Private unemployment insurance

People buy all types of insurance -- health, auto, home -- as a mechanism to manage risk.  One of the biggest risks is losing one's job, an event likely to lead to months of zero earnings followed by a new job that pays much less than the one you had.  

Each state has an unemployment insurance system funded by payroll taxes.  The benefits are modest, usually about 25-33% of wages.  Their duration varies by state and with economic conditions; the unemployed typically can get benefits for a year or more during recessions whereas the cap can be three to six months in peak economic conditions.  Relying on state unemployment benefits when jobless is comparable to relying on Social Security when retired -- you better have other sources of income or have some savings you can draw down.

NYT reports that the private sector has come up with a new alternative -- an insurance product called IncomeAssure.  Employees pay a monthly premium and receive insurance that covers the gap between state unemployment insurance and 50% of their before-tax earnings.  As you might expect, the top benefit is capped at $125k.  Also there is a six month lag between the time you pay the premium and the time you are eligible to collect benefits.

To be successful, IncomeAssure will have to make wise decisions on pricing.  Premiums vary by location and occupation to reflect differential risks of being laid off; construction workers pay more for the same benefit than public school teachers.   IncomeAssure also will have to worry about having enough funds to pay promised benefits when the next recession hits.  And their customers should worry about this too!

Historically I have used unemployment insurance as an example of a product that the private market was unlikely to provide.  Maybe IncomeAssure will prove me wrong.

Should tuition be lowered to $1k/year at five UNC system schools?

NC State Senate Bill 873 proposes lowering tuition to $1k/year at five UNC system schools: Elizabeth City State, Fayetteville State, UNC-Pembroke, Western Carolina, and Winston-Salem State.      As reported in Friday's N&O, the UNC Faculty Assembly has criticized the proposal because it does not specify how the campuses will make up for the lost tuition revenue and because the plan would undermine the mission of four historically minority campuses.  Tuition ranges between $2800 and $3900 at these campuses.  In contrast, tuition is $6407 per year at NC State; mandatory fees move the annual cost up to $8880.

The bill's sponsor Sen. Tom Apodaca (a WCU graduate) argues that this would make college education more affordable.  However, if affordability is the main concern, this bill is the wrong way to go.  Students from all income levels would be applying to these campuses, many of whom could afford to pay much more.  Also, the bill does nothing to make tuition at the other UNC campuses more affordable.

The legislature's sudden concern with rising tuition coincides with an election year.  The Faculty Assembly report points out that legislatures over the last seven years have cut state funding per degree by $6865 while (not coincidentally) tuition per degree has increased by $6537.  Cause and effect?

Don't hold your breath expecting to see the old funding return.  Yet if the legislature is truly concerned about UNC system tuition being affordable, it should focus on increasing financial aid for low income students at all campuses.  To be innovative, the legislature could consider tying cash grants for tuition now to income-based repayments to the state later.  To be even more innovative, the repayment schedule could be lower for those who choose to live in NC (and who would be paying NC taxes).

New overtime regs go into effect

A year ago I posted about proposed new federal regulations on overtime.  This week a revised version  went into effect.  Under the old regs, salaried workers earning over $23,660 had to be paid overtime each week they worked more than 40 hours.  Now the salary threshold has kicked up to $47,476, making 4.2m employees newly eligible.

The net effect will be to increase the cost of labor which will lead to reduced labor hours worked.  Hours worked per person will definitely fall, but employment may or may not change much.  Some employers will add more workers to avoid having to pay overtime, whereas others will substitute capital for workers.

The basic economics of the new overtime rules are very much like those of the minimum wage.  Some workers will come out ahead (those getting overtime that did not used to get it), whereas other workers are worse off because their hours get cut or their job vanishes.  Employers and their customers are worse off because costs have risen; after all, someone has to pay the higher overtime wages.  

Is the TSA a lose-lose proposition?

The Transportation Security Administration has been in the headlines lately as wait times in Chicago O'Hare, Charlotte, and other airports have hit three hours and passengers have missed flights.  Although some passengers will enroll in PreCheck (I just did and it is pretty easy to do) and be able to get through faster, many are starting to ask whether the TSA can pass a basic cost-benefit analysis.

The TSA spends about $5.5b per year on airport security and employs 47k security officers.  According to NYT, TSA claims that tighter budgets have forced personnel cutbacks, whereas TSA critics have responded that the agency has failed to plan and failed to prioritize.

Although the cost side is pretty clear in terms of budget and passenger wait time, the benefits are much harder to measure.   I have yet to hear of a TSA screen confiscating materials that were to be  used in a terrorist attack.  Think of the movie that could have been made, with Melissa McCarthy as the heroic screener catching Murray Abraham with a ticking bomb!

Does fear of apprehension by the TSA deter would-be terrorists?  The evidence on this front is not encouraging, as reported in today's WP:

Agency watchdogs have documented that undercover security operatives managed to smuggle 67 illegal weapons or simulated bombs past TSA security on 70 tries last year, that TSA officials were unable to properly vet 73 aviation employees who had links to terrorism, thereby allowing them access to secure areas, and the senior managers have a long history of bullying whistleblowers who identify potential problems.  

Another potential benefit is peace-of-mind for passengers.  It could be that even if TSA is totally useless for preventing terrorist acts, passengers may value the service and be reluctant to fly in its absence.  The agency is partially funded by passenger fees.  In the future it would be worthwhile to (1) conduct research to measure the value of peace-of-mind and (2) figure out a way for air passengers to pay the entire cost.

Raleigh-Durham ranked as #4 startup hub

WRAL's TechWire reports today that the Raleigh-Durham area has been ranked as the #4 hub for startup businesses in the US.  Boston was #1, followed by the Bay Area at #2 and Denver as #3.  RDU ranked ahead of San Diego (#5) and Austin (#6).  The full report sponsored by the US Chamber of Commerce Foundation, 1776, and Free Enterprise can be found here.  Rankings are based on how well the cities "attract talent, increase investments, develop specializations, create density, connect the community, and build a culture of innovation."  Raleigh received especially high marks for talent (#5), connectivity (#3) and culture (#1).

NC State's Poole College of Management has long played an active role in the Raleigh startup community.  Our Jenkins MBA students have long been actively involved in commercializing new technologies on campus.  Recently our undergraduate and MBA students have been working with startup firms at the incubator HQ Raleigh.  Students wanting to learn about entrepreneurship should certainly be giving NC State a hard look.