Steve Allen's Blog

TrueCar vs. "I'll check with the manager"

2012-02-11T11:01:00.000-05:00

Automobiles are mass produced by a limited number of sellers, but historically pricing has been far from transparent. The sticker price is taken as an upper limit (although there are sometimes two stickers: one from the manufacturer and one from the dealer) and it is up to the individual customer to negotiate something lower. Some people hate to negotiate and thus pay top dollar. Others relish the process and sometimes can buy at well below dealer cost (once the car is on the lot, the cost to the dealer is sunk so the salesperson will take the best price they think is attainable in the market -- as MBA 505 students all know). I always use it as my first example of first degree price discrimination.

Recently TrueCar.com has emerged as a useful intermediary. Potential buyers register at the site and get data on the dealer's true cost along with a guaranteed price from dealers in their area. Dealers pay $299 to TrueCar for each lead that becomes a sale; customers get multiple bids they can use as leverage before they even enter a showroom. (I used it recently; the only downside is a continued stream of junk emails from the dealers.) Of course some dealers are less than delighted with this arrangement, as noted in a story in today's NYT.

Ultimately one must wonder when a car company will decide to buy out its dealers and revolutionize the retail process. You would have showrooms with a limited number of demos; after a test drive, customers would order exactly what they want on the web.

Kellogg announces major changes

2012-02-08T08:33:00.001-05:00

I attended the annual GMAC Leadership Conference in Miami last week and the closing session discussed the major trends that are affecting the strategies of business schools. So far higher education has avoided the competitive pressures from globalization and technological change that have transformed other industries. I think the clock is ticking, especially for schools that rely on "sage on a stage" for information delivery. (Aside: Why should literally tens of thousands of b-school professors be giving the same lectures semester in and semester out? Schools could tape the very top profs and sell their lectures to other schools and both sides would end up ahead.)

Back in the office yesterday, I got a note from Adrienne Jablonski (formerly an NC State colleague, now at Oklahoma) with a link to this BWeek article on Kellogg's new strategic plan (here is another take from the Economist). Here are the major changes afoot:

• The size of Kellogg's highly regarded two-year, full-time MBA program will shrink by as much as 25 percent over the next three to four years--from 1,115 students to about 850--and enrollment in the executive MBA program would also come down. At the same time, the size of the one-year MBA program will double or triple, from 80 students to as many as 240.

• New, one-year master's degrees will be added to the Kellogg portfolio. These would be alternatives to the MBA. One such degree that the b-school is considering is a fifth-year master of science degree for undergraduates.

• The entire Kellogg MBA curriculum and research program will come in for a major overhaul, its first since 2002-03 and its deepest in nearly 30 years. It will be structured around four areas: markets, customers, and growth; "architectures of collaboration," or managing relationships with suppliers and customers through the use of technology; innovation and entrepreneurship; and the role of public policy in private enterprise.

• New, short-term certification programs will be established in international locations, including Sao Paulo and Shanghai. The non-degree programs, which lack the academic heft of an actual degree, will allow students to earn a Kellogg certificate for taking a group of courses on a specific topic. Faculty will be reviewing this idea in coming months.

We have started one new one-year degree at NC State -- the Master of Global Innovation Management -- and have a couple of others on the drawing board. I clearly see pressure to shorten the time needed to complete the MBA. I also see increased pressure to make sure that we are delivering as much value added as possible in each credit hour. We continue to live in interesting times. For more details on Kellogg's plan, click here.

Good news on the jobs front

2012-02-07T21:35:00.000-05:00

Two bits of good news in the last 4 days. First the January jobs report was the best since April, with the economy notching a net of 243k new positions. Unemployment fell to 8.3 percent, the lowest since February 2009. Sectors showing the largest gains: health services, professional and business services, and manufacturing. Construction is still flat. The other bit of good news: job postings from employers are up.

Should the federal government hold universities more accountable?

2012-01-30T17:39:00.000-05:00

Last week President Obama proposed sweeping changes in how the federal government handles financial aid programs at colleges and universities. According to NYT, the President wants to put more money into Perkins loans, work-study programs and Supplemental Education Opportunity Grants. The catch, and it is a big one, is that institutions "would instead be rewarded for lower net tuition prices; restrained tuition growth; enrolling and graduating low-income students; and providing education and training that help graduates get jobs and repay their loan."

Since virtually every degree-granting institution participates in these programs, this would end up being a sweeping mandate. A few reactions:
1) Most public universities have seen huge budget cuts over the last four years. Some have reacted by raising tuition aggressively; others (including NC State) have done their best to hold the line on tuition.
2) More transparency in higher education would be a good thing. Why not require all schools to publish graduation rates and placement data by major? We do this routinely in MBA programs. Why not do it for liberal arts, agriculture and engineering?
3) The professoriate tends to be much more liberal than the general population. So presumably they will see the wisdom of more micromanagement from Washington and there will be nary a complaint on any college campus.

Résumés, RIP?

2012-01-26T20:24:00.000-05:00

That day may not be too far off, according to WSJ. Union Square Ventures does not want to see them, instead preferring indicators of an applicant's web presence. Twitter, tumblr and YouTube are in; text is out.

From an economic perspective this is a bit surprising. In today's labor market the ratio of applicants to open positions remains quite high, so a résumé should still be useful for narrowing the field to a smaller set of qualified applicants before a manager starts looking at tweets. The article points out that most companies still use résumés as part of the screening process, but others are starting to use surveys that are tailored to the opening and others are asking for work samples.

Ultimately companies use screening criteria (e.g., education and experience requirements) that make economic sense (is value of information greater than cost of collecting and interpreting?) and are legally defensible. I imagine the résumé still has some mileage, but in many ways it is refreshing to see companies relying more on actual competencies and less on credentials.

On SOPA

2012-01-25T18:42:00.001-05:00

I have refrained from posting about the Stop Online Piracy Act (SOPA) because, frankly, I do not have either the time or expertise to make sense of all the legal details. Proponents argue that we need it to deter theft of intellectual property; others say it goes too far and holds companies liable for actions over which they have no control.

Yesterday's WSJ ran an op-ed by UT-Dallas economics professor Stan Liebowitz who, sometime co-authoring with my NC State colleague Steve Margolis, is one of the country's leading experts in the economic issues associated with digital property rights. Liebowitz' research shows that music sales (both CDs and online) are down 50% since 1999 and that the main reason is theft (aside: you may call it downloading, but it really is theft.)

Contrary to an often-repeated myth, providing consumers with convenient downloads at reasonable prices, as iTunes did, does not appear to have ameliorated piracy at all. The sales decline after iTunes exploded on the scene was about the same as the decline before iTunes existed. Apparently it really is difficult to compete with free. Is that really such a surprise?

Closing thought: it is one thing for the U.S. to pass a law banning and punishing online piracy, another thing to enforce it. Chasing and punishing digital thieves overseas may be like whack-a-mole.

If you were wondering about the gold standard

2012-01-24T10:16:00.000-05:00

Political campaigns make for great entertainment, as they always feature supposedly "new" ideas about how to help the economy. Newt Gingrich and Ron Paul have been urging the public to consider going back to the gold standard. That would mean there would be a fixed exchange rate between the dollar and the price of gold. There is a long history on how fixed exchange rates in general and the gold standard in particular operate. Like any other form of price control, there's lots of deadweight loss involved.

But why take my opinion? Chicago-Booth polled 50 leading economists concerning the desirability of moving back to the gold standard. These are economists coming from the full range of the political spectrum and all of them have published regularly in the very top journals. The results showed a strikingly rare degree of unanimity: every single one of them disagreed and most disagreed strongly with the proposition that the gold standard would improve price stability and living standards for the average American.

A couple of priceless comments: "Gold is intrinsically close to useless, so its price is determined as a "bubble" from Daron Acemoglu (MIT) and "Why tie to gold? why not 1982 Bordeaux?" from Richard Thaler (Chicago).

Should we worry about "complexity risk" from banking regs?

2012-01-21T11:40:00.000-05:00

Maybe we should, says NYT columnist Joe Nocera, reporting on recent research by Karen Petrou at Federal Financial Analytics. Petrou is concerned that there is so much complexity in the various mandates from Dodd-Frank that the regulations themselves could become a source of risk.

If we don’t understand the cross-cutting effects and inherent contradictions in all of the stringent standards now being written into final form, we risk doing real damage to the sound, stable and — yes — profitable financial industry regulators say they support and the economies sorely need.

Why does this matter? For one, it will raise costs. Also, it is likely to make banks more cautious, not because the underlying deal is financially unsound but because of the fear of regulatory interference. In the current slow-growth environment, does this really make sense?

Petrou argues that Dodd-Frank be simplified and changed so that the regulators themselves can be held liable. We'll see how fast that happens.

Surging productivity and stagnant hiring

2012-01-17T17:18:00.000-05:00

Productivity continues to grow at a rapid clip. Today's WSJ takes a closer look at why. Without even reading the article, students with a firm grasp of economics should suspect that either the cost of capital has fallen, the cost of labor has risen, or both.

The answer is all of the above. Capital costs have fallen because interest rates are nearly zero and companies could write off 100% of investments made in 2011. Uncertainty about future labor costs (health care and taxes) makes employers averse to new hires. As a result we see modestly rising output and it is coming from increasing output per worker rather than increased employment.

Michael Mandel takes a deeper dive into the productivity issue in this article. He points out that outsourcing is another important factor behind the increase in output per unit of input. The reason is that we use value added, the difference between total revenue and labor and materials costs, as our measure of output. When supply chain managers find cheaper sources of materials (or services), that increases margins and output with no change in labor or capital.

Historically increases in productivity lead to higher standards of living; at least that was the case in the 20th century when society first shifted out of agriculture to manufacturing. Now we are shifting out of manufacturing to services; hopefully the increase in living standards is just around the corner.

Not-so-cheery news from Dr. Doom

2012-01-16T18:16:00.000-05:00

The December jobs report was encouraging. The stock market has been doing well over the last 30 days. Maybe the economy is finally turning the corner?

Not really, according to NYU Stern economist Nouriel Roubini, aka Dr. Doom. He still sees consumers as being "income-challenged, wealth-challenged, and debt-constrained." On top of that, the federal fiscal stimulus is being dialed back and Europe is a ticking time bomb.

Economists adopt ethics code

2012-01-10T15:10:00.000-05:00

Economists regularly consult for companies or organizations. They also may receive research support from parties that have an interest in how the research comes out. Last week the American Economics Association formally adopted rules that require disclosure in academic work whenever conflict-of-interest issues may be present. According to WSJ,

Authors submitting papers to academic journals must disclose to the journal's editors all sources of financing for the research and all "significant" financial relationships with groups or individuals with a "financial, ideological or political stake" in the research. The policy defines "significant" as financial support to an author and immediate family members totaling at least $10,000 in the past three years.

Technically, the policy only applies to only the seven journals edited by the AEA but most observers expect all of the leading journals to adopt similar policies soon. Economists also are encouraged to disclose potential conflicts in other contexts, e.g., op-ed pieces, press interviews, and testimony.

These rules should apply to bloggers as well. I received support from a wide range of sources over the years, with most dollars coming from the US Department of Labor, Interamerican Development Bank, National Science Foundation, Financial Industry Regulatory Authority, and AFL-CIO Building Trades.

Do private equity buyouts destroy more jobs than they create?

2012-01-07T10:32:00.001-05:00

Fascinating new NBER working paper by a team of economists that includes Chicago Booth's Steve Davis and Harvard's Josh Lerner. They put together a data set of 3200 firms and 150,000 operating establishments that were targets and match them to comparable establishments (to serve as a control group). In the establishments that were taken over, employment fell by 6 percent more over five years after the buyout compared to the control group. Job losses were concentrated in retail and service sectors.

Sounds like the answer is yes. But wait. The authors then ask about the creation of new establishments and find that buyout targets were more likely to open new ventures than the controls. Once this is taken into account, the net job loss becomes less than 1 percent.

The study also looks at the process of job creation and destruction in the target and control firms and finds that the overall churn level is 13% higher in the target firms. This is consistent with the "creative destruction" theory of Austrian economist Joseph Schumpeter, who in essence argued that you have to break some eggs to make an omelet.

Best majors for employment

2012-01-04T11:15:00.000-05:00

Have a son or daughter in college, or soon to enter? Then you might want to look at a Georgetown University study (see WP for a summary and here for the study) that shows how unemployment rates vary by college majors. Recent graduates in health and education had the lowest unemployment rates (5.4%); majors in agriculture and natural resources, business, engineering, psychology and social work, and science also did relatively well (all between 7 and 8%). Majors to avoid if you are worried about joblessness: architecture (13.9%) and the arts (11.1%); humanities and social sciences also have higher than average unemployment rates (9%).

Job interviews @ Google

2011-12-30T12:12:00.000-05:00

William Poundstone has a new book coming out "Are You Smart Enough to Work at Google" and WSJ ran an excerpt last Saturday. The book will no doubt get considerable attention for sharing the brain teasers Google has developed. (Example: What is the next number in this sequence? 10, 9, 60, 90, 70, 66 … ? I could not solve this even though my quant scores on the SAT and GRE are off the end of the charts. But if you write the numbers out, you will then see a pattern; there is no single correct answer.)

This raises two critical issues: (1) Why do Google and other firms do this? Google gets 130 applications for each opening, so its selection problem is how to find the best people using a cost effective process. With such a high applicant to hire ratio, Google has no problem attracting persons who meet job qualifications.

Google isn't looking for the smartest, or even the most technically capable, candidates. Google is looking for the candidates who will best fit Google.

(2) What is the likely impact on labor markets and society? The hiring process involves selecting predictors that will inform the decision and be cost effective. Research has shown that traditional job interviews are not very good predictors of future performance and can result in bias (interviewers give high evals to people who are most like themselves). Increasingly, firms use a work-sampling approach to make decisions.

There is significant evidence that "work sampling," the use of tests similar to the work being performed, is a better predictor of future performance than the usual job-interview chit-chat. Google does a lot of work sampling, such as requiring coders to write code in the interview. The rationale for the creative-thinking questions is that they test the type of mental processes used in inventing a new product or developing a new business plan.

I doubt Google has experimental evidence that asking job candidates questions like "Suppose you were shrunk to a height of a nickel and dropped into a blender ..." actually works. It is far from clear that giving a snap answer to such questions yields better decisions than an approach that allows for reflection and research (especially if the goal is creativity and innovation). But until the ratio of applicants to positions shrinks, the practice is unlikely to change. Suggestion to job seekers: websites such as glassdoor.com allow interviewees to post about their experiences; be sure to check it out before you get asked to design an evacuation plan for San Francisco.

Merger policy in the Obama administration

2011-12-29T19:24:00.000-05:00

Have gone the last week without my laptop. Try it sometime; highly recommended.

Just as NC State was shutting down for the holidays, AT&T decided to give up its bid for T-Mobile USA, presumably because it decided the odds of approval were low. (Disclaimer: I do have a modest personal stake in this, having bought an iPhone from AT&T at a time when they provided unlimited domestic data for $30/month. I was hoping that the extra bandwidth obtained from T-Mobile would result in better service.) WSJ produced a good post mortem that discerned a pattern in the Obama administration's merger policy: mergers between firms competing in the same line of business (called horizontal mergers) are being frowned upon whereas mergers between firms in different stages of the same value chain (called vertical mergers) seem to be ok. Recent examples of vertical mergers that have been approved include Comcast and NBC Universal and Ticketmaster's hookup with Live Nation.

It will be interesting to see how tight a standard the current Department of Justice will apply. Will we go back to the days of the infamous 1966 Von's Grocery decision, which zapped a merger between Von's and Shopping Bag because they would have had an eight percent combined market share in the LA metro area?

Nobel laureate @ NC State commencement

2011-12-20T08:16:00.000-05:00

Nobel laureate Rajendra Pachauri gave the commencement address at NC State's graduation on Saturday. Pachauri earned a joint PhD in industrial engineering and economics at NC State in 1974. He received the Nobel because he co-chaired (with Al Gore) the Intergovernmental Panel on Climate Change (IPCC). Gore and Pachauri were recognized for their efforts to build awareness about climate change. Pachauri is the head of The Energy and Resources Institute (TERI), a New Delhi-based research organization doing scientific and policy research on environmental issues.

Pachauri said in his talk that he became interested in economics when he took Economics for Nonmajors from my colleague Thomas Grennes and read Edwin Dolan's TANSTAAFL (There Ain't No Such Thing as a Free Lunch). Although there was no Poole College of Management at that time, we are proud to call Dr. Pachauri an alum.

Feldstein on euro crisis

2011-12-19T12:31:00.000-05:00

Harvard Professor Marty Feldstein offers his take on the euro crisis in last week's WSJ, one that is well worth reading. Feldstein says we should ignore all the claims from the last summit that the crisis has been resolved (sounds familiar, huh?) because there is no enforcement mechanism in the agreement. This makes him very skeptical about greater economic and political integration being a long term solution.

Instead he thinks that we need to take a country-by-country approach. Feldstein is relatively optimistic that Italy will be able to have a balanced budget by 2013, which should dramatically lower its borrowing costs. He considers Greece to be a lost cause and predicts it will default and replace the euro with a much-devalued drachma.

Feldstein's biggest concern is that private lending will dry up -- as it did in the US in 2008 -- because "banks are uncertain about the liquidity and solvency of potential counterparties." Solution: have the European Central Bank step in and provide liquidity to banks with adequate collateral.

Gore on sustainable capitalism

2011-12-17T14:03:00.000-05:00

This week WSJ provided beaucoup op-ed space with Al Gore where he provides his perspective on the societal changes that will be needed to make capitalism consistent with sustainability. Whatever you think of Al Gore (always beware when an author talks about "We are once again facing one of those rare turning points in history," whether its Newt or Al), this piece is well worth reading to see the underpinnings of his arguments.

Gore focuses on two main issues: externalities and short termism. He argues that we need policies to establish a fair price on externalities. An example would be a carbon tax to account for the environmental and national defense costs generated by our use of certain forms of energy. Gore would make sweeping changes in business practices: expand corporate recruiting to include the full triple bottom line, dump quarterly earnings reports and realign incentives for top executives so that they are focused on the long term.

My take: I see eye-to-eye with Gore in terms of needed changes in executive pay. I also believe in taxing goods that impose negative externalities on society, but I am not sure how one would determine a "fair" price. Economic research has not converged to a single, simple answer. I also was puzzled as to why Gore wants corporations to produce more information about societal and environmental impact in their annual reports but he then wants them to reveal less information by ditching quarterly reports. Let's keep the quarterlies, but make sure they are not driving CEO pay.

Privatizing dormitories

2011-12-15T21:26:00.000-05:00

This week the University of Kentucky announced that it was going to transfer all of its dormitories to a private firm. Do not be surprised to see other universities (maybe even NC State?) move in this direction soon. Most dorms were built for the boomer generation in the 1950s and 1960s and let's just say they need some work. Money for new construction or modernization is scarce, especially in states with significant pension and retiree health care obligations. Privatization gets UK out of a business that is poorly aligned with its core competencies of teaching and research. Most universities have exited the bookstore business. Perhaps privatizing dorms is the first step toward getting out of the property management business altogether.

Dallas Fed chief: bust up TBTF banks

2011-12-12T16:32:00.000-05:00

Richard Fisher, CEO of the Dallas branch of the Federal Reserve, gave a blistering speech a few weeks ago at Columbia University about TBTF (too big to fail) banks. After the dust has settled from the financial crisis, we have fewer big banks that are all now much bigger than before the crisis. Small and medium sized banks are routinely allowed to go belly up, so why not the big ones? Fisher takes note of the traditional argument -- that the big banks are so tightly interconnected with each other that a failure at one bank could take down others.

Fisher thinks that the increased capital requirements under Dodd-Frank will help some. But he does not think it is enough:

Yet, in my view, there is only one fail-safe way to deal with too big to fail. I believe that too-big-to-fail banks are too-dangerous-to-permit. As Mervyn King, head of the Bank of England, once said, “If some banks are thought to be too big to fail, then … they are too big.” I favor an international accord that would break up these institutions into more manageable size. More manageable not only for regulators, but also for the executives of these institutions. For there is scant chance that managers of $1 trillion or $2 trillion banking enterprises can possibly “know their customer,” follow time-honored principles of banking and fashion reliable risk management models for organizations as complex as these megabanks have become.

Now this is coming from a Fed branch president/CEO, not someone from Occupy Wall Street. I wonder if any of our presidential candidates will pick up on this.

Hiring practices at elite firms

2011-12-09T15:56:00.000-05:00

Just came across a blog entry by Bryan Caplan who summarizes fascinating research by Kellogg's Lauren Rivera on hiring practices at elite firms in consulting, law and investment banking. Rivera interviewed 40 hiring managers in each of these industries. Her major findings:

Most resumes land in the trash
There is no standard rubric used to evaluate candidates; each manager uses his/her own criteria
Having a degree from a super-elite Ivy League school matters a lot; GPAs not so much
These credentials are important, but not because the super Ivies provide a better learning experience. Instead the fact that a job candidate survived the admissions process at Harvard or Princeton was taken as a signal this person was smarter or more able.
Extracurriculars matter as well, especially if you achieve elite status in that regard (e.g., don't just swim at the gym, instead be an Olympic swimmer)

So do not be surprised if you get dinged by McKinsey. Apparently even the top "public Ivies" like Michigan and Berkeley are considered second tier by these elite firms.

Why airlines now charge for baggage

2011-12-05T20:08:00.000-05:00

Simple answer: taxes. As a Saturday article in the N&O indicates, the U.S. Department of Transportation is concerned that it is losing tax revenue because airlines have started charging fees for checked baggage, in-flight meals and services, or aisle seats. DOT maintains that ticket prices have held steady or even slightly decreased whereas airline revenue from the ancillary fees has steadily increased. This has enabled airline revenues to increase while tax revenues have fallen off. As an airline consumer, these extra fees are often annoying, but if pillows and blankets were taxed at the same rate as the flight itself, the airline would have no incentive for a la carte pricing.

This can explain why airline pricing concepts have not been adopted in other industries. Hotels sometimes charge for internet usage, but not for soap.

Not so good news on unemployment after all

2011-12-03T11:53:00.000-05:00

WSJ headline: "Jobless Rate Nears Three Year Low." At first glance a drop of unemployment from 9 to 8.6 percent would seem to be a welcome development. But a reduction in unemployment does not necessarily mean an equal increase in employment. The reason: people stop being classified as being unemployed if they quit looking for work.

As another WSJ blog post shows, the number of unemployed persons (as measured by the household survey) fell by 594k and roughly half of those got jobs and the other half dropped out of the labor force. But were there really nearly 300k new jobs? The more reliable employer survey indicates that payrolls grew by a much smaller 120k.

Why have lending standards tightened so much?

2011-11-28T17:06:00.000-05:00

Supposedly the US credit crunch is over, but ordinary borrowers still have difficulty getting access to credit. David Wessel has an interesting WSJ column that shows how higher credit scores are now needed, even among those with steady jobs and a good credit history. This keeps buyers out of the home market and makes it more difficult for those with homes to refinance.

While no one wants to see a return to the days when a person could get a home loan for zero percent down, one has to wonder why lending standards have swung so far the other way. Many of the people Wessel talked to pointed their fingers at our old friends Fannie Mae and Freddie Mac. Burned by so many bad loans, have they now become too risk averse?

Mark Albion global webinar

2011-11-17T17:18:00.000-05:00

Mark Albion and I took classes together at Harvard and he went on to Harvard Business School, wrote books on business that people actually read, and co-founded Net Impact. Mark is giving a free global webinar on career development, targeted especially to those who want to make an impact for the greater good. Check it out here.

Dr. Doom on Europe, China and the US

2011-11-16T08:39:00.000-05:00

NYU Stern Professor Nouriel Roubini, aka Dr. Doom, offers his thoughts on the economic situation in Europe, China and the US in last Saturday's WSJ. Great quote in the 2nd paragraph:

In all three cases, kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier.

Roubini thinks that Europe will be the first to stumble, with a Greek default, a banking crisis and a severe recession across most of the continent. He thinks China's days of can-kicking are limited as well, as state-owned enterprises stay committed to an overly rapid expansion strategy that leaves consumers with inadequate income to purchase what is being produced. Roubini is more optimistic (!) about the US, believing that long-awaited fiscal reform and continued population growth will carry the day.

Roubini will always be remembered as being the only economist with solid academic credentials who called the 2008 meltdown months in advance. Until he totally blows a forecast, people will continue to listen carefully when he speaks.

Evidence on income mobility

2011-11-15T20:27:00.000-05:00

Today the Occupy Wall Street protestors were escorted off the premises. Love em or loathe em, they have certainly brought attention to income inequality issues. In an earlier post, I noted that social concerns about having significant amounts of income concentrated in the hands of the top 1% hinge on whether the same people are in the top 1% year in and year out.

Carl Blalik, aka WSJ's "Numbers Guy" does his best to pin down the facts. Blalik reports that of workers who were in the top 20% of earnings in 1996, 61% were in the top 20% in 2005. Of those in the bottom 20% in 1996, 55% were still there in 2005. Turning to the top 1% in 1996, 40.3% were still in the top 1% nine years later. This suggests some fluidity in the far right tail of the income distribution. However, those who leave the top 1% do not have much of a risk of falling very far down the income scale -- overall 86% remain in the top quintile.

Why we have fewer science and engineering majors

2011-11-13T09:04:00.001-05:00

Easy answer, sez WSJ and NYT in articles that ran last week: science and engineering courses are very hard and grades have not been inflated as they have in other disciplines. An additional turnoff: salaries for STEM graduates are out of line with the workload.

Science, technology, engineering and math majors who stay in a related profession had average annual earnings of $78,550 in 2009, but those who decided to go into managerial and professional positions made more than $102,000.

The downside -- many employers say the combination of a technical undergraduate degree and an MBA (especially a tech-focused one like we offer at NC State) -- is the ideal combination for leadership in business.

Business, finance and consulting firms, as well as most health-care professions, are keen to hire those who bring quantitative skills and can help them stay competitive.

Thoughts on teacher pay

2011-11-12T18:32:00.001-05:00

This week WSJ ran an op-ed by Andrew Biggs and Jason Richwine who claim that public school teachers are overpaid by a whopping 52% compared to what they could earn in the private sector. The authors concede that salaries are comparable, so one would need about a 100% difference in benefits to yield a 52% gap in total compensation. Then things get sloppy -- unpaid summer months get labelled vacation, defined benefit pensions are converted arbitrarily to defined contribution plans, and retiree health insurance gets labelled a giveaway that one never observes in the private sector. So what we have is a comparison of what the average teacher gets in the public sector to what a WalMart employee gets in the private sector. The authors do note that teachers do have much more job security than private sector workers, but it is hard to assign a market value to this benefit. Their analysis is interesting (and their full paper cites by NC State colleagues Bob Clark and Melinda Morrill) and does provide the foundation for further work on this important subject.

Another fundamental question is whether public teacher pay is sufficiently high to attract the calibre of instructors that we need to maintain the US's position as a global leader in human capital. Biggs and Richwine note that education majors entering college score in the 40th percentile on standardized tests. In countries such as Finland, Singapore, and South Korea, the education majors undergo a more rigorous selection process. Pay in Finland is roughly the same as in the US, but the Finnish teacher salary is much closer to the average salary for college graduates than is the case in the US. My take: growing wage inequality means greater opportunities outside of teaching for our most talented young people, so we would actually need to raise teacher salaries if we were to seriously upgrade teacher capability in future generations.

Jenkins MBA hits Business Week top 30 part-time programs

2011-11-11T16:18:00.000-05:00

Great news from Business Week! The Jenkins MBA was rated in the top 30 (right at #30) in this year's Business Week rankings of part-time MBA programs. Jenkins also was ranked the 5th best program in the South.
http://www.businessweek.com/business-schools/

The ranking hinges on three major components: student satisfaction, academic quality and post-graduation outcomes. Jenkins ranked 23rd in the country on post-graduation outcomes, representing the percentage of students receiving promotions and the average pay increase, where it ranked 18th. The program came in 37th in academic quality; we had high scores on student's work experience and percentage who complete the degree, whereas our GMAT average pulled us down a little bit. Students gave high marks to the caliber of their classmates and teaching quality, but were less pleased with facilities (hopefully fixed with the new RTP campus).

Business Week and US News are the two most widely respected rankings of business schools. I am pleased to see our students, faculty and staff receive the recognition they deserve.

How Steve Jobs would have created jobs

2011-11-06T11:16:00.000-05:00

Interesting tidbit earlier this week in WSJ about Steve Jobs' dinner with President Obama and a few other tech CEOs. As part of the dinner conversation, Jobs told the President about the factories that Apple operates in China instead of the US because Apple cannot find the engineering talent needed here. He and the other CEOs told the President that we needed to allow foreign students who major in engineering to obtain visas. Jobs was very disappointed in the response he received: the President thought this question needed to be addressed in the broader context of immigration reform, which was not possible in the current political environment.

"Jobs found this an annoying example of how politics can lead to paralysis," Mr. Isaacson writes. "The president is very smart, but he kept explaining to us reasons why things can't get done," Jobs said. "It infuriates me."

Ballooning student loan debt

2011-11-05T15:06:00.000-04:00

The Occupy Wall Street movement has brought attention to student loans. Student loan indebtedness is large and growing. The Economist reports that student debt is at least $500b and could be as much as $750b, and will soon reach $1tr. The federal government has taken over most student lending but has failed to consolidate a bewildering array of programs. Roughly 10 percent of loans are in or near default, a much higher ratio than for credit card debt. Unlike mortgage debt, it is hard to walk away from student loan debt, even in bankrupcy.

The OWS crowd wants student loans to be forgiven. President Obama is not quite ready to go that far, but has eased repayment terms. A few personal observations (and a disclaimer -- a federally insured student loan with interest subsidies helped me pay Harvard tuition; I repaid on schedule):

It is difficult to imagine a way in which private capital markets could by themselves finance anything close to the existing volume of student loan demand. Put yourself in the position of a financier trying to guess which members of the freshman class each year will graduate and become successful. Which ones would be worth betting on?
Any government-run program is going to be politicized in some way. One must ask, however, whether there might be some useful role for regulation of which academic programs are eligible for student loans. Do we want to continue to support programs with extremely low graduation rates or abysmal career prospects? See this post on Marginal Revolution about the MFA from UConn who specialized in puppetry and ran up $35k in debt -- who is now occupying Wall St.
Critics charge that student loan programs help create a vicious cycle of rising tuition that feeds into more loan demand. Roughly one-third of all undergraduates take out student loans. Making student loans more difficult to obtain could very well have a bigger effect on enrollment than on tuition.

About that one percent

2011-11-02T16:14:00.003-04:00

I have done a fair amount of research on wage and income distributions in the US and Latin America over the years. Unfortunately I was not clever enough to focus on the top 1 percent (I worried about medians and deciles), otherwise maybe the work would have drawn more attention and/or notoriety. A household must make (after taxes) more than $350k to be in the top 1 percent, whereas $140k will put a household in the top 5 percent.

Regardless of how you cut the data, they show that the share of income going to the top 1 percent of the distribution has increased dramatically over the last 40 years. I hate to sound like a climate scientist, but one really cannot have an argument about this. One can have a legitimate argument about what this really means. Here are a few of the major issues (for more, see this post):

The data that are most frequently used in public discussions pertain to households. Forty years ago a large share of those households consisted of a working adult make, a nonworking adult female and some children. As any watcher of "Modern Family" knows, today's households rarely fit that mold. Most women work, and highly educated women with significant earnings potential in the labor market are more likely to marry males with a similar profile. That puts two high income individuals in the same household and increases that household's share of the overall GDP. Also, there are more single person households. Bottom line: it is hard to compare apples to apples in the income distribution because of demographic changes.
The same households are not in the top 1 percent every year. You can land in the top 1 percent if you sell a business or cash out stocks at just the right time. There also is fluidity across the various deciles. Some studies have shown that the amount of fluidity from year to year has gone down, which is a matter of concern. Bottom line: Warren Buffett and LeBron James are in the top 1 percent every year but they get a lot of one time wonders as company each year.
Most studies use self-reported income from Census Bureau phone interviews. This measure excludes taxes and often does not include transfer payments, especially in kind payments such as Medicare and Medicaid.
Some recent studies show that inflation rates vary across different income groups. The median income family shops at WalMart and Kohls, whereas the top 1 percent shop at Saks and Neiman Marcus. Prices have increased much less slowly at the former than the latter. This point becomes important when one makes 40 year comparisons of average income at different ranges of the income distribution.

Has there been a widening of income inequality? No doubt. But some studies exaggerate the increase because they fail to control for all of the important variables.

Well we thought we had a deal

2011-11-01T20:18:00.000-04:00

Last Thursday there appeared to be a breakthrough deal to recapitalize banks, manage Greek sovereign debt and insure against future defaults. Actually was starting to prepare a blog entry on it last night. Good thing I waited. Today the Greek PM George Papandreou announces that there will be a public referendum on the deal. Given the public resentment that Greeks (see this WSJ article from Saturday on how tough things already are in the private sector) have about bankers and politicians in other EU countries dictating their living standards, the analyses I have seen so far suggest one of two outcomes: (1) Papandreou made a rash emotional decision without consulting anyone and his government will fall in the next 48 hours or (2) Papendreou never intended to live by any agreement and is using the referendum to hold onto power.

Dilemma for the average Greek thinking about how to vote in the referendum (if it ever takes place): the deal offered last week called for a 50% markdown of sovereign debt in return for continued borrowing from foreign parties -- how does that compare for an Argentine style 100% markdown that would then cut Greece off from foreign sources of capital? Lack of access to foreign capital would mean that the Greeks would have to balance their budget deficit cold turkey OR print lots of the new currency and run the risk of hyperinflation.

Moneyball in the NBA

2011-10-29T10:30:00.000-04:00

Chicago Booth economist Kevin Murphy is a certified MacArthur Foundation "genius grant" awardee and has a well-earned reputation as one of (if not the) smartest economists around. Murphy is advising the NBA players association in their collective bargaining negotiations with the NBA owners. Great interview with Murphy in this post on NBA.com, where he makes the following points:

I don't think it pays to try to pull the wool over the other side's eyes. When it comes to economic analysis, I try to be as honest as I can with the people on the other side.It doesn't do you any good to try to fool 'em. They're not dumb. You're not going to succeed and then they're not going to trust you.
The difference between being an NBA Finals team and being an also-ran is a couple of guys -- maybe one guy. It's only five guys and you can give the same guy the ball every time you come down if you want to.
In a statistical sense, the level of payroll of a team explains somewhere like 5 percent to 10 percent in the variation in outcomes.
I would say the primary disagreement is not over the accounting numbers. It's what you include and how you interpret the numbers. For example, the accounting picture of the NBA isn't very different from what it was five years ago or 10 years ago in terms of ratio of revenues to costs and all the rest -- it's changed very little. Which immediately tells you, wait a minute, if the underlying financial picture is similar today to what it was five years ago or 10 years ago, and people are paying $400 million or whatever for franchises, and you're telling me that these things lose money every year, something's missing, right? These people aren't stupid, right? These guys are worth billions of dollars. So why did they pay all this money for franchises that, it looks like, lose money? Well, the answer is pretty clear. There are a couple of things that are really attractive. One is, historically, you've seen franchises appreciate in value and that appreciation has more than outstripped any cash-flow losses that you've had. And if you're in the right tax position, it's actually pretty good because you've got a tax loss annually on your operating and you've got a capital gain at the end that you accumulate untaxed until you sell it and then pay at a lower rate. So you get a deferred tax treatment on the gains and an immediate tax treatment on the losses, that's not a bad deal.
Ultimately what it comes down to is, you get what you can negotiate. It's not what you deserve, what's "right," that ends up carrying the day. But then they ought to be straight up. They ought to say, "We've got the ability to negotiate. We'll hold your feet to the fire and get what we can."The one thing I don't want to see happen: I don't want to see any lingering bad blood between the two sides. That's not good either. You run the risk that, if it gets too personal, that creates its own set of frictions going forward. I think people on both sides are cognizant of that.

How to do a trade deal

2011-10-28T17:12:00.000-04:00

The 10/24 issue of Business Week has a great article on the behind the scenes negotiating on the Colombia, South Korea and Panama trade deals that were recently approved. As much as we emphasize the role of tariffs and quotas as trade barriers, it turns out that a country truly committed to keeping out imports can do so through other ways, such as South Korea's constantly changing safety and fuel economy standards.

The best story is about how U.S. sugar producers took pains to make sure imported sugar was not included in exports:

In the end, the negotiators devised a compromise: At least 65 percent of the sugar in products containing cocoa powder must be from U.S. growers to be considered American-made. Otherwise tariffs will apply, which could make the product prohibitively expensive. But no such restrictions apply on sugar that’s used to make candy bars. In other words, a packet of instant hot chocolate that contains 64 percent U.S.-grown sugar is not considered American under the deal. But a chocolate bar made with 100 percent foreign sugar is.

Literally thousands of such details in each agreement. Not much value being created, is there?

Happy days are here again?

2011-10-27T20:47:00.000-04:00

Well maybe we should not put the champagne on ice quite yet, but there were two very good bits of news today. One day after being unable to agree to meet for a pre-summit summit, the European Union has come up with a plan to (hopefully) deal with the sovereign debt crisis. Greek bond holders are going to take a 50% hit, European banks will need to raise new capital, and there is now a bigger fund to try to stop the Greek crisis from spreading to other countries. We will need at least 48 hours to digest all of the details of this deal, but at least they came up with something.

The other good bit of news is the third quarter GDP report which showed a decent 2.5 percent growth rate. Given all of the fears of a double dip recession, this is about the best we could hope for. Consumer spending and business investment both picked up.

The stock market celebrated with a 3 percent increase. Let's hope it sticks

Trouble for mid-range b-schools?

2011-10-25T11:10:00.000-04:00

So says the British newsweekly The Economist in an article accompanying their latest global top 100 MBA rankings. Application volume is down at US schools, especially for schools with competitive admissions outside the top 15. The Economist reports that tuition at these midrange schools averages $82k whereas starting salaries average $81k. The top 15 charge more ($92k) but their graduates make enough extra ($111k) to produce a more favorable ROI. The article suggests that non-elite schools have two options for survival: make the programs shorter (one-year MBAs are quite common in Europe) or move away from the general management MBA.

At NC State's Jenkins MBA, the ROI picture is more attractive than at many other mid-range US schools. In-state tuition is $33k and out-of-state tuition is $58k, but a large share of students receive graduate assistantships with full tuition and others receive partial tuition scholarships. Starting salaries have averaged in the mid-$70s the last three years, a bit lower than at other mid-range schools (but most of our students stay in the Southeast, whereas many students at other schools end up working in states with higher housing costs and taxes). The placement rate three months after graduation this year was 86%, above many of the schools in the Economist's ranking.

The Jenkins MBA has long emphasized the management of technology and innovation; we have never offered a general management option. Perhaps that is why we are more than holding our own.

Two leading economists weigh in on housing

2011-10-23T16:47:00.000-04:00

The drop in home equity values continues to be a major drag on consumer spending. Also, as more and more homes go into foreclosure, there appears to be no end in sight. Last week two leading economists from opposite ends of the political spectrum published op-ed columns suggesting some outside the box thinking.

Marty Feldstein headed the Council of Economic Advisors under Reagan. In an NYT op-ed, he offers up a plan where the government would write down mortgage principal when it exceeds 110 percent of the home's value. The government and the holder of the mortgage would split the costs of the writedown. The homeowner would face the loss of other assets (cars, bank accounts) if there was a subsequent default. This would be a wash for the government because it already is on the hook for the loans via Fannie and Freddie. The mortgage holder trades off a loss in return for greater odds of repayment. All of this would be voluntary.

Alan Blinder served on the CEA and the Federal Reserve Board under President Clinton. In his WSJ op-ed he also argues that a program for mortgage writedowns needs to be developed. He also thinks that steps should be taken to make it easier for homeowners to refinance and that incentives be given to turn vacated houses into rental units. The politics would be messy because so many oppose bailing out individuals who took on too much debt. Feldstein, as strong a believer in free markets as one is likely to see, thinks that something needs to be done.

But failure to act means that further declines in home prices will continue, preventing the rise in consumer spending needed for recovery. As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession.

Is employer uncertainty causing high unemployment?

2011-10-12T16:53:00.000-04:00

The economy is stuck at 9% unemployment and corporations are sitting on unprecedented amounts of cash. So, why aren't companies hiring more? The business press is full of anecdotes where corporate officials basically say something like "there is too much uncertainty, we are reluctant to hire."

I always have had trouble with this sort of argument because there is lots of uncertainty all of the time. Steve Jobs did not know how the iPod would turn out, but Apple introduced it anyway. Successful businesses find a way to connect with their customers and that translates into jobs.

A recent study by Chicago Booth economist Steve Davis (along with two colleagues at Stanford) attempts to quantify the amount of uncertainty about economic policy since 1985. According to Bloomsberg Business Week, they constructed an index based on newspaper articles mentioning uncertainty, tax code provisions scheduled to expire, and disagreement among forecasters about inflation and government spending. The index shows cyclical peaks around wartime, elections, and the crash of Lehman Brothers -- all instances where one would logically expect lots of uncertainty. But here's the kicker -- the index hit its all time high last summer during the debt ceiling dispute.

This alone does not prove that uncertainty is causing a slowdown in hiring; more econometric work will need to be done to establish that link. Also other economists will no doubt introduce their own uncertainty indices soon. My take: I am taking the uncertainty argument a lot more serious now that I have seen some data.

Nobel prizes in economics

2011-10-11T17:01:00.000-04:00

Kudos to Thomas Sargent of NYU and Chris Sims of Princeton for receiving the Nobel Award in Economics, announced on Monday. (Click for NYT and WSJ stories.) Both were Harvard PhDs but made their reputations at the University of Minnesota. Sargent did important theoretical and empirical work on what came to be known as the "rational expectations" theory of how the economy would respond to monetary and fiscal policy. Sims is well known for developing a technique called vector autoregression that can be used to identify shocks to the economy and the response to those shocks. Sargent and Sims will split a richly deserved $1.5m award. Sims said he intended to keep his in cash for awhile.

MBA combo platters

2011-10-05T21:01:00.000-04:00

WSJ reports how more MBA students are combining their business courses with graduate program in another discipline. Many schools, including NC State, allow students taking a Master of Science degree to use MBA courses as electives and vice versa. This allows students to earn two degrees which would normally require two years apiece within a span of three years. The article cites a number of interesting examples, including an MBA-MFA at NYU and an MBA-M.S. in environmental studies at Michigan. NC State offers MBA dual degree opportunities in biotechnology, biomanufacturing, law (with Campbell Law School), accounting, industrial engineering, global innovation management, and veterinary medicine (doctoral).

Externalities

2011-10-02T13:03:00.000-04:00

Great post by my NC State colleague Richard Warr on energy economics. Key point: although federal subsidies for wind, solar and other nontraditional forms of energy are well known, the popular press and the average person tends to forget how much carbon-based fuels are supported by federal policies. Warr emphasizes the fact that carbon-based fuels impose significant amounts of pollution on the rest of society, costs that are not reflected in the price at the pump. Other subsidies include government-build and maintained roads and highways (sorry, gasoline taxes do not fully pay the bill here) and military actions in the Middle East. And guess what? We cover externalities tomorrow night in MBA 505.

Want a deal on a Greek bond?

2011-10-01T13:51:00.000-04:00

The consensus in the economics and finance community is that Greece will at some point have to default on some of its bonds, the only questions being when and how much. Not so fast, says an NYT story earlier this week. It turns out that hedge funds are buying large amounts of Greek bonds that days ago were trading at 36 cents per euro of face value. The anticipated bailout deal will lengthen maturities that will be worth almost twice as much. About 30 percent of the bonds that are involved in the deal were acquired since July 21, presumably by people who were well aware of the riskiness of the investment.

History matters

2011-09-28T14:41:00.000-04:00

Paul Krugman makes a great point in his blog today about the importance in macroeconomics of understanding economic history. And he does not just mean the business cycle in the US over the last 40-50 years. Instead there is much to be learned, he argues, from the experiences of Germany after World War I and the issues faced in developing countries such as Mexico, Indonesia and Argentina. The current financial and economic crisis has some unique factors, especially the role of derivatives and the shadow banking system, but it was largely created by an age-old factor -- too much debt that was too highly leveraged.

Krugman and I are rarely on the same page concerning what should be done in the current crisis (he thinks the jobs bill proposal is too modest), but his warning should be taken to heart:

Unfortunately, many economists have not learned from the past. And that’s at least part of the reason we are apparently condemned to repeat it.

NYT columnist takes field trip to NC

2011-09-27T12:05:00.000-04:00

Joe Nocera has a NYT piece today about his factory field trip to Charlotte and Winston-Salem to visit new plants built by Siemens and Caterpillar. The most interesting takeaway is that these two companies decided to build in NC instead of China because (1) NC technical colleges do a great job partnering with industry to provide training; (2) for skilled labor, the cost differential between the two countries is not all that large; and (3) shipping costs for the types of products Caterpillar makes play an important role in plant location decisions.

Is there a manufacturing renaissance on the horizon? The good news is that construction of new plants has picked up. The less good news is that the new plants are very capital-intensive and generate modest numbers of new jobs: 800 in Charlotte and 500 in Winston-Salem. Cat is getting $14m in state and local incentives for those 500 jobs, a tidy $28k per job -- a much better bang per buck than the President's jobs bill, as I noted recently on this blog.

Tough to be a millionaire

2011-09-25T15:36:00.000-04:00

Interesting WP op-ed piece entitled "Five Myths About Millionaires" ran last Friday. The article makes a few points that often seem forgotten in popular discussions about the well-to-do. One key distinction is what does it mean to be a millionaire. Over a hundred years ago, it meant a net worth of $1m or more. Today, a person with net worth of $1m would do well to generate $40-50k of income from such an endowment. If this were to be used in any tax on millionaires, it would turn out to be a very broad-based tax.

The article does a good job of clearing up confusion on tax rates. Using a more proper definition of millionaire (annual income of $1m), these households pay 23 percent of their income in federal tax. As shown in a recent WSJ piece, those making between $100-200k pay 12.7 percent and those making $30-50k pay 7 percent. Economists rarely focus on these ratios of taxes paid to income, instead focusing on the marginal tax rate -- which is how much of an extra dollar earned gets taxed. Millionaires (like everyone else) pay vastly different marginal tax rates on capital gains (15 percent) and salaries (35 percent).

Would taxing millionaires help the economy? Although the Obama administration has advocated this course, my take is they know this would never get approved by either house of Congress. They must think it will play well with voters. Time will tell.

Should the U.S. worry about a Greek default?

2011-09-21T21:03:00.000-04:00

According to most recent press accounts, it is no longer a matter of whether Greece will default on its sovereign debt. Instead it is a matter of when the default will take place and how much collateral damage will there be. Gretchen Morgenson of NYT had a good writeup on Sunday about how this could play out. Losers in a world with no bailouts: those holding Greek bonds and those who wrote credit default swaps to protect those bondholders that elected for insurance against default. Because these swaps are not traded publicly, no one knows if the insurers have the capability of covering their debts.

One more complication: Portugal, Italy, Ireland, and Spain (with Greece known collectively as the PIIGS) are not in dramatically better shape than Greece. Morgenson notes that European banks are holding a much higher percentage of their assets in sovereign bonds than did American banks hold in mortgage-related securities three years ago.

Regulators encouraged European banks to hold huge amounts of European government debt by letting them account for these investments as if they posed zero risk. That meant the banks didn’t need to set aside a single euro in capital against those holdings.

Now, according to an analysis by Autonomous Research, 43 large European banks hold debt in troubled sovereigns that is equal to 63 percent of those institutions’ book values.

Why should we care about European banks? Quite simply because many of them have a large presence here in the US and their difficulties will translate into a reduction in the availability of credit.

Trade and jobs

2011-09-19T08:30:00.000-04:00

Interesting bipartisan WSJ op-ed last week focusing on how trade boosting measures would lead to more jobs here in the US. The authors note that growth in overseas economies such as Brazil, China, and India is much higher than domestic growth, so any steps that would allow American companies to tap into that growth would pay economic dividends domestically. The authors make three key points: (1) the US should more aggressively recruit firms from outside the US to invest here and open facilities, (2) the US should focus its trade deals on countries that are in the best position to generate job creation (of the deals that are awaiting Congressional approval, Korea makes sense, Colombia and Panama not so much, what about a deal with Brazil?), and (3) the US needs to rethink how it prepares workers for global competition (instead of paying unemployment benefits to workers who have lost their jobs to overseas competition, why not try to retrain them for newly emerging opportunities?).

No, we really are not running out of oil

2011-09-18T20:13:00.000-04:00

So says expert Daniel Yergin in this weekend's WSJ. The key point (especially relevant to this week's discussion of cost in MBA 505) is that the price of oil drives incentives for discovery and recovery. We may be out of $25/barrel oil, but as technologies for exploration and extraction develop AND as higher prices make some oil fields economically viable (that would not have been viable at lower prices), the market provides the incentives to find the juice we need to keep our SUVs rolling. Yergin shows that the "sky is falling, we are running out of fossil fuels" claims go back as far as the 1880s, when production mostly took place in Pennsylvania and it was common knowledge that there was no oil west of the Mississippi River.

Please note that I am not saying that we should sit back and let the price system solve all of our energy worries. What I am saying is that the claims that we are facing some sort of energy shortage are economic nonsense. As long as prices are allowed to adjust, the market will make sure that buyers and sellers in the petroleum market are able to work with each other.

More on the jobs bill

2011-09-14T12:49:00.001-04:00

My post on simple jobs bill arithmetic generated all time highs in visits and comments for this blog (thanks to Greg Mankiw for the link). The post, which suggested that we take the proposed $447b jobs package and spend it directly on job creation for unemployed workers, was meant to be tongue in cheek. There definitely would be problems identifying who the eligible workers would be. Lots of people who are not currently searching for work would all of a sudden be interested if there were a "free" job for them. Also, my suggestion of a flat check of $32k to all does not consider a wage structure where some people work full-time at minimum wage and make roughly $15k whereas others earn considerably more than $32k.

Since President Obama is currently giving a speech touting his jobs bill on NC State's campus today, here are a few more thoughts about his proposal:
(1) The President's proposed stimulus is poorly targeted in terms of its economic impact. Most of the temporary tax cut will be saved by a household sector that is still trying to work down debt. That is why so much has to be spent on the tax cut to generate a single job.
(2) The President's plan is smartly targeted in terms of political impact. Everyone paying FICA taxes gets a break; the rich (or at least those who are employed) do not get as big a break as they would from a similar across the board cut in the income tax.
(3) The plan does precious little to invest in the human capital of the long term unemployed (a subject of this previous post). Vouchers for education or training programs that are targeted at job losers should have been a bigger part of the package. People who have been out of work for a year or more need more help than a UI check.

Employers say jobs bill won't affect hiring

2011-09-11T18:37:00.000-04:00

So says the lead story in yesterday's NYT. The main reason the jobs bill won't much matter is quite simple: people are not buying enough stuff to warrant hiring additional workers. The article points out that the companies that are hiring now (NC State MBAs take note: many of them are technology and energy companies) are those where consumer demand is strong. Reduced payroll taxes and bonuses for hiring the unemployed will often be used, the article points out, to lower the cost of people who would have been hired anyway.

Some jobs bill arithmetic

2011-09-10T11:06:00.000-04:00

Economist Mark Zandi is quoted in yesterday's N&O:

"The president's plan would provide a meaningful boost to the economy and job market in 2012," Zandi concluded. "I expect the plan to add 2 percentage points to real GDP growth and 1.9 million payroll jobs, and reduce unemployment by a percentage point."

The biggest contributor to job growth next year under the Obama plan would be extending the payroll tax holiday for workers, which Zandi estimates would add 750,000 jobs. The portion that is waved for employers would add another 300,000 jobs, he said. Infrastructure spending could add 400,000 jobs.

I entered these numbers into a spreadsheet along with the cost of each program (based on WSJ) of $175b, $70b, and $140b respectively. You can then calculate how much it costs (in lost revenue or greater expenditures) to create a job. The numbers are sobering: $233k per job for the payroll tax cuts and $350k per job for the infrastructure spending. And these jobs would only be around for the duration of the new stimulus package!

My plan for zero unemployment: There were 14m unemployed workers in August. The $447b stimulus package could be used to generate a check of almost $32,000 to each and every one of them. As a condition of receiving that check, they would be asked to work at some organization, for profit or nonprofit, for one year. These jobs would last just as long as the stimulus package and some of them would no doubt turn into real jobs. Isn't this a plan everyone could support?

Thoughts on the new stimulus, er, jobs plan

2011-09-09T16:17:00.001-04:00

Most press attention on the $447 billion package has focused on four major components: a one year cut in the FICA tax for workers ($175b), a one year FICA cut for employers accompanied by additional incentives for those with growing payrolls ($70b), another extension of unemployment benefits along with a few new programs for the unemployed ($62b), and a package of "infrastructure" projects ($140b) that includes funds to rehire teachers, firemen and policemen for one year. A few reactions, based on economic research:
1) There is a large theoretical and empirical literature that shows that temporary changes in the tax code have very little effect on economic activity. Households will save most of the tax savings. In sectors of the economy where jobs do not last more than a year, the tax cut may provide some boost in hiring but in sectors where jobs are expected to last longer, the tax cut pales against the likely future rising cost of health insurance.
2) Economic research also shows that extending the duration of unemployment benefits is highly correlated with unemployed people staying out of work longer. In my ideal world, recipients would have to start government-supported training programs after six months or more of benefits; paying people not to work creates an obvious disincentive and does not address the shortages of labor in many technical and health-related occupations.
3) Although this was not publicized by the media, there are some original ideas on how to help the unemployed which, if scaled properly, might actually help. These include tax credits for hiring the long-term unemployed or unemployed veterans, prorated unemployment benefits for those on reduced hours (which would encourage work-sharing over layoffs), and wage insurance to provide a buffer for the unemployed who find new jobs at vastly lower salaries compared to their previous jobs.
4) State and local governments have already gone through wrenching decisions to pare down education and other government functions as Obama's original stimulus bill has wound down. The Obama plan would allow these governments to bring back some employees for one more year, but then they would still have to be laid off again unless the stimulus, oops sorry, jobs bill were to become permanent. Recent research on the 2009 stimulus package showed that giving money to cities and states does not always translate into job creation; it might mean less borrowing or larger payments to pension funds.
Full details on the President's proposals can be found here.

Time for a post office bailout?

2011-09-07T21:01:00.000-04:00

The US Postal Service is scheduled to run out of money sometime early next year. We all know this will not actually happen, because Congress will intervene before then. But what can be done? Thanks to the internet, the volume of mail has decreased by 22 percent over the last five years. UPS and FedEx have taken away most of the USPS market share on parcels. Labor contracts and political pressure make downsizing difficult. So far USPS has adjusted by raising rates every year or two; it's a good bet that another rate increase is not too far away.

Megan McArdle raises the fundamental issue here:

Congress has given the Post Office two incompatible mandates. It is to make money like a business . . . but it is not to have any of the freedom that businesses have to, say, close branch offices, cut its delivery area, or change delivery schedules.

This is, to put it mildly, lunatic.

Congress will make it difficult to close post offices or reduce service. Unions (and some Congresspersons) will make it difficult to lower costs to become competitive.

Should there continue to be a government monopoly on first class mail? I don't know about your first class mail, but most of mine consists of catalogs and solicitations. FedEx, UPS and other services could step in and figure out a way to make a profit. Why not give them the opportunity?

NYT op-ed: US should mimic Argentine economic policy

2011-09-02T14:04:00.002-04:00

So says Ian Mount, a freelance journalist with two degrees in English who has a forthcoming book about making malbec and was able to convince the NYT editors that he was a serious person. Mount argues that because the Argentine economy has been growing rapidly since 2002, other countries should take a serious look at its policies. The two most recent Argentine presidents (the late Nestor Kirchner and his wife Christina) raised taxes (especially on agricultural exports) and then overspent the proceeds on a wide range of government programs.

Mount ignores three inconvenient truths. First, the World Bank statistics do show a remarkable turnaround in recent years as Argentine GDP per capita rose from $2708 in 2002 to $7626 in 2009. He perhaps is not aware of the fact that Argentina still has not caught up to its standard of living in 1998 when GDP per capita was $8279. In other words, living standards in Argentina have improved over the last 10 years but they have fallen since 1996.

Second, ever since the days of Juan and Eva Person, Argentina has had a cycle of booms driven by expanded government activity funded by debt followed by devastating busts. The current boom is being driven by exports and government spending funded through printing money. The chickens will come home to roost again; the only question is what will happen first -- a drop in commodity prices or inflation rates topping 50%.

Third, and most importantly, Argentine economic growth has been abysmal. In 1900 Argentina had a standard of living close to that of the US, it has since fallen very very far behind. The real Latin American success stories are Brazil and Chile, both of which lagged significantly behind Argentina until the mid 1970s. Chile adopted free market economic policies at that time and caught up with Argentina by 1989 and surged ahead since 2000. Brazil became more market-oriented as well in the 1990s (although not as much as Chile), caught up with Argentina in 2002 and was 8% ahead in GDP per capita in 2009.

Hard to see how we can learn much about economics from a country that jails its own economists who dare tell the truth.

Maybe the future does not belong to electric cars

2011-09-01T12:15:00.000-04:00

Argues Toronto Globe and Mail columnist Margaret Wente, after Ontario plowed $50m into Magna International for R&D. A few of the more serious issues: Are customers prepared to pay a premium of $20k for a vehicle "that doesn’t go very far, isn’t very convenient, and runs out of juice as soon as you turn on the air conditioner." (Caveat: maybe Canadians won't need a/c, but wait, there's global warming, scratch that.) Wente interviews Manitoba professor Vaclav Smil, who points out that unless all the juice generated to run these cars comes from carbon-neutral sources, there will not be any savings on the carbon front. Smil also points out that if Ontario were to meet the 2020 target of having 10% of all cars be electric, they better start expanding the grid ASAP.

Not so fast on AT&T merger with T-mobile

2011-08-31T15:47:00.000-04:00

The US Department of Justice has filed a lawsuit to block the proposed merger between the nations 2nd and 4th largest wireless carriers. The Feds say the merger will result in reduced competition, meaning higher prices and less innovation. AT&T and T-Mobile obviously disagree and the burden of proof will be on the DoJ.

It will be interesting to see the proof. Deputy Attorney General James Cole makes two unconventional arguments for an antitrust case: (1) that the merger would adversely affect those with low incomes and those living in rural areas and (2) T-Mobile would expand and create jobs whereas the merged firm would eliminate jobs. Antitrust laws in the US have traditionally focused on maintaining competitive conditions. One will search in vain to find language regarding citizens in rural areas, low income citizens, or job creation in the Sherman Act, Clayton Act or FTC Act. In fact NYT notes that T-Mobile's parent company Deutsche Telekom is looking to exit the US market.

As MBA 505 students learn, there is a crucial difference between protecting competition in the marketplace and protecting individual competitors in that marketplace. As long as Verizon sticks around, AT&T is likely to have all the competition it can handle.

Alan Krueger to head CEA

2011-08-30T08:44:00.001-04:00

Princeton economist Alan Krueger was tabbed yesterday to become the next chairman of the President's Council of Economic Advisers. Krueger is a labor economist who has written extensively on subjects such as the minimum wage, unemployment, rate of return to higher education, and efficiency wages. He also has done well-cited studies on who is most likely to become a terrorist (they tend to be middle class) and why ticket prices at rock concerts have risen so much (blame the record companies). Krueger, who has lectured at NC State twice, has his work cut out for him -- the President has promised to release a new jobs package after Labor Day. I am confident that the President will get great advice. My two cents: do something big on foreclosures and incentives to start and grow small businesses.

Lawyers need to understand business

2011-08-25T13:29:00.001-04:00

According to yesterday's WSJ, more and more of the nation's leading legal firms are sending their newly hired attorneys to learn about business, especially finance. For instance Fullbridge (founded by two Harvard MBAs) offers an eight week program that covers the following topics: finance, project management, innovation, presentation skills, spreadsheets, selling (not marketing!), and ethics. One reason for these programs appears to be cost: clients do not feel they are getting their $300 plus per hour from junior attorneys straight out of law school with no business experience or knowledge.

Fullbridge gets paid by the law firms to provide this training. One might guess that in today's market for entry level legal positions that law students would make a point of obtaining these skills on their own, so that they can better compete for the limited number of positions available. Shameless plug: applications will soon be accepted for the entering fall 2012 class of Campbell JDs and NC State MBAs.

"Harsh truths" about today's unemployment

2011-08-24T14:02:00.000-04:00

Fortune columnist Nina Easton takes a hard look at the data on unemployment; it is not a pretty picture:

Almost half of the unemployed have been out of work for a year or more. They have lost skills and good work habits. Hiring managers will reject them out of hand. Many of them will never work again.
The federal government has 47 different training programs costing $18 billion a year. Yet many employers have difficulty finding qualified workers.
Extended unemployment benefits (up to nearly two years) are making the unemployment rate higher because the unemployed often do not get work until their benefits run out. Coincidence? No.

My take on this: much of our unemployment problem is microeconomic in nature; workers in certain industries (finance, construction, real estate) and areas (Nevada, Arizona, Florida) have to adjust to a completely new landscape. Macro policy measures, such as more quantitative easing by the Fed or another short-term tax cut, are unlikely to make much of a dent in the problem. Also, as Easton notes, does our society really want to give up on a generation of workers? That is the path we are on. With paralysis gripping our political system, businesses need to start thinking of their own solutions.

Where are all the "green jobs" we were supposed to see?

2011-08-22T13:32:00.000-04:00

Lots of luck finding them, says NYT in a recent news article. California received $186m in stimulus funds to insulate homes two years ago; so far, only half the money has been spent and 538 jobs have been created. That comes out to almost $350k per job. Spending has been slow because, even with the federal subsidy, consumers are unwilling to pay the cost.

To be fair, there aren't all that many new jobs to talk about in any sector of the economy. But politicians have clearly oversold the role that green jobs will play in the economy. Money quote from NYT:

President Obama once pledged to create five million green jobs over 10 years. Gov. Jerry Brown promised 500,000 clean-technology jobs statewide by the end of the decade. But the results so far suggest such numbers are a pipe dream.

What? Some people hate economics?

2011-08-20T13:46:00.000-04:00

So says economist Stephen Moore in an WSJ op-ed yesterday. Moore claims that economics is the least favorite subject of most students, although I am not sure there are any data that confirm his assertion. He then goes on to argue that the reason economics is so unpopular is that "too often economic theories defy common sense." Most of the article focuses on macroeconomics, with Moore ridiculing numerous tenets of Keynesian theory. As my students in MBA 505 will soon learn, this ridicule is well-earned in many cases. In a case cited by Moore, White House press secretary Jay Carney recently was quoted as saying that unemployment insurance creates jobs. Unemployment insurance is financed by taxing workers to fund benefits for those out of work, thereby simultaneously reducing the payoff to working while increasing the reward for being jobless. There may be lots of good reasons to have unemployment benefits, but job creation is certainly not one of them.

Most economists focus on microeconomics, the study of individual consumers and firms and how they interact in the marketplace. Students should find that microeconomics, once properly understood, passes the common sense test. Does that mean they will come to love micro? Not sure I want to go that far.

Another mega-merger

2011-08-16T16:14:00.000-04:00

Google ponies up $12.5 billion to buy Motorola Mobility Holdings (WSJ account here). Wonderful case for economic analysis of a merger. Motorola manufactures electronic devices that use Google's software. The motivation behind the merger supposedly is that it would allow Google to more tightly integrate software, product design and manufacturing. Lots of other companies also manufacture such devices, and they are probably not real happy today. Two equally large companies (in terms of employment). Two very different cultures.

Sheer genius? Or the second coming of AOL Time Warner? Think about it; it might be on the final exam in a Jenkins MBA course.

S&P's track record on sovereign risk

2011-08-15T14:57:00.000-04:00

Not pretty, reports WSJ which did some research covering the last 35 years. If a government is rated single-A or better, the news is good -- none defaulted over this time period. But the ratings do a poor job discriminating in the B range. The best example: Brazil and Argentina were both rated double B minus in January 2001. One year later, Argentina defaulted on its debt whereas Brazil has grown steadily over the last 10 years.

In practice, the bond market forces default-probable countries to pay an interest rate premium. So what are the ratings agencies really doing to create value when they assess sovereign risk?

Jenkins MBAs animation on "No Asshole Rule"

2011-08-11T13:12:00.001-04:00

In light of my recent post on the "No Asshole Rule," Professor Roger Mayer sent me a link to an animation a team of his students did last fall. The animation is posted on Stanford Professor Bob Sutton's website. He calls it "A" work. Really great stuff, well worth seven minutes on your lunch break.

Raleigh makes two more top 10 lists

2011-08-10T10:15:00.000-04:00

WSJ's Marketwatch reports a survey by RelocateAmerica that places Raleigh as the #4 city in which to live in the US. Austin came in at #1; the rest of the list in order: Grand Rapids (!), Boulder, Dallas, Greenville SC, Augusta, Boise, Omaha, and Oklahoma City.

Raleigh was cited for high tech jobs, outstanding universities, a solid public schools system, wonderful weather, and a lively arts scene. Cary is listed separately as one of the top 100 cities, along with Wilmington and Charlotte.

Forbes rates Raleigh #2 in the country (after Austin) for being best positioned to grow and prosper over the next 10 years. The ratings are based on recent job growth as well as demographics, including in-migration and education.

Is the sky falling?

2011-08-09T15:28:00.001-04:00

The US stock market has been hammered last week and yesterday, raising both micro and macro issues. On the micro side, the most immediate question that comes up in day-to-day conversation is whether the decline will continue. If you have not cashed out your stocks yet, should you do so now? Or has the recent plunge in values created a great buying opportunity?

Princeton's Burt Malkiel, author of the classic A Random Walk Down Wall Street advises investors not to panic in an op-ed in yesterday's WSJ. Malkiel thinks that stocks are now significantly undervalued, based on price/earnings ratios and dividend yields. Sure, the recent economic news is not great, but Malkiel shares one of my all-time favorite economics quotes from Nobel laureate Paul Samuelson: "The stock market has predicted nine of the last five recessions." Malkiel's advice:

We all need to be aware of the limits of our ability to forecast future stock prices. No one can tell you when the stock market will end its decline, but there are some things that we do know. Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility.

Today's WSJ has a worthwhile piece on why 2011 is not likely to be a repeat of 2008. The key factors in a nutshell: (1) 2008 -- credit bubble in real estate, 2011 -- sovereign debt crisis (brought on partially by government attempts to correct recession created by credit bubble); (2) 2008 -- key players short on liquidity, 2011 -- key players flush with cash; (3) 2008 -- governments thought they were capable of using fiscal, monetary policy options to stimulate growth, 2011 -- governments out of bullets. Hopefully there will be a fourth difference, with 2011 being a short term stock market correction that will have no effect on consumption or investment.

On debt ratings and recession

2011-08-08T14:16:00.000-04:00

Congress and the President come up with a deal to extend the debt ceiling. They agree to cut $2.5 trillion from deficits for the next 10 years. And yet Standard & Poors decided last Friday to downgrade US debt from AAA to AA+. My reaction (which ironically is about the same as Paul Krugman's):

Remember that S&P was rating bonds based on subprime mortgages AAA in 2008.
The US Treasury found a $2 trillion error in S&P's initial calculations Friday afternoon before the downgrading was announced. This raises serious questions about whether the downgrade was based on technical analysis of default probabilities or was made for other reasons.
As the stock market slides for another day, it seems investors cannot get enough US Treasury bonds (yield for two year bonds is now down to 0.2%). The downgrade sure has not scared them.
No other country is listed at AA+. AAA countries now include Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey (I did not know these islands in the British channel were a country), Hong Kong, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland and the United Kingdom. Spain, which is a genuine risk for sovereign debt default, is AA.

Meanwhile, Dr. Doom (aka Nouriel Roubini of NYU's Stern School) thinks a double-dip recession is becoming more likely in an article in yesterday's FT. He points out that there is not much that fiscal or monetary policy can do now, and that more attention should be paid to dealing directly with household debt, especially underwater mortgages.

Kauffman foundation CEO proposes "Startup Act" to promote growth

2011-08-07T17:08:00.001-04:00

Kauffman foundation CEO Carl Schramm and his V-P of research Robert Litan have crafted a proposal to stimulate economic growth by making it easier to start companies. The proposal comes in reaction to a recent Kauffman study that found a sharp drop in the rate of new business formation. Specific steps include (these are all quotes from a Kauffman press release):

Welcoming immigrants capable of building high-growth companies to the United States by providing "Entrepreneurs’ visas" and green cards for those with degrees in science, technology, engineering and math.

Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, facilitating access to public markets, and allowing shareholders of companies with market cap below $1 billion to opt-in under the Sarbanes-Oxley Act.

Accelerating the formation and commercialization of new ideas by creating differential patent fees to reduce the patent backlog and providing licensing freedom for academic innovators.

Removing barriers to the formation and growth of businesses through the introduction of automatic 10-year sunsets for all major rules, establishing common-sense and cost-effective standards for regulations, and making assessments of state and local startup and business policies.

The full proposal can be found here. This is certainly much fresher thinking than what we are hearing from either major political party.

"No asshole rule" for MBAs

2011-08-06T07:58:00.000-04:00

Stanford b-school prof Robert Sutton has written an NYT bestseller called "The No Asshole Rule" which is now widely read by b-school faculty and students. Rodney Alsup's MyeEMBA blog takes some of the principles from Sutton's work and applies them to MBA faculty and students.

Alsup links to an online assessment (based on Sutton's work) to determine if a person meets the criteria for being an asshole. The true-false questions include "You were a nice person until you started working with the current bunch of creeps," "You have a small list of close friends and a long list of enemies, and you are equally proud of both lists.," and "You enjoy lobbing "innocent" comments into meetings that serve no purpose other than to humiliate or cause discomfort to the person on the receiving end."

Should the Jenkins MBA program at NC State have a "No Asshole Rule"? If so, what should the consequences be?

Dr. Lynn Ennis passed away

2011-08-05T10:45:00.000-04:00

Dr. Lynn Ennis, adjunct lecturer in the Poole College of Management and associate director and curator of the collection at the Gregg Museum of Art and Design, passed away Tuesday July 26. Lynn has taught MBA 536 Creativity in Management in the college every semester since fall 2007.

Lynn’s creativity course was very well received by both MAC and MBA students. The course met in a wide range of venues reflecting various sorts of creative activity. Students were exposed to the visual arts at the NC Museum of Art, (Larry Wheeler was a regular guest lecturer), the Gregg Museum and ArtSpace. They also gained an appreciation for the creative process in scientific research and product development, plus the role of creativity in marketing. Course projects over the last year have focused on creative approaches to sustainability issues.

Lynn taught one other MBA course where she took a group of students to New Orleans to do service projects over spring break in 2009. Student teams assisted five small businesses in the ninth ward district, providing assistance in business planning, finance, accounting, and operations.

I still remember the first time I was able to spend quality time with Lynn. I showed up in her office ready to provide advice on how to design a syllabus, select appropriate assignments, and engage MBA students. Lynn did not need that help at all; instead we ended up having a delightful tour of the various artifacts collected by the Gregg Museum that were in storage.

Lynn’s expertise allowed the MBA program to offer a course that was highly valued by students. It was also a course that few MBA programs offer. She will be sorely missed by College of Management students, faculty, and staff. Her class for this fall will be cancelled; the program will attempt to find a new instructor for spring 2012.

The family has requested gifts in her memory to the Gregg Museum of Art and Design Campaign, sent in care of Nicole Peterson, Director of Arts Development at Arts NC State, Campus Box 7306, Raleigh, NC 27695-7306.

Condolences can be sent to her husband and daughter, Larry and Emily, at the home address, 1500 Village Glen Drive, Raleigh, NC 27612-4344.

Tough love on mortgages

2011-07-21T15:22:00.000-04:00

Thought-provoking piece by William Gallston of the Brookings Institution about the stagnant housing market. Housing foreclosures and underwater mortgages continue to slow down the economy; outgoing FDIC chief Sheila Bair attributes much of the problem to banks' unwillingness to write off uncollectable consumer debt (including mortgages, second mortgages, home equity lines and regular credit cards). Gallston summarizes three ideas that might be worth considering, all requiring some legislation:

Two Chicago professors suggest writing down mortgages in zip codes with the largest drops in property values, with the bank getting in return a substantial portion of any future appreciation
Columbia b-school dean Glenn Hubbard would use public funds to refinance underwater mortgages, with taxpayers poised to benefit from future price appreciation
Changing the law to allow bankrupcy judges to write down mortgages (this might be a bit too one-sided for the banking community to swallow)

Presumably if the surplus of houses were wiped out and housing prices finally hit bottom, this critical sector of the economy would recover. Also, consumers would have healthier balance sheets and start spending more.

Grade inflation

2011-07-19T20:24:00.000-04:00

NYT blog by Catherine Rampell shows how dramatically grade distributions have changed at over 200 colleges and universities. In 1960, 15% of all grades were A's, which rose to 31% by 1988 and 43% by 2008. B's held their own, but the odds of getting a C have plummeted, dropping from 35% to 15% between 1960 and 2008.

Rampell shows that grade inflation varies across different types of campuses. Private schools have had more inflation than public schools; a private school student has an 86% chance of getting an A or B in any given class. Grades are lower in Southern schools and schools with large engineering and science enrollments.

Why have grades risen so much? Hard to argue that students are smarter (the trend on SAT scores is flat at best) or working harder (surveys actually indicate they are studying less). No doubt some profs gave out higher grades in the late 1960s and early 1970s to keep folks like yours truly from getting drafted and sent to Vietnam. But the Vietnam War was over in 1975 and this trend is continuing. Another theory is that student evaluations are more likely to be used to evaluate faculty for tenure and raises, so faculty "buy" higher evals by giving higher grades. I am not sure I buy that explanation either; some of the toughest graders in the Jenkins MBA program get the highest student evals.

Netflix's new pricing policy

2011-07-18T11:44:00.001-04:00

Summer's here and I have been catching up on "The Wire" and Scorsese's Dylan documentary on Netflix. I also have to decide which new pricing plan I want.

Netflix started with a simple pricing model where the monthly fee depended on how many disks you borrowed at a given time. As a Harvard case we have used at NC State points out, Netflix's management knew there would be a day when video streaming would replace mailbox delivery. Netflix rolled out streaming as a free add-on to the DVD-by-mail business model. The online selection is still somewhat limited; only 8 of the 45 movies in my queue are available via streaming. (Caveat: my queue is heavy on classic and foreign movies.)

Last week Netflix announced that the streaming service would now be available separately for $7.99 per month and would no longer be a freebie for those with a mailbox rental plan. So far newspaper accounts have focused on consumers who are less than pleased.

Yet there are opportunities for joint value creation as well. The marginal cost of a digitally distributed movie is zero, as opposed to roughly $1-1.50 for mailing and handling of a DVD. When a household switches to the 100% streaming option, it will save $2 per month and Netflix will save even more, assuming the household rents three or more DVDs each month by mail.

Those who wish to stick to 100% mail rental can avoid the price increase by going online before Sept. 1. That's probably the route I will take until I trade in our current DVD player.

Devil in the details of health insurance mandate

2011-07-17T16:40:00.000-04:00

Three years from now most companies will be required by federal law to provide health insurance to their employees. According to a WSJ article, the law requires that "employers with 50 or more full-time workers must offer affordable insurance or pay a penalty." But what exactly does that mean? In particular, who is a full-time worker and how does one determine whether insurance is affordable?

In many industries the size of the workforce varies significantly from week to week and month to month. Lots of stevedores work long hours when ships are in port, but jobs and hours are slim pickings when the docks are empty. The law defines full-time as averaging 30 hours per week over a month-long interval, but some employers have argues a three to 12 month interval is needed to make a realistic determination. Of course, in industries with high turnover, a longer interval works in the employer's favor. And what is to stop employers from capping hours to avoid the mandate?

As for affordability, the regulations currently under review define this as 9.5% of an employee's household income. But how can an employer know the income received from investments and other household members?

The Internal Revenue Service is working with other federal agencies to develop the final regs, which could have a significant effect on the labor market.

Sustainability update

2011-07-15T12:54:00.000-04:00

Dean Ira Weiss has appointed a task force to make recommendations about how the Poole College of Management can create a center of excellence in the area of sustainability. Scott Showalter will be chairing the task force; other members include Ted Baker, Mark Beasley, Rob Handfield, Roger Mayer, Paul Mugge, and Ray Palmquist. Dean Weiss has charged them to develop "a strategy for the college that incorporates the varying strengths we have in our core areas of expertise." The task force is expected to report back to the college before the end of the fall semester.

Also on the sustainability front, WSJ ran a short piece Monday about job opportunities. Coca-Cola and UPS have recently appointed CSOs (chief sustainability officers). The article also notes that renewable energy is gearing up.

Tom Friedman on today's job market

2011-07-13T10:54:00.000-04:00

Excellent NYT column about employer expectations which mirrors exactly what we are hearing from employers of Jenkins MBA students. Your advanced degree no longer entitles you to a job; you have to use the skills that you gained from that degree to create value day in and day out. And because the ratio of job seekers to job openings is so high, firms have become more selective than ever. Money quote:

Indeed, what is most striking when you talk to employers today is how many of them have used the pressure of the recession to become even more productive by deploying more automation technologies, software, outsourcing, robotics — anything they can use to make better products with reduced head count and health care and pension liabilities. That is not going to change. And while many of them are hiring, they are increasingly picky. They are all looking for the same kind of people — people who not only have the critical thinking skills to do the value-adding jobs that technology can’t, but also people who can invent, adapt and reinvent their jobs every day, in a market that changes faster than ever.

Cry for Argentina's economists

2011-07-11T17:20:00.001-04:00

Argentina has an inflation problem. Economists and business experts recognize that inflation, if measured using standard techniques, is well above 20%. The Argentine government (which stands for election this year) is not comfortable with this fact. The official agency in charge of inflation statistics has been politicized since 2007; the official statistics claim the inflation rate is "only" 10%.

Last week WSJ reported that the situation has escalated. The Argentine government brought charges against consulting firm MyS Consultores for "publishing false information about inflation data;" jail sentences could result. At least nine other firms already have been fined $122k each for publishing their own (presumably more accurate) inflation data. What makes the situation even more bizarre is that some Argentine provinces publish their own inflation data and their numbers also cluster in the 20% plus range.

The fines and prosecutions presumably are intended to discourage honest reporting of inflation in the months before the October election. I never thought that the basic calculations of inflation that all students of economics master in their first course could result in a fine or jail term.

Serious economic analysis of the stimulus program

2011-07-09T11:34:00.000-04:00

The July 2011 issue of NBER Digest profiles a paper by Dartmouth's James Feyrer and Bruce Sacerdote on how much of an impact the 2009 stimulus package had. They looked at three different types of stimulus that were allocated to state and local governments: block grants to maintain employment of teachers and police, support to low-income families, and the infamous "shovel ready" infrastructure projects. They find that that dollars that went to family support and infrastructure were expansionary whereas the block grants did not create many additional jobs. (The block grants may have done little more than reduce borrowing or scale down tax increases.) Their overall results are consistent with Keynesian multipliers in the range of 0.5 to 1.0.

Although Feyrer and Sacerdote call the results highly expansionary, a reasonable person might interpret the results differently on cost-benefit grounds. If one includes all three types of stimulus, the authors' net result was one job for every $170k in spending.

Another recent study by George Mason Professor Jeffrey Eisenach and Kevin Caves, cited in a Forbes blog by Nick Schulz, focuses on the stimulus targeted at expanding rural broadband. This study focused on three large projects in Kansas, Minnesota and Montana. The key results: these projects cost $349,234 for each unserved household to get access to broadband (and of course not everyone buys broadband even if they have access). Presumably some jobs were created as well, but this was not addressed in the study.

"Ugly. I mean really ugly."

2011-07-08T19:49:00.000-04:00

So says the WSJ blog "Real Time Economics" about today's job report. Essentially June hiring was flat and the figures for April and May (which were not great) were revised sharply downward. The private sector added 57k jobs while government dropped 39k. In the coming months the government numbers are going to get uglier as state and local governments in most states adjust to budget cuts. For instance NC State's budget is going to be $79.2m smaller in the coming fiscal year, which will translate into a loss of jobs on and off campus.

Fewer Mexicans immigrating to US

2011-07-07T17:22:00.000-04:00

Yesterday's NYT reports that the wave of Mexican immigration to the US may have crested. The incentives to immigrate depend on the difference between opportunities in the US and Mexico as well as the cost of making the move. The cost has risen, thanks to increased border enforcement and the spread of gang activity along the border. Opportunities in the US have stagnated, as we all know.

The article highlights another critical factor that has not received much attention: increased opportunity for those who stay in Mexico. Mexico has significantly upgraded its educational system, making high school and college more accessible. Mexican fertility rates have fallen dramatically, close to US levels, cutting into what had been a perpetual excess supply of labor. The article also notes that "democracy is better established, incomes have generally risen and poverty has declined."

Another celebrity trial

2011-07-04T14:06:00.000-04:00

This week Roger Clemens, probably the best major league pitcher in the 1980s and 1990s, goes on trial for perjury. Clemens testified before Congress that he had not used performance enhancing drugs while a player. Federal prosecutors decided that his denials were not persuasive and will present evidence that they think indicates Clemens was lying.

Nice column today by Allen Barra on the Daily Beast that captures my sentiments on the matter exactly -- why are the feds wasting are precious tax dollars on this? The cost is $120 million so far. Imagine how much we would have to spend if we were to prosecute everyone who ever lied to Congress! One also might wonder why Congress has the time and resources to conduct hearings on the behavior of a retired player. Not sure how any of this passes a cost-benefit test.

Now NBA players are locked out

2011-07-01T14:28:00.000-04:00

The NBA and the NBA Players Association failed to reach agreement for a new contract last night and, as a consequence, the league has suspended operations. In essence the owners have gone on strike.

At the surface this seems very much like the NFL situation. Both leagues are coming off highly successful seasons with all-time highs in revenue, attendance and TV ratings. There is one critical difference. The NFL is highly centralized and distributes all national TV money equally across the teams. The NBA has national TV contracts but each team also has its own local TV contract. There are way more eyeballs in LA, Chicago and Boston than in Oklahoma City or Memphis, thus resulting in sizable disparities in team revenue.

Although I remain optimistic about an NFL settlement in the not-too-distant future (see previous blog post), there are most likely some NBA teams in smaller markets that will lose more money under a business-as-usual labor contract than they would if there were no season at all. To use MBA 505 lingo, total revenue is less than total variable costs. So maybe the Bobcats' season starts on time, maybe it doesn't.

First IBM, then Microsoft, now Google

2011-06-30T14:59:00.000-04:00

It's not easy being a dominant firm in a winner-take-all market. WSJ reported last week that the Federal Trade Commission is going to launch an investigation of Google for antitrust violations in the market for web-based advertising. As MBA 505 veterans know, being a monopoly is in and of itself not a violation. The FTC would need to prove that Google obtained and maintained the monopoly through unfair business practices. Getting a monopoly simply because you have the best product, best service and lowest prices is no crime. Google handles about 2/3 of all internet searches, which is well below the dominance that IBM had in mainframes and Microsoft had in PC operating systems.

A few predictable consequences:

this will take 10 years to resolve
by then commerce will have changed so radically that there is a good chance that current forms of web-based advertising will no longer exist
job stimulus for antitrust experts on both sides of the case
the European Commission will chime in with its own set of issues
Google will still be the dream employer for the best and brightest of today's graduates
Look out Facebook; now that MySpace has tanked, they're coming for you next!

Behind those seven figure coaches salaries

2011-06-29T17:01:00.000-04:00

The University of Kentucky gave men's basketball coach John Calipari a two year contract extension this week. Love him or hate him, Coach Cal has definitely put UK back in the spotlight, so one would naturally think the extension is all about on-the-court success. However, the university has benefited in other ways as well, according to KSR the authoritative source on all things UK-sports-related. Calipari told ESPN Radio:

“Our licensing revenue doubled last year and half of that double goes back to the general fund on our campus, $4.5 million in licensing. The other thing is we had 14,000 applicants for 4,000 positions for the freshmen, which is the highest in the history of the school. What you hope is you’ve added value … for everybody, not just me."

I bet alumni donations are up as well. Another example of the economics of superstars.

Trade deal logjam over

2011-06-28T17:15:00.000-04:00

I blogged two weeks ago about the difficulty Congress was having in approving trade deals with Colombia, Panama, and South Korea. WSJ reports that a compromise has finally been worked out, one that apparently preserves the enhanced stimulus-era funding for Trade Adjustment Assistance. This will certainly help make the US more competitive in terms of exports to those three countries. Good to have some good news. Now if we can only work out deals on the Greek and U.S. federal budgets!

Supremes decide Wal-Mart case

2011-06-27T12:56:00.000-04:00

The class action lawsuit against Wal-Mart for gender discrimination has been a popular term project topic in my Global Economics for Managers course over the last few years. Last week the U.S. Supreme Court decided that the case could not proceed as a class action; instead, individuals or small groups would have to sue on their own. With fewer plaintiffs (and thus smaller pots of potential damages) such cases will be less appealing to lawyers and will be less likely to be brought.

This does not mean that Wal-Mart is innocent of discriminating against women; it just means that the cases cannot proceed as a massive class action.

New rules for union elections

2011-06-23T18:22:00.000-04:00

Much controversy about the new rules for NLRB elections for union organizing. Unions have long protested that companies intentionally delay elections to brainwash workers against collective bargaining. On the other hand, companies maintain that unions start their campaigns for months before filing with NLRB and that they need time to make their case. Elections typically take place within two months after a union files with NLRB. According to WSJ, the new rules would "aim to curb unnecessary litigation; streamline procedures before and after elections; and enable the use of electronic communications, such as requiring employers to give union organizers access to electronic files containing workers' addresses and email addresses when available."

Unions represent only 7% of private sector workers. There were 1571 elections last year and unions won two-thirds of them. Election volume has trended downward; there were 3536 elections in 1990, of which unions won 50%. Fewer than 100,000 workers are organized through NLRB elections each year. Union market share continues to decline because of declining employment in workplaces that are already organized.

The Detroit Lions have never been to a Super Bowl. The Cubs have not been to the World Series in over 100 years. Some losing streaks cannot be cured by changing the rules of the game. The new NLRB policies do nothing to change the fundamental problems unions face today -- that union wages and work rules make companies noncompetitive and erode job security, companies with high profit margins employ knowledge workers who do not identify with unions, and the least educated workers who might be most open to unions work in low margin service jobs.

Time to update the macro textbooks

2011-06-22T10:45:00.001-04:00

Monetary policy has completely changed since 2008, argues John Williams, CEO of the San Francisco branch of the Federal Reserve, in a recent speech (thanks to Craig Newmark's blog for making me aware of this item). So maybe we need to change the way we teach monetary policy in macro classes?

I stand guilty as charged in my Global Econ for Managers class. We use a well respected but now outdated text by Harvard professor David Moss. According to Moss (and repeated in my lecture notes), the Fed has three tools it can use to influence the economy: open market operations (buying or selling Treasury bonds to create or withhold liquidity in the banking system), reserve requirements, and the discount rate charged to banks who borrow from the Fed. Williams explains how this has completely changed because of technology (not that many people holding cash these days for transactions) and the challenges posed by the financial crisis. Well worth reading.

Bill Clinton on increasing employment

2011-06-21T13:59:00.000-04:00

Cover story in this week's Newsweek. Interestingly, most of this (better training programs, cut red tape, subsidizing energy-savings projects, more loans for small businesses) overlaps with President Obama's Jobs and Competitiveness Council covered in a blog post last week. Clinton adds these ideas: paint rooftops white, more state-based incentive plans, cut corporate tax rates, enforce trade laws. He also mentions in passing that we should raise tax rates on high income brackets to pay for this.

WP columnist Robert Samuelson chimes in on the difficulties many companies are having filling certain types of positions. Even with 9% unemployment, qualified electricians, CAD/CAM operators and the like are hard to find. Companies have cut back on basic training programs, shifting their attention to firm-specific skills. But now we have a catch-22 situation in the labor market, Samuelson argues, where firms will not hire workers without experience and workers cannot get hired to get that needed experience.

Beware Greeks bearing bonds

2011-06-18T12:18:00.000-04:00

Many of you thought that last year's Greek debt crisis was "solved" with a bailout package from the European Union and the IMF in May 2010. Guess what? Without further help soon, the Greek government will have to default on some bonds. Chicago booth finance professors John Cochrane and Anil Kashyap spell out in an op-ed in yesterday's WSJ what we should expect:

Greece cannot and will not (even if it could) pay off its current debt obligations (150% of GDP). Some bondholders are going to get burned.
Count some large European banks and the European Central Bank among the parties that will get burned, despite the so-called improvements in financial regulation that took place after the 2008 meltdown
Greece is a small country, so a Greek default would not be that big a deal. But Portugal, Ireland, Spain and Italy are in basically the same boat and this is where it starts getting ugly. Private individuals and corporations will (if they have not done so already) dump their bonds on governments and government-insured banks, thereby shifting the liabilities to the taxpayers in various European countries.

To prevent a total meltdown and a new global financial crisis, Cochrane and Kashyap suggest the following --

Prepare for the worst. Europe needs to expunge the rot from its banks so that the inevitable write-downs do not imperil its financial system. Sovereign debt and sovereign exposure must face large capital buffers. Sovereign debt must be marked to market. Banks must run serious stress tests to find implicit sovereign exposure. Banks with inadequate capital must raise it, find buyers, or reorganize. If that means bailouts of "systemically important" banks, then governments must do so, face their taxpayers, and make their regulators explain how they let this happen.

What has happened to MBA jobs after the financial crisis?

2011-06-17T12:42:00.000-04:00

Guess what, not only is Lehman Brothers gone, but CitiGroup, BofA, Goldman Sachs, and Morgan Stanley all have cut back as well according to this BW article. Many of the remaining finance jobs are in corporate arena or private wealth management (where selling skills may trump CAPM skills).

Employers who have helped picked up the slack include Apple, Amazon, and IBM. Fuqua's Director of Career Services Sheryle Dirks also notes many new firms have showed up at her office including the FBI and local school systems.

Are we headed for a replay of 1937-38?

2011-06-16T14:33:00.000-04:00

Most of the general public (not all, see the "don't know much about history" piece in yesterday's WSJ) is well aware of the Great Depression that started in 1929 and really did not end until World War II. Fewer are aware of the depression within the depression that took place in 1937-38, when unemployment rose from 11 to 20 percent (it had peaked at 25 percent in 1933).

Yesterday WP economics columnist Robert Samuelson asks whether we are headed for a replay: There are eerie parallels between now and then. Then as now, commodity prices (grains, minerals) were rising rapidly; fears of inflation grew. Then as now, the federal budget deficit was criticized as too large. Then as now, the president was widely perceived as being anti-business.

Samuelson points out that both fiscal and monetary policy were responsible for the 1937-38 recession. Roosevelt moved quickly to a balanced budget at the same time that the money supply tightened significantly. Paul Krugman in a recent NYT op-ed argues that we will repeating those mistakes if government spending is cut and interest rates are increased. Samuelson isn't convinced, mainly because (1) the magnitude of any spending cuts that might be approved by Congress pails in comparison to those enacted in the late 1930s and (2) the Fed remains committed to low interest rates for the foreseeable future. My take: the economy continues to be in a fragile position and cutbacks in state and local government spending are not going to help. An unexpected shock, such as $6/gallon gas or a failure to contain the fallout of Greece's likely default, might be enough to move the GDP growth number into the negative zone.

Obama talks job creation in Durham

2011-06-15T12:17:00.000-04:00

The President breezed through Durham on Monday, talking about new ways to promote job creation. According to the N&O, Obama said, "The sky is not falling." Obama met with his Jobs and Competitiveness Council to get their perspective. Two of its members (GE CEO Jeff Immelt and AmEx CEO Ken Chenault) posted the Council's findings to date in a Monday WSJ op-ed. Among the ideas being offered:

Quickly form partnerships between the private sector and community colleges to make sure training programs match today's hiring needs
Eliminate red tape that delays construction and infrastructure projects
Streamline the tourist visa process so that foreigners can come here to take advantage of the dollar depreciation and shop til they drop
Make small business loans more readily available
Change the tax code to make it profitable to do energy efficiency retrofits

Hard to see how any of this would make a big dent in our current unemployment rate of 9%. On the training front, there has been a perpetual mismatch between employer demand and vocational school/community college supply. The schools are highly decentralized and need time to develop new programs. Much of the red tape is dictated by state and local governments, an area where Obama and the Council have little leverage. More tourist visas would help, but the big boost in job creation would come from allowing more highly skilled immigrants to locate in the US (make them buy a home, too). The Small Business Administration is but a small part of the credit markets in the US; as long as banks are not lending to small and medium sized businesses, we have big trouble. And do we really need more tax gimmicks to get companies to commit acts that are otherwise economically irrational?

To be fair, these are meant to be quick fixes; the Council will issue some recommendations for longer term growth in September. In the meanwhile, Mr. President, I suggest you not put all of your re-election eggs in this basket.

Breaking the logjam on trade deals

2011-06-13T19:00:00.000-04:00

The US has negotiated trade deals with Colombia, South Korea and Panama. The deals appear to have bipartisan support. But they are being held up in Congress because Republicans have refused to go along with an extension of the stimulus-era spending on the Trade Adjustment Assistance program (TAA), which provides support for workers who have lost their jobs because of trade. (TAA has been around since the 1960s but its funding jumped considerably under the stimulus package; Democrats are pushing essentially to make the stimulus component permanent.)

In theory TAA seems like a nice way to win popular support for trade deals which on balance benefit the economy overall, but definitely create losers along with winners. However, it is very hard to identify individuals who can definitely prove they lost their jobs to imports (which GM workers will lose their jobs because of Hyundai's growth and which will lose them people simply do not like GM's cars). Also, why should those who lose their jobs to imports (even if they can be identified) get extra benefits that other displaced workers fail to receive (e.g., those who lose their jobs to technological change).

Economists Matt Slaughter and Robert Lawrence propose in a recent NYT op-ed that TAA be scrapped and replaced by a program that provides assistance for all laid-off workers. Their argument: "More Trade and More Aid." It could be financed by changing the structure of the payroll tax, charging a much lower rate but widening the base.

Feldstein: Economy is even worse than recent numbers indicate

2011-06-10T12:49:00.000-04:00

Not-so-cheery WSJ op-ed from Marty Feldstein earlier this week. Of the anemic 1.8% GDP growth number for the 1st quarter, 2/3 of the growth came from increased inventories. Also March was the only month with any significant growth. Feldstein criticizes the stimulus package, fears of impending tax increases associated with Obamacare and the possible end of the Bush tax cuts in 2013, lack of progress on the debt, and concerns about the future value of the dollar. Marty's preferred cure: tame the deficit by cutting government spending and eliminating certain deductions and exemptions from the tax code, a decrease in corporate and individual tax rates, and serious reform of Social Security and Medicare.

Texas-sized dispute on higher ed

2011-06-07T17:05:00.000-04:00

Texas has two of the best public universities in the country: UT-Austin and Texas A&M. Faculty at both schools are up in arms about proposals from the Texas Public Policy Foundation that have been endorsed by Governor Rick Perry, according to a story in yesterday's N&O. Here are the TPPF's ideas about how to improve college education:

Publish data on teaching efficiency (salary of prof/#students) and student evaluations on the web
Give cash bonuses to faculty with the 25% highest teaching evaluations
Split teaching and research budgets for each faculty member
Require evidence of teaching skill for tenure
Learning contracts between faculty and students
Fund higher education by giving each student a voucher (as opposed to giving money directly to schools based on enrollment)
Create a new results-based accrediting agency for Texas colleges and universities

This YouTube video of a Texas A&M faculty member's response is well worth a look.

A few reactions:

The UNC system regs state that teaching must be the primary consideration in granting tenure, and that seems to be working fairly well here
Metrics for performance in service industries are always difficult, but why would anyone infer that a professor teaching in an auditorium is always contributing more than one teaching a doctoral seminar with three students????
Student evaluations are pretty reliable in identifying ineffective instructors, but not so great at distinguishing those who provide high entertainment value from those who create a sound learning environment.
Now I can call my syllabus a learning contract.
Faculty outside of science and engineering would have trouble attracting enough grants to cover the research portion of their salary, so making research self-supporting would mean less research in non-scientific disciplines.
In addition to going to voucher systems, maybe Texans should auction off the buildings and land of their state universities?
When we have open positions here at NC State, I will make sure our colleagues at UT-Austin and Texas A&M know about it.
While there seem to be serious concerns in Texas about rising tuition, grade inflation and poorly prepared graduates, I was surprised that the TPPF report said nothing about the losing football seasons the Longhorns and Aggies had recently.

MBA job market heats up

2011-06-06T11:41:00.000-04:00

According to WSJ MBA hiring is up significantly from a year ago. A Graduate Management Admission Council survey found 57% of full-time graduates had offers by mid-March, compared to 40% at the same time a year ago. (Note: having an offer is not the same as accepting one.) Finance and consulting opportunities have led the uptick, according to the article. This mirrors the experience at NC State's Jenkins MBA, although many of our international students are facing difficulty finding jobs in the US.

Having a hard time reconciling this story with the overall gloomy assessment of the jobs market that I posted three days ago? Why would companies start spending more money on consultants as opposed to hiring more help directly (and thereby avoiding a 100% plus markup over salaries)? Let's hope that the June jobs report is more upbeat.

Don't just go to college; pick the right major!

2011-06-05T11:08:00.000-04:00

That's the lesson from a recent study from Georgetown's Center on Education and the Workforce. Tons of previous studies have hammered home the point that there is a tremendous difference between lifetime earnings gap between college grads and high school grads -- it currently is 84%. The new study "What's It Worth: The Economic Value of College Majors" shows that there is a comparable amount of variation between the top paying and lowest paying majors. Searching for top dollar as an undergraduate? Then head straight to petroleum engineering ($120k), pharmacy ($105k), or math/computer science ($98k). At the other end of the spectrum we have "Counseling/Psychology ($29k); Early Childhood Education ($36k); Theology and Religious Vocations ($38k); Human Services and Community Organizations ($38k); Social Work ($39k); Drama and Theater Arts, Studio Arts, Communication Disorders Sciences and Services, Visual and Performing Arts, and Health and Medical Preparatory Programs (each at $40k)." The differential between the top paying and lowest paying majors is over 200%.

The top paying overall field for bachelors degrees is engineering ($75k); business ($60k) ranks a respectable third behind math and computer science and tied with health majors. The clear message to students and parents: getting into college is important but picking the right major is even more important for future earnings.