. 

This is a unique case of very high-powered incentives where the well being of the CEO was perfectly aligned with that of the shareholders.  Chicago Booth's Steve Kaplan notes in WSJ that most CEOs negotiate a termination package on the way in as a form of insurance.  Not sure how much insurance an exec like Johnson really needs (he made $138m in his last years at Apple after cashing out his options), but one must always be aware of earnings opportunities elsewhere that execs walk away from when they take a new job.