MBA applications on the rise, especially at NC State

The final numbers for the fall 2013 entering classes of full-time MBAs are in.  Today both WSJ and FT report that overall applications are up, reversing a four-year decline.  GMAC does an annual survey of business schools around the world, 50% of which reported a larger applicant pool for 2013 than 2012.  Among American full-time programs, the average number of applicants increased by 5%.

NC State's MBA class did especially well on the applications front this past cycle.  The number of applications increased from 162 to 199, a 23% increase.  The program also did well on the Working Professional front.  Applications were down at 53% of part-time MBA programs, but they went up at NC State.  The number of new evening students went up by 10%, online jumped by 33%.

One reason these numbers are on the rise is the improved career outcomes for our graduates.  More on that in another post.

No way to fill the FRB chair

I do not ordinarily comment on political matters in this blog, but the highly unusual process that has been used to handle the selection of the next chairman of the Federal Reserve is likely to have lasting economic effects.  It started last June when the President made comments in an interview that, in effect, Ben Bernanke had overstayed his welcome.  Then we have seen the spectacle of Larry Summers and Janet Yellen being vetted for the job in the press.  Endorsed by Senator Foghorn, unendorsed by Representative A far cry from the day when Jimmy Carter introduced Paul Volcker and everyone applauded.

David Gergen points out the peril of having a public competition for the post in this CNN Opinion piece.  First, if you start disqualifying people who have taken strong stances on critical issues, you simultaneously discourage the best and the brightest from being considered for the job AND from saying what they really think in public forums.  Second, you turn what has been a nonpartisan position (Reagan kept Volcker, both parties kept Alan Greenspan and Obama kept Bernanke) into a partisan one.  The FRB chair is by far the most powerful economic position in government; do we want the best person or the person who has done the most to win favor with politicians.

Now that Summers has dropped out, the pressure is on the President to nominate someone with equal qualifications.  Janet Yellen would be great.  But will we get instead one of the lesser lights in the current administration who would do his masters' bidding?

"If you like your health care plan, you will be able to keep your health care plan."

Retiree health insurance has long been available to those who spent their careers at large companies that historically have paid above average wages.  These programs were designed to both bridge the time period between retirement and Medicare eligibility and to supplement Medicare.  The first goal makes sense from a company perspective.  By making health insurance a sunk cost, older employees know they can leave the firm without losing their benefits.  The firm gains because it can then replace the worker with a new hire making a much lower salary.

The second goal makes much less sense from a company perspective and IBM has become one of the first to make a move.  With health insurance soon to be available on government-sponsored exchanges, IBM retirees will receive a fixed dollar amount that they can use to buy their own policy.  IBM is moving from a defined benefit to a defined contribution approach, in all likelihood shifting most of the risk of rising premiums to retirees.

When will companies decide to do the same thing with their employees?

Is tipping an effective form of incentive pay?

Wait staffs depend on tips for most of their income.  In theory, this gives them an incentive to be well informed, courteous, and efficient.  From an economic perspective, there are some serious issues with this arrangement.  Suppose you are traveling and visit a restaurant that you know you will never visit again.  You and the wait staff are complete strangers.  The wait staff have no idea what kind of tip you will leave, making it unlikely that your tip will have any impact on their service.  Knowing that you will never go back, you have a monetary incentive to walk out the door and not leave any tip.

Sushi Yasuda in Manhattan caused a stir recently (NYT) when it raised its prices across the board and instituted a no-tipping policy.  Columbia b-school economist Nachum Sicherman argues that this approach is likely to lead to better performance.  Most patrons tip the same percentage regardless of service.  In most restaurants, tips are pooled and shared.  Also, waiters are but part of a complicated food production and delivery process; customers often fail to see that.  Sicherman thinks restaurant managers and owners are in a much better position to judge service than customers.

Admittedly there would be sticker shock in menu prices, which would have to go up 15 to 20 percent to cover lost tips.  Tips are not subject to sales taxes, so I would expect some redistribution of income from customers, wait staff and restaurant owners to state and local governments.  The most challenging aspects of any new pay system for wait staff would be providing incentives and managing risk sharing.  Managers will want to avoid a straight salary or hourly wage system, because it does not reward performance and shifts more of the risk of slow nights back to the establishment.  Wait staff who get higher than average tips (e.g., those who turn tables more quickly or have more engaging personalities) will not like a salary-based system; those who get lower than average tips will welcome it.  Highly popular restaurants would be the ones most likely to dump tips.  Maybe Ashley Christensen, owner of the always-mobbed Poole's Diner, will be the first to take the plunge.

Living wage - McDonald's isn't lovin' it

Last week fast food workers in a number of cities (including here in Raleigh) walked off their jobs in a symbolic strike in support of higher wages.  Some are pushing for adoption of a "living wage," up to $15/hour. 

Most of the recent publicity has gone to workers in the fast-food industry.  Thanks to a labor market that remains deep in recession, there are more adults working in the industry than ever before.  With many making within $1/hour of the minimum wage, they are having a hard time making ends meet. 

The economic questions to consider are (1) how big of a negative impact would a higher minimum wage have on unemployment, (2) would the gains of those who can still get jobs at a higher minimum wage be large enough to offset the costs to those who no longer will have jobs, and (3) even if the answer to #1 is "small to none" and the answer to #2 is "yes," are there other policies that would achieve the same or better results (in terms of helping those in poverty) with fewer adverse side effects on employment? 

As the results of this poll by Chicago Booth of the country's top economists show, there is a wide range of opinions on #1 (if the minimum only goes up to $9, not $15) and most think the answer to #2 is "yes."  Most studies have found relatively small dis-employment effects, so these two answers are consistent. 

However, in the past the minimum wage has never increased by 100%, which is what a jump from $7.25 to $15 would amount to.  Given the already high levels of unemployment we are facing, it is hard to see how the labor market could absorb such an increase without a massive loss in jobs.  That is why I think more emphasis needs to be placed on other approaches, such as the earned income tax credit and investments in education and training.