Wednesday, July 31, 2013

DC considers living wage requirement

Earlier this month the city council of the District of Columbia passed the "Large Retailer Accountability Act," which would require retail corporations with annual sales of $1b or more that have stores with 75k or more square feet to pay $12.50 per hour.  The minimum wage in DC is $8.50, so this amounts to almost a 50% increase. 

This is carefully crafted legislation, the Economist notes.  There are very few big box stores in the District, and those that are present (Giant Foods, Safeway) are unionized.  The law does not apply to existing stores for four years.  "That leaves only Walmart, which had planned to open six new stores in the District."

Walmart's reaction: no surprise, plans for three stores have been trashed and the other three are on the ropes.  Whatever your opinion of Walmart, the net impact will be fewer jobs in DC and a chance for DC residents to take advantage of Walmart's lower prices without going to Maryland or Virginia.  Further proof that demand curves slope downward -- making labor more expensive means fewer jobs. 

Saturday, July 27, 2013

Location and economic mobility

Earlier this week NYT ran a front page story about a study by four economists from Harvard and UC-Berkeley that looks at how economic mobility varies across different parts of the country.  The study has received a lot of attention because it is accompanied by a map that shows mobility rates by city and region.  Six of the seven cities with the highest upward mobility are in the west; the ten cities with the lowest rates are in the south or midwest.

The story has received a lot of play, and most of that focus has been on the south.  All of the human interest anecdotes in the NYT piece come from Atlanta, the city with the lowest mobility rate.  The N&O version included a quote from a UNC law professor: "I think of the South as the national home of poverty."

The odds that a child in a family in the bottom fifth of the income distribution will end up as an adult in the top fifth are very, very low no matter where that child lives.  The highest odds are in Salt Lake City, San Francisco and San Jose (11%); the lowest are in Atlanta and Charlotte (4%) with Detroit a notch above at 5%.

The factors associated with higher mobility include low percentages of households headed by single parents, high percentages of households attending church, higher quality schools, and higher percentages of middle class households.  Residential segregation by income also plays a role; areas where low income households are segregated from middle income households have lower mobility.  Tax policy does not seem to matter all that much. 

Thursday, July 25, 2013

More evidence of a rotten recovery: "missing households"

I learned about a new economic statistic in yesterday's WSJ: missing households.  Young people make choices about living arrangements, whether to be on their own, have a roommate, or continue to live with their parents or other relatives.  One can calculate how many households we would have if every person or family lived in their own housing unit.  Compare this to the actual number of households and you get an estimate of the number of missing households.

As the economy started to go downhill in 2008, there were 900k missing households.  By 2011 the number peaked at 2.6m.  It is now down slightly to 2.4m.  Most of those in missing households are between the ages of 18 and 34. 

One does not have to do a lot of fancy economic modelling to infer that a good chunk of these 2.4m people are not staying in their parents' house by choice.  This is a further reflection of the truly difficult labor market that we face today.  It also suggests that we are not going to have a serious recovery in housing until the labor market gets better. 

Tuesday, July 23, 2013

NC legislature's impact on the labor market for teachers

The about-to-be approved NC budget will have a far-reaching impact on the teaching profession in NC.  As reported in today's N&O, tenure will be eliminated for newly-hired teachers.  Teachers who earn masters degrees in the future will not receive any salary premium.  The NC Teaching Fellows program is kaput.  Plus teachers, like all other state employees, will receive no pay raise. 

The net effect of all of these steps is likely to be a sharp reduction in the number of young people who enter the teaching profession.  In a free market, salaries would increase should a shortage arise.  But with many years of tight budgets ahead (thanks to the tax cuts passed by same legislature), raises are not in the cards.  So expect the legislature to open up more channels for individuals who do not have teaching certifications to enter the profession. 

Thursday, July 18, 2013

Do MBAs have realistic salary expectations?

QS recently did a survey of full-time MBA applicants from around the world.  The results, reported at the MBA news website Poets and Quants, show that U.S. applicants expect to make $140k per year upon graduation.  The average pre-MBA salary of the applicants is $58k.  So if their expectations were realistic, the full-time MBA would yield a 240% salary bump.

In many other countries, expectations are even less realistic.  For instance Russian applicants expect to pull in $144k versus their current salary of $37k.  The worst case is India, where applicants expect to make $112k, a 469% increase over their current $24k salary. 

Harvard MBA grads brought in $124k last year; the numbers from most MBA programs are much lower.  So something is seriously amiss.  There is plenty of MBA salary data available on the web, so it is hard to imagine ignorance is a factor.  One possibility is that applicants are over-confident on two counts: (1) underestimating the odds that they will get into a top 10 school and (2) overestimating their salary potential regardless of which school they get into. 

At NC State the salary bump for full-time Jenkins MBA grads has been running about 50 percent over the last two years, which is consistent with what you see at most large, public research-intensive universities.  The MBA remains a great investment.  In fact Forbes shows that five years after graduation, students make 2 to 2.5 times their pre-MBA salary.  But applicants should not expect to double their pre-MBA salaries immediately upon graduation.