Wednesday, February 26, 2014

Should employers be asking job applicants for SAT scores?

Today's WSJ discusses how employers are asking job applicants to submit their SAT scores.  The SAT is designed to predict academic performance in the first year of college.  So how could such scores inform hiring decisions, especially for experienced employees who took the test decades ago?

Not many employees spend their time calculating the area of a triangle or doing sentence completion exercises (unless their job is to write SAT questions for the College Board). Managers might logically use the SAT if they thought it predicted job performance, but a well run company would do a validation study to make sure this is an evidence-based decision.  Google used to use GPAs and the SAT but stopped the practice two years ago because they were poor predictors.

Monday, February 24, 2014

Will your pilot soon be earning the minimum wage?

The labor market for airline pilots is going through some unexpected turbulence.  Recently WSJ reported that a combination of boomer retirements and new training requirements (1500 hours of flight experience compared to 250 originally) were causing some regional airlines to drop their least profitable flights.  Aspiring pilots can amass tens of thousands of dollars in debt to get the flight time needed to meet the training requirements.  So why do they do this, especially since regional airline pilots earn an average salary of $22,400 and some earn only about $15k?

The answer -- eventually the pilots hope to land a position with a major carrier that pays well into six figures.  That is why they are willing to accept positions that barely pay more than the current minimum wage (and would be below the aspirational minimum wage of the Obama administration).   My expectation: expect to see salaries for regional pilots increase as always happens when there is a shortage and markets are allowed to operate.

Sunday, February 23, 2014

Economic impact of Comcast - TWC merger

Take two cable monopolists, combine them and stir.  How does this change:

  • Consumer choices: Not at all.  You are still going to be stuck with one cable option for television.  You will have Direct TV and Dish as satellite options and in many areas AT&T U-verse through your phone wire (if you have one).  Comcast and TWC do not compete in any market head to head.  Both are notorious for abysmal consumer service and negligible innovation; no reason to expect any improvement here.  
  • Prices: Possibly a plus.  By combining overhead functions, the merger should produce some economies of scale.  More importantly, the combined company will have more bargaining power with content providers.  People see the rising cable bills year after year and blame the cable provider; they do not see the upward ratchets in content costs, so they give Walt Disney (owner of ESPN) and NBC Universal (owner of Weather Channel, along with Blackstone and Bain) a pass.  
  • Internet speed: If you are thinking about cutting the cable cord, realize that in most places the cable company is likely to be your fastest source for internet.  Triple play pricing makes the cost of basic cable plus internet not all that much higher than basic cable by itself.  Pray that Google Fiber will come to your town soon.  
  • Number of cable subscriptions: Still likely to fall.  Too much good stuff for free or at low cost on the internet; sports is the only exception and you have to think ESPN and the major networks will soon figure out a way to sell sporting events on the spot market instead of sticking to the cable bundle.  

Friday, February 21, 2014

Another blow to the UAW

The last 40 years have been pretty tough for the American Big 3 automakers and the United Auto Workers.  First came Japanese imports, followed by outsourcing and Japanese and European transplants.  Once the Big 3 and UAW had a monopoly chokehold on the auto consumer; now their market share is well below 50%.

The UAW's only hope for survival is to organize the transplants.  They had a golden opportunity with the Volkswagen plant in Chattanooga.  Volkswagen offered no resistance to the UAW; in fact, they gave it an open mike to promote itself.  But just like a Road Runner cartoon, the outcome in Chattanooga was the same as in other big union organizing campaigns -- the workers chose to remain nonunion (WSJ report here).

In retrospect, the outcome is no real surprise.  VW workers were earning almost as much as their Big 3 counterparts (new hires at VW actually make more than their Big 3 counterparts), so why pay union dues?  Also for better or worse, the UAW has earned an anti-management reputation and receives much of the blame for the demise of the Big 3.  (Aside: making lousy cars also played a role.)  Bottom line: the VW workers weren't buying what the UAW was selling.

Wednesday, February 19, 2014

What would happen with a $10.10 minimum wage?

Yesterday the Congressional Budget Office issued a report on what would likely happen to American labor markets if the federal minimum wage were increased from its current value of $7.25 to $10.10 by 2016.  Two conclusions have received considerable attention in the press: (1) there would be 500k fewer jobs and (2) the number of persons living in poverty would fall by 900k.

It is easy to reconcile the two results.  Some workers would get raises and there are enough workers making between $7.25 and $10.10 who will keep their jobs to offset the income loss associated with those who lose their jobs.  Interestingly CBO notes that only 19% of the wage increases will go to persons who reside in households with a living standard below the poverty line.  In contrast 30% of the wage increases will go to persons who reside in households with income three times higher (or more) than the poverty level; these would be secondary earners in such households.

The CBO analysis appears to omit to other key elements of a minimum wage increase: reduced profits of business owners (some of whom are struggling) and higher prices charged to customers.

Sunday, February 16, 2014

Lessons from a MOOC @ Chicago Booth

John Cochrane, a finance professor at Chicago-Booth runs a blog he calls The Grumpy Economist, which is well worth a look once or twice a week.  Cochrane taught a MOOC last fall on "Asset Pricing" at the PhD level.  The course lasted nine weeks; students were expected to work 10-15 hours each week.  Reflecting on his experience in this post called "Mooconomics," Cochrane makes these points

  • Fixed costs are very, very high
  • The Coursera software for assessments is limited to multiple choice and numerical answers
  • Faculty need help with instructional design, video and IT to make the transition
  • The "flipped classroom" worked very well with his on campus students who studied the videos before class 
  • Look out faculty!  Money quote: 

But a warning to faculty: Teaching the flipped classroom is a lot harder! The old model, we pretend to teach, you pretend to learn, filling the board with equations or droning on for an hour and a half, is really easy compared to guiding a good discussion or working on some problems together.
With high fixed costs and zero revenue, Cochrane asks how can universities monetize their MOOC investments.  One possibility is that MOOCs replace textbooks and schools charge other schools to use their materials.  Another is that universities will use MOOCs to build brand awareness and closer relationships with alumni.  The fixed costs will be high, but then again football teams, libraries and labs aren't cheap either.

Saturday, February 15, 2014

Dealing with long term unemployment

Ran across this worthwhile piece by Bloomberg columnist Megan McArdle a couple of days ago where she discusses the question of what we should be doing to reduce the severe problem of long term unemployment.  We still have 3.6 million people who have been out of work for 6 months or more.  Should we be supporting them by extending unemployment benefits?  Or should we be creating incentives that would be creating more opportunities for them to be hired?

McArdle cites research by Alan Krueger (just returned to Princeton after two years being Obama's top economic advisor) that shows what happens to the newly unemployed.  At first they intensively search for positions.  Then once they have tapped out their network, most become passive waiting for something to come along.  Finally there is another burst of intense search as benefits run out.

Why does search effort follow this pattern?  Some might see it as a rational response to poor market opportunities; faced with a tough market, why spend tons of time beating one's head against the wall.  Others would see it as a rational response to living off the dole; this could very well be true in Europe where the ratio of benefits to lost salary income is fairly high (however, in the US benefits replace less than half of income).  Krueger found that heightened anxiety may play the most important role; rejection is unpleasant and a less intensive job search means fewer fruitless encounters with potential employers.

One idea that merits consideration, McArdle argues, is the Danish system where the long term unemployed have to accept job retraining.  Other options include tax credits to firms that hire the long term unemployed or grants to individuals who leave high unemployment regions to take jobs elsewhere.

Friday, February 14, 2014

Valentine's Day economics

Two great links to share on VDay:
1)  Stanford b-school economist Paul Oyer shares his thoughts in NYT on how to use economic reasoning to become a better valentine with three tips:

  • Signal your love -- don't get generic gifts like roses or candy; instead do something special for your sweetie such as cooking a favorite dish
  • Invest in yourself -- make yourself a better mate, either by getting more training and education so that your earnings power is enhanced or by enhancing your appearance to make your baby's eye candy all that much sweeter
  • Love the one you're with -- economics is all about optimization but too many people mistakenly think the proverbial grass may be greener and do not understand the costs and risks involved.

2) My colleague Craig Newmark found this story containing 14 Valentine's that economists might send (but hopefully only if their loved one is an economist as well).  My favorite:
The S&P was in the red,But I wasn't blue,Because I shorted the market, And went long on you.  

Sunday, February 9, 2014

Still lots of prime age men without jobs

Last week's WSJ has a long front page story on a trend that needs to be getting more attention: the steady decline in the percentage of 25 to 54 year old men who are jobless.  Here are the facts: in the early 1970s only 6% were jobless, a percentage that increased to 13% in 2007 just before the Great Recession.  The jobless rate peaked at 20% in 2009 and now sits at 17%.

There are a few partial explanations: more students attending graduate school, a higher incarceration rate and a larger percentage on disability (although the direction of causality on the latter is far from clear; are more people getting sick or injured or have disability claims have risen because of poor job prospects?).  Another possible culprit is declining inflation-adjusted wages.  Prime age men do not usually qualify for income maintenance programs other than disability.

So what to these idle men do all day?
Surveys find that most of the jobless spend their days in the same way working men spend their weekends -- watching TV, working out, sleeping.  
The story then goes in depth into the situations of four different men.  In each case there is a common thread: initially in a job that is a good fit with their training and experience, each experienced a layoff over the last few years and was unable to get any traction in the job market afterwards.