NC State full-time MBA climbs to #54 in Businessweek rankings

More great news on the rankings front for NC State's Jenkins MBA program!  Bloomberg Businessweek's ranking of full-time programs just came out and we placed #54 in the US.  There were 85 schools ranked.  NC State was just behind Georgia, UC San Diego, Boston College, and George Washington and just ahead of Tennessee, Florida International, Boston University, and Babson.

This year's ranking represents a dramatic turnaround from two years ago.  Bloomberg Businessweek is very selective about which schools are deemed eligible to be ranked.  In 2012 we were pleased to be on the list for the first time (at #63); that was an important milestone for the program.  We were not as pleased with our position on the list (63 of the 80 invited schools had high enough response rates from student and employer surveys to be listed).

The 2014 ranking is based on a weighted average of three components: (1) student satisfaction with the program, (2) employer satisfaction with the graduates and (3) faculty research.  NC State's MBA placed #45 in student satisfaction, #60 in employer satisfaction, and #71 in research.

As an MBA program that only has been in existence for 12 years, we have come a very long way.  We have been on quite the rankings roll over the last year:

• #15 supply chain MBA, Gartner
• #17 online MBA, Poets and Quants
• #20 part-time MBA, Bloomberg Businessweek
• #36 online MBA, US News
• #61 part-time MBA, US News
• #65 full-time MBA, US News

Kudos to the alums, faculty, staff and students in the NC State Jenkins MBA community for making this happen!  Our focus on innovation, experiential learning, and value is getting the recognition it has long deserved.

Even health economists have trouble choosing the right plan

Austin Frakt has a PhD in statistical and applied mathematics from MIT and has published in the New England Journal of Medicine and the Journal of the American Medical Association.  In other words, a real intellectual heavyweight.  Yet he confesses in an NYT blog post: "I am a health economist, and I cannot rationally select a health plan."

The reasons are pretty simple.  First, the plans are maddeningly complex.  It is relatively easy to see the rates, deductibles and copays (I am not saying easy, just easy compared to what comes next) but very tough to figure out what you are actually buying.  Which medical conditions are covered and which are not?  If you need medical services, which providers are included in the network covered by the plan?

Second, you must buy the plan based on a forecast of what health services you think you will need in the coming year.  Some are predictable (e.g., annual checkups) but many (perhaps most) are not.

Expect this issue to receive more attention in the future as more and more companies get out of the business of providing employee health insurance.  Today's WSJ has a piece on how more and more small companies are doing this.

#WhyMBA competition @ BusinessWeek

As a lead-in to its full-time MBA rankings announcement Nov. 11, Bloomberg Businessweek has launched a #WhyMBA competition on Twitter.  Students and alums at all MBA programs have been encouraged to post tweets explaining what makes their school special.  Schools are ranked on tweet volume; right now NC State's Jenkins MBA is #57.  UNC-CH is #60.

What makes NC State so special?  Great value. ROI.  Real world experience.  Community service. Click here to see all the tweets.

I encourage all members of the NC State Jenkins MBA community to join the #WhyMBA discussion.  Let's aim for top 50 for both the tweet count and the actual program ranking!

Wake Forest drops full-time MBA program

Wake Forest announced Wednesday that it will no longer admit students to its full-time MBA program.  The class admitted this fall will finish in spring 2016.  Faculty will be redeployed to other programs -- undergraduate business, a one year MA in Management, and the Professional MBA.

Like many other smaller MBA programs, WF had seen a significant drop in enrollment, from 240 in the 1990s to 114 now.  With better growth opportunities in the evening and Saturday MBA, the school decided to focus its resources on programs with more upside potential.

Poets and Quants interviewed WF dean Charles Iacovou:

Asked why he believes there is declining interest in full-time MBA programs, Iacovou cited the proliferation of one-year specialized master’s degrees and the increasing demand for more flexible programs. “The change is coming from the students themselves. They are choosing to receive an MBA differently than they had. Many of them don’t want to walk away from income or they choose to get more specialized degrees." 

Two reactions:  

1) I am not surprised to see a well-regarded school drop its full-time MBA program.  The market remains strong for the 15-20 largest schools but the remainder are fighting over a shrinking pool of applicants.  I am surprised that WF made this decision when it did, just after moving into a new facility.  But they will have company.  Soon.

2) NC State has long relied on Working Professionals who want classes in the evening and online.  We are looking to create a more flexible program where students can take both face-to-face and online classes as needed.  

A first sign of wage growth

Numbers about the labor market continue to send mixed messages.  The unemployment rate is down to 5.9 percent, a level last seen in summer 2008.  In contrast the employment-population ratio dropped from 63 per cent in early 2008 to 58.5 percent by fall 2009 and has not recovered since (still at 59.0 percent).  So is the labor market back to full employment, as the unemployment data indicate, or is there still a significant excess supply of potential workers?

A key signal, many observers feel, is what will happen to wages as output expands.  If those out of the labor force are really just like the unemployed, employers will be able to fill new positions without having to raise salaries.  On the other hand, if those who have left are out for good and we really are near full employment, then salaries will need to increase.

It is too early to know which interpretation will turn out to be correct.  Last week WSJ reported rising "manufacturing wages ... in some major industrial states as shortages of certain skills ... force more companies to pay up to attract and retain workers."

However, most jobs are in the service sector.  When we hear about Walmart having trouble getting greeters and cashiers, we will know for sure that the labor market is getting near capacity.

N&O features NC State MBA career coach John Hutchings

Today's Raleigh N&O has a long story providing advice about how to work a job fair.  The first person quoted and the person who appeared to be quoted the most (because he is THE expert) is our own John Hutchings, associate director of career development in the NC State Jenkins MBA.

Career development support is a key difference between a good MBA program and a great one.  Most MBA programs for part-time students provide little, if any, of this support.  John has been with NC State's MBA program for six years and he has become the go-to guy for career advice for working professional MBAs.

Going to a career fair soon?  John has the following pointers:

• Research carefully the companies you are interested in.  Don't just look at the web page; use Linked In to network with employees.
• Dress professionally, even if the interviewers are wearing polo shirts.  
• Tailor your resume for each company that you are excited about contacting.  

How soon before we choose our own cable bundle?

The recent announcements by CBS and HBO to start selling content directly to consumers mark the beginning of the end for the bundling of cable TV stations.  Now consumers can choose between different tiers of programming but are locked into all channels within a tier.  Time Warner Cable in Cary NC has starter TV with 20+ channels (mostly local channels and CSPAN), standard TV with 70+ channels and preferred TV with 200+ channels.

The average person ends up paying for lots of channels that are never watched.  Cable cutters have moved to Hulu, Netflix and Amazon Prime.  These outlets provide plenty of content but they do not include (1) live sports and (2) the latest shows on premium channels.  This is now changing; it will not be long before the other major networks and premium channels match CBS and HBO.

The tough question: will buying the stations you want a la carte save you money?  This WSJ piece argues that the answer will be yes in a single person household where only a few channels get watched.  But in a multi-generational household with varying tastes, the old cable bundle may start to look pretty good.

Another key issue: households still need an internet connection to watch online content, even if they drop cable.  Is there enough competition between cable, DSL and satellite broadband services to keep internet subscription costs down?  If not, cable companies will raise their fees for internet service to make up for lost revenue from cable channels.

Finally, if cable cutting becomes widespread then expect many channels to vanish (will we be able to survive without VH1 Classic?) and others have to raise prices significantly to cover costs. ESPN collects about $5.50 from every cable customer, regardless of whether they ever watch it.  The unbundled version will create pain: either it will end up costing a lot more or college and professional sports may have to learn to get by on less revenue.

Amazon security vs. worker rights -- which will give?

The Supreme Court heard arguments Wednesday on whether Amazon should be required to pay workers for time they spend in line going through security clearances as they leave work (BBW account here).  Right now this time is unpaid and workers complain of wait times of up to 30 minutes.  Since Amazon does not have to compensate its workers for this time, it has no incentive to invest in quicker, more expensive inspection techniques.  Interestingly, the Obama administration is supporting Amazon!

There is no legal precedent that readily applies.  Workers cannot be paid for commuting time, which makes sense because workers make choices about how close they live to their job.  Workers have no choice about the inspections, a factor that may weigh in their favor.  But of course airport passengers have no choice about the TSA!

A key issue, BBW argues, is whether the time in line is "integral and indispensable" to essential work activities.  Butchers have to be paid for time spent sharpening knives; in some occupations where workers are exposed to hazardous materials, workers get paid for time spent cleaning up.

Apparently Amazon has other unique workplace policies, such as no lipstick and no watches, because of their concern about employee theft.  

What does the future hold for full-time MBAs outside the top 20?

In an interview with P&Q, outgoing Pitt dean John Delaney thinks the future will not be pretty.   He sees a lot of programs with 60 or fewer students total and questions their ability to survive.  The applicant pool keeps getting smaller and younger.  Many of these schools are offering financial aid to most (and in a few cases, ALL) of their full-timers.   Those that do not have a generous alumni base or a successful exec ed revenue stream will have trouble maintaining this level of aid support.

Tough question: what will determine which programs fold and which prosper?  I see three factors:
#1) Location: Some very good universities are located in very remote areas.  This is a hindrance for an MBA program where networking with the business community is a key element of the degree's ROI.
#2) Differentiation: All too many MBA programs are clones of each other.  Could you tell the difference between the Georgetown and Georgia MBA programs if you just looked at the list of courses and requirements?
#3) Experiential learning: Programs that focus on textbooks and historical cases will lose market share to those where students work in teams that consult with real companies on live cases.  The students with hands-on experience will be better trained and will have better networking opportunities.

NC State's Jenkins MBA is well-positioned on all three fronts.  We are located in one of the best places to live and work in the country.  We have followed a differentiation strategy focusing on innovation.  And the program is extremely experiential, perhaps more so than any other program in the country.  Maybe that is why we are rising in the rankings and enrollment numbers for 2015 are looking very, very good?

Hiring and promotion at Chipotle

Great LinkedIn post by Paul Patrone about incentives for employees and managers at Chipotle Grill.   Chipotle restricts its hiring to entry level positions and develops employees for managerial roles.  New hires are exposed to all aspects of the operation -- cash, cleaning, and cooking.  The one policy I really liked is that supervisors can be promoted only when they have developed an internal replacement for themselves.  Also, employees reporting to the supervisor are consulted as part of the promotion decision.

Even though the starting wage is just $9 per hour, the hiring process is very selective.  Before an interview, an applicant is directed to study the Chipotle careers website carefully.  Chipotle wants employees who are ambitious, happy, smart, polite, respectful, honest, conscientious, presentable, curious, motivated, hospitable, high energy and infectiously enthusiastic.  Part of the interview is designed to see if the applicant actually read the material they were assigned.  Employees are involved in the hiring decision.

Most employees working at Chipotle probably have no more than a six month time horizon, but the company seems sincerely committed to providing career opportunities.  Looks like a place where a high school graduate could get ahead and our economy needs more of those.

On climate science

Climate change is in the news again as over 100 countries convene at the United Nations.  (Let's not even think about the carbon footprint of that event; where is Telepresence when you really need it!)  I have no claims of scientific expertise here, but I strongly encourage everyone to read this WSJ piece by Dr. Steven Koonin, former undersecretary for science in the Department of Energy under President Obama.

Koonin has impeccable scientific chops as a physics professor and provost at Caltech and a stint at BP as chief scientist.  His article is titled "Climate Science is Not Settled" and here are a few key quotes:

• The climate has always changed and always will.
• Even though human influences could have serious consequences for the climate, they are physically small in relation to the climate system as a whole. 
• Precise, comprehensive observations of the oceans are available only for the past few decades; the reliable record is still far too short to adequately understand how the oceans will change and how that will affect climate.
• While the past two decades have seen progress in climate science, the field is not yet mature enough to usefully answer the difficult and important questions being asked of it. This decidedly unsettled state highlights what should be obvious: Understanding climate, at the level of detail relevant to human influences, is a very, very difficult problem.

One thing I learned as a math major a long time ago is that if you have a given number of data points, there is some function out there that will perfectly fit those data points.  Whether that function makes any sense or not in terms of explaining the data pattern, well that's another matter entirely.  Climate science is a relatively new field, not unlike macroeconomics.  Important issues, lots of emotion, and big gaps in knowledge.  

Enrollment and tuition concerns

Ran across two items over the weekend about the market for higher education.  Chronicle of Higher Education reports the results of a survey of senior executives.  The survey found that 85% are very or somewhat worried about enrollment.  The enrollment worries are driven by higher tuition and competition from other schools.  Yet almost half plan on raising tuition another notch!  Relatively few were looking for ways to cut costs or generate more revenue.

Why has tuition been rising so much?  Michigan economist Susan Dynarski shows that the main culprit for public universities has been declining state support (NYT Upshot).  She shows that public colleges collected $11300 in state funding and tuition per student in 1988; this amount rose to $11500 in 2013.  Over this period state funds dropped from $8600 to $6100, whereas tuition rose from $2700 to $5400.  One need not look any further for an explanation of why public schools have increased tuition.

But what about private schools?  Since public universities have become more expensive, this has led to increased interest in private schools and allowed them to raise their tuition as well.  

Longer term the prognosis for public schools is not great.  State governments are faced with rising expenses for Medicaid and employee retirement and health care.  I am not aware of any governor or legislator running on a platform of raising taxes to preserve funding for higher education.  It will be up to the public universities to either get a handle on costs or find their own sources of funds.  

Why is cash so popular in for transactions in Germany?

In a world where more and more transactions are handled by credit or debit cards, why do people hold cash?  Cash is needed in some establishments that do not accept cards.  It also is difficult to trace, making it the payment mechanism of preference for those who wish to leave no record of their purchases.  However, cash carries significant downsides.  You can lose it or have it stolen.  It pays no interest.  Governments can debase its value by printing too much of it.  

It came as no surprise to me that half of Americans carry $20 or less in cash.  I expected this would be the case in most other high income countries.  I was wrong.  

It turns out that Germans still rely heavily on cash and this has been the case for some time.  They carry around an average of $123 in their wallets and conduct 80% of their transactions in cash.  This cannot be explained in terms of simple economic factors.  For instance lower interest rates would lead to increased cash holding, but interest rates in Germany and the US are pretty close to each other.   

Some sources argue that the German preference for cash reflects the hyperinflation of the 1920s.  But most of the people who lived through that event are no longer around.  (Also, if there was ever a time to minimize cash holdings, that was it.)  Another possibility is that debt avoidance is integrated into German culture; always paying in cash is a good way to avoid ballooning credit card bills.  

We may see a clash of culture with technology soon, as mobile payment systems become more widely available.  Will paying by phone be viewed as equivalent to paying in cash?

NC State Jenkins ranked #15 Supply Chain MBA

The annual Gartner survey is the gold standard for ranking supply chain programs.  This year's ranking just came out and NC State's Jenkins MBA placed #15 in the US.  Penn State was #1, followed by Michigan State and Tennessee.  NC State was the only program in North Carolina in the top 25.  

Gartner's rankings are based mainly on two factors: Gartner's own evaluation of the curriculum and the success of graduates in the job market (measured by employer surveys and salaries).  This is great recognition for our supply chain program.  

Will MBA programs become unbundled?

Poets and Quants editor John Byrne has an interesting piece in USAToday regarding how technological disruption is likely to affect MBA programs.  Right now a good MBA program is a bundle of services that create value for students.  It starts with instruction from great professors, but also includes career coaching, networking with alumni and fellow students, and placement services.

MOOCs already threaten the instruction part of the bundle.  In the not-to-distant future, business students will be able to obtain certificates of completion for all MBA core subjects plus a mix of electives in mainstream subjects such as finance and marketing.  Byrne thinks that free MOOCs will quickly put MBA programs that lack strong career services and networking out of business.

Byrne does not address the possibility that other providers will step up and provide coaching, job contacts, and networking.  Students pay a hefty premium to get into the very top MBA programs.  The academic content of the core MBA courses is pretty much the same across all institutions, which implies that the perceived value of the nonacademics is driving the price premium.

This leaves open the question of how communication and leadership skills are developed.  These skills are #1 on the list of MBA recruiters.  Many of the top schools restrict admission to students with strong skills in this dimension; employers use a degree from those schools as a signal that the student possesses those skills.  Other schools invest heavily in training that changes student behavior.

My take: I am skeptical that MOOCs will be very helpful for developing the so-called "soft skills." Schools that take those skills seriously should be able to stay in business, and perhaps even prosper.

Employers taking longer than ever to fill positions

Just ran across this WP blogpost by Catherine Rampell that shows the average vacant job stays open 25 days.  There is tremendous variance by industry.  Construction positions are filled within 10 days, whereas finance positions take 40.  Want a good example of diseconomies of scale?  Firms with 5000 or more employees take 68 days!   

Vacancies are at the highest level in the history of this since data series that goes back to 2001.  One might interpret this as another sign that the labor market is tightening, although this is inconsistent with the extremely modest wage growth we are observing.  Another interpretation I am seeing is that corporate America has unrealistic expectations of job applicants and would rather invest in finding the ideal person than train someone else.  This might be a rational strategy at a time when employment still does not seem to be growing very much.  

How top execs view competitiveness

This week Harvard Business School issued its third annual survey of how its alums view American competitiveness.  In a nutshell they are still pessimistic but not as pessimistic as one or two years ago.  Alums working in large companies were more optimistic than those in small companies.

What do they think is going well?  They speak fondly of universities, entrepreneurship, firm management (a little self-serving?), innovation, capital markets, and property rights.  They speak less fondly of K-12 education, regulation, tax code, and the political system.

A strong theme that emerged from the survey was that although businesses are doing well (hello S&P 500 at 2000), most households have yet to share in the recovery.  In addition to shoring up K-12, the report points to the need for businesses to rethink their hiring processes and to invest more in training.  One point I particularly liked is the need to stop talking about labor markets in the aggregate and a need to focus at more micro levels, such as workers in a particular occupation, industry and location.  

If you are not up for the full report, you might find this Fortune interview with one of the lead authors Michael Porter worthwhile.  I was actually one of Porter's first graduate students at Harvard all too many years ago.

What do you do with Google Fiber?

NYT reports on Kansas City's experience with Google Fiber to date.  The service costs $70 for broadband and another $50 for television.  The take-up rate has been reasonably high: three fourths of households in areas with average income of $100k or more have signed up, as have a third of households in low income areas.  Speed is blazing at one gig per second.  

So what are customers using all of this high powered service for?  The same stuff they do on regular systems, of course!  (The article has lots of snarky comments about how many kitten photos can be downloaded.)  This is no real surprise as no one is likely to develop high-powered apps that only can be used in the few cities that have Google Fibre.  

For there to be network externalities, there needs to be a broader network.  In time I would imagine that high-def two way video, sharing of medical data, and connecting schools will be taken for granted.  The world of work is likely to change as well, making work at home more viable.  One added bonus: another competitor for Time Warner!

Viva Google Fiber; come to Cary ASAP!

Do skills matter more than degrees?

Two sociologists did a study four years ago of how much learning takes place in college, and the results were not encouraging.  Scores on the Collegiate Learning Assessment were only half a standard deviation higher for seniors than they were for freshmen.  To use statistical terms, you cannot reject the null hypothesis of "no learning takes place."  The results were not uniform; those in the arts and sciences learned more than those in business and communications.

Now they have done a follow up study of how these 2009 graduates did in the labor market.  The results, summarized in NYT, show that those with the highest scores have done the best professionally.

Even after statistically controlling for students’ sociodemographic characteristics, college majors and college selectivity, those who finished school with high C.L.A. scores were significantly less likely to be unemployed than those who had low C.L.A. scores. The difference was even larger when it came to success in the workplace. Low-C.L.A. graduates were twice as likely as high-C.L.A. graduates to lose their jobs between 2010 and 2011, suggesting that employers can tell who got a good college education and who didn’t. Low-C.L.A. graduates were also 50 percent more likely to end up in an unskilled occupation, and were less likely to be satisfied with their jobs.

Overall the college graduates in this study still did much better than their counterparts who did not finish college.  But once again, this study shows that employers hire and reward for skill not credentials -- an important message for faculty, administrators, and students.  

NC State Jenkins ranked #17 online MBA

Poets and Quants, the #1 MBA blog, has just issued its ranking of the top online MBAs and the NC State MBA comes in at #17.  Carnegie-Mellon is #1, followed by UNC-CH, Indiana, Maryland, and Penn State.  More great recognition for our up-and-coming program!

Why airlines cancel flights

Many of you will be on a plane this Labor Day weekend; 1.5% of you should expect your flight to be cancelled.  Amy Cohn, an industrial engineering professor at Michigan (a great university with unfortunate choices in school colors and mascot), explains the logic behind flight cancellations in this New Republic piece.

Simple economics would focus on marginal revenue and marginal cost.  That is, if the savings in jet fuel and labor hours offset the costs of rebooking passengers then it makes sense to bump the flight.  For instance if there are 8 am and 10 am flights from Raleigh to Detroit and both are half-empty, it makes sense to cancel one.

Cohn points out that network effects need to be considered.  The 8 am flight to Detroit is likely to go on to as many as eight other locations by the end of the day, all of which can be messed up by a cancellation.  Also, flights now are much fuller than they were 20 years ago, so rebooking can be quite expensive for the airlines in terms of bumping would-be passengers who would have paid a hefty premium to book a last minute seat on a later flight.

Kudos to the Fed

Chicago Booth finance expert (and all-around free-market kind of guy) John Cochrane has a great WSJ piece on how and why the Federal Reserve Board has made the right call on a set of very big decisions.  If you happen to run into a politician ranting against the Fed, I strongly encourage you to ask him/her how he/she disagrees with Cochrane, a world-class finance expert who expresses his views on his well-read blog Grumpy Economist.  My guess is that you will not get a straight answer.

What role for unions in NC?

I appeared on WUNC-FM's "The State of Things" today, along with Jeff Hirsch, associate dean at the UNC-CH law school.  The first ten minutes of the clip is an interview with Keith Ludlum, who led the battle to organize employees at Smithfield Foods.  Jeff and I engage at 10:20.  By the way, I am a labor economist not a labor lawyer!

Interesting point that emerged from the discussion is that once Smithfield was organized by the United Food and Commercial Workers Union, the plant remained economically viable.  In fact Smithfield as a whole did so well that it was bought out by a Chinese company.  One has to ask what was the ROI on all of the money Smithfield spent to keep the union out.

Chinese imports and U.S. manufacturing jobs

Continuing on the recent blog theme on why is the U.S. labor market doing so poorly in terms of jobs and wage growth, I came across this study by a team of highly respected MIT economists that looks carefully at the impact of growing imports from China.  The news is not good and, frankly, not surprising.  

Our central estimates suggest net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011. 

This study focused only on Chinese imports, missing out on the impact of imports from the likes of Bangladesh and Nicaragua.  

Take one dose of import competition, another of technological change, and yet another of reduced fluidity and you might very well have a very convincing explanation of why employment remains so low.  

Have less fluid labor markets led to lower employment?

Although the unemployment rate is near 6 percent, the employment population ratio continues to be well below where it was in 2007.  Chicago Booth economist Steve Davis and Maryland economist John Haltiwanger (DH) presented a paper yesterday at the Kansas City Fed conference in Jackson Hole WY that lays out evidence that our labor markets have become less fluid and that this has contributed to lower employment.

In a labor market context fluidity refers to the sum of the rate at which jobs are created and the rate at which they are destroyed.  DH show that fluidity has dropped by a sizable margin since 1990.  Part of this can be explained by an older labor force and a smaller number of young firms today compared to 25 years ago.  The rest of the story is harder to figure out now, but DH consider changes in business models and supply chains, increased training requirements, job lock associated with health insurance, court rulings that have limited employment at will, and occupational licensing as possible contributors.

Of course if there are fewer jobs being destroyed, that means fewer unemployed workers.  However with fewer jobs being created there are fewer opportunities for those looking for work and spells of unemployment become longer.  After crunching the numbers DH find a strong correlation between reduced fluidity and lower employment.

The study has already received press attention (NYT story here, thanks to Marginal Revolution for the link) because of its implications for economic policy.  DH argue that the labor market has faced structural issues for the last 15 years.  The numbers looked better than they should from 2001-2006 because of the housing boom and looked much worse since 2008 for obvious reasons.  Zero percent interest rates are not going to fix this problem.  

More on labor shortages

Two recent pieces on labor shortages, following up on my earlier post:
1) Today's WSJ reports a looming national shortage of less-educated workers.  Two things going on: more high school grads are obtaining some post-secondary education (supply down) and demand is picking up in sectors that need less-educated workers (demand up).  So what does econ 101 (or for NC State MBAs MBA 505) tell us is going to happen?  If the claims about shortages are real, wages will rise; if the claims are just management bellyaching, nothing will change.
2) Wharton HR expert Peter Cappelli has been arguing that one reason employers are having trouble finding qualified workers is that the corporate world has vacated the training business.  Workers now obtain skills on their own (usually through education) or obtain them through gradual observation and absorption on the job (learning-by-doing).  He tells BusinessWeek that employers will have to start investing more in training to turn this around.  Such investments are risky unless trained employees can be retained.  So maybe they will have to be paid more???

Time to sell?

Yale economist and Nobel laureate Robert Shiller published a NYT piece today on stock market valuations.  I have always taken Shiller's word on this subject very seriously; not too many stock pickers have Nobels on the mantel above their fireplace!

Shiller was instrumental in designing the CAPE (cyclically adjusted price-earnings) ratio, which is now near its historic highs.  Today the CAPE ratio is above 25.  It has been above 25 three times before: 1929, 1999, and 2007.  In each case the market crashed within a year.

Does this mean we should all rush to dump stocks?  Not necessarily.  CAPE is not an indicator of market timing.  And US stock prices could get higher before they go lower.  But it looks like a good time to be exploring other assets, even if the returns are low.  A safe 1-2% beats -25% every time.

Will antitrust ruling bust up NCAA?

Two big news items about the NCAA last week.  First, it approved new rules for the ACC, Big Ten, Big Twelve, Pac 10 and SEC conferences that will allow them more autonomy (ESPN report here). The most likely consequence is that athletes at these schools will be allowed to receive "cost-of-attendance" stipends of $2-5k per player, a modest increase over tuition, room and board.

But the big news came from U.S. District Judge Claudia Wilken who found the NCAA guilty of antitrust restaint-of-trade violations (CBS Sports report here).  The NCAA and its member schools profit from the use of athletes names and images.  For instance last year Texas A&M sold truckloads of football jerseys with Johnny Manziel's name and number and received millions for televising his image. But Johnny received zero revenue from this activity.

This will no doubt change as a consequence of the antitrust ruling, assuming it stands upon appeal.  Colleges will still be bound, for a while, by whatever compensation rules their conferences come up with.  But let's just suppose a school like Alabama in football or Kentucky in basketball decides to start paying something close to market prices to attract student-athletes.  This will force a significant redistribution of income and resources.  Currently the TV dollars support huge athletic department budgets.  When students start getting a larger share, expect big changes.  Coaching and support staffs will shrink; some non-revenue sports will vanish (in a gender neutral way of course, thanks to Title IX).

Other things to expect:

• Left to a free market, five-star recruits will get nicer packages than three-stars.  
• All recruits will get the same performance bonuses that we see in the pros.  Future Johnny Footballs will be paid by the touchdown.  And maybe dinged in the wallet for each interception.  
• Another judge will allow students to transfer to another school without sitting out a year; the current rule is no doubt another restraint of trade.  
• Interesting question: will athletes vote for unions to redistribute the loot from the Anthony Davises and Jabari Parkers to the average players and the benchwarmers?  

Labor shortages starting to appear?

The unemployment rate has fallen to almost six percent, but with the employment/population ratio at a 30 year low I have been reluctant to argue we are anywhere near hitting labor force capacity.  However, I have run across a couple of news stories in the last week that signal the possibility that some shortages are starting to appear in some markets.

Story #1: Neil Irwin's NYT piece on the shortage of truckers.  Training requirements are not especially high and wages have lagged behind inflation over the last five years.  But big companies claim they are having a hard time finding qualified applicants and some are starting to pony up, a $2k bonus here and an increase in mileage there.

Story #2: The local N&O reports that a big multifamily residential construction project in Cameron Village has been slowed down because of a shortage of qualified workers.  The contractor claims that similar shortages are facing the industry nationwide.  Frankly, this one is a bit hard to believe given the drastic downsizing the construction industry has undergone.  But maybe folks who lost their construction jobs five to six years ago have found something else they prefer to do.

Will MOOCs kill off business schools?

Just ran across this fascinating discussion with two Wharton profs about the role MOOCs are likely to play in higher ed (kudos to Craig Newmark's blog, where I first saw the link to this transcript of the video).   Christian Terwiesch and Karl Ulrich have taught MOOCs on operations and innovation.  They estimate that the cost of producing a MOOC at Wharton is about $70k in upfront development and $7k in cost per section for delivery.  In contrast it costs about $50k to teach each section of a face-to-face course.  So development costs are covered by variable cost savings once once two sections are delivered!

Of course no one is going to pay Wharton $120k tuition to take their MOOCs, which they already are giving away.  Students will still value the networking and career resources of a top b-school, plus the brand reputation garnered by becoming a Wharton grad.  Terwiesch and Ulrich envision three scenarios on how what they call SuperText (the technology behind the MOOCs) will impact MBA programs: (1) technology enables enrollment growth (unlikely because it waters down the brand and there aren't that many $100k/year jobs for 26 year olds); (2) technology enables cost savings by reducing faculty lines (bound to happen in my view); and (3) business schools fall by the wayside as students can pick and choose from an array of MOOCs the chunks of knowledge they need when they need it (in other words, MOOCs become like iTunes where you grab the songs you like not the entire album).

The article also provides some great insights into the economics of a top five private business school.  Did you know that it costs $400k to produce an "A journal" article?

Why some restaurants pay much more than the minimum wage

Some cities and states are raising the minimum wage to $10 an hour or more.  McDonalds workers in big cities are threatening to go on strike for $15/hour.  Judging only from the headlines, one would think the restaurant industry, especially fast food chains, is dominated by low wage jobs.

This recent NYT piece shows otherwise.  Chains such as Shake Shack and In-N-Out Burger pay over $10 an hour simply because their owners think that is the right business decision.  Higher wages allow managers to hire from a more talented applicant pool.  They also reduce turnover and encourage longer term investments in training.  In some cases the personal values of ownership also play a role in wage setting.

The tougher question is why does In-N-Out pay relatively well and other chains stick to near the minimum wage.  After all the core business at McDonald's and In-N-Out is the same and the prices are comparable.  One possible difference is that more skill or training may be needed at In-N-Out where everything is made fresh.

What have we learned from NC's cuts in unemployment benefits?

Not very much, argues Michigan economist Justin Wolfers in Sunday's NYT.  NC cut extended unemployment benefits a year ago and there is little evidence that this has helped promote employment.  The state unemployment rate is down but this is because more have given up looking for work versus more people accepting jobs.  If you compare trends in NC to adjacent states that did not make any cuts in benefits, it is very hard to discern any difference in either unemployment or employment.

My take: unemployment benefits in the US are relatively low compared to European countries, so low that they by themselves do not play a driving role in job search decisions.  But one must be careful to consider other forms of assistance -- especially food stamps and Medicaid.  Job search intensity depends heavily on two variables: (1) the perceived odds of finding a job and (2) the difference in income between working and not working.  If there are not many jobs around and unemployment benefits are not very large, then cutting the number of weeks of eligibility for benefits is not going to make a big difference in the job search behavior of the unemployed.  It is going to make a modest difference in their income and economic well being.

Secrets to success after college

This Friday WSJ piece references a very interesting study about what determines success and happiness after college.  Released last May by Gallup and Purdue University, over 30,000 graduates of a wide range of educational institutions were surveyed about their engagement at work, their overall well-being, and how both relate to their college experience.

Two results stand out: (1) workplace engagement is more or less unrelated to what type of school you went to (exception: graduates of for-profit schools report much lower levels) and (2) the key variable predicting workplace engagement is successful engagement in college.  In other words, if you did nothing more than attend classes, hand in assignments and get passing grades you missed the boat. There is little payoff in workplace engagement unless you develop a close relationship with one or more professors, had an internship, or worked on a project that took a semester or more to complete.  (Aside: the payoff is even better if you do all three.)

More on the minimum wage

Back from vacation and back to blogging.  While I was gone WSJ ran a piece by David Neumark who is in my view the leading expert on minimum wage economics.  Neumark's main point is that the minimum wage is a highly ineffective policy tool for poverty reduction.  A large share (34% by Neurmark's calculation) of minimum wage workers are secondary earners in a household that overall is well above the poverty line.  A bigger problem is that a higher minimum wage is not going to help people who are poor because they cannot find full-time jobs, even at $7.25 per hour.  Needless to say their quest becomes much more difficult if employers become obliged to pay them $10 to $15 per hour!

So why are lefty pols so interested in raising the minimum wage?  This gets us into the murkier discipline of minimum wage politics.  My take is that supporting a higher minimum wage (1) makes it look like the pols are doing something to help the poor and (2) requires no funds from any government budget, all costs are shifted to employers who in turn adjust by raising prices and reducing employment and hours per person.

You don't miss your water ...

Want to know why there is a water shortage in California?  Is it the drought? Too many lawn irrigation systems?

Of course not!  It's the government's byzantine system of pricing and distributing water.  Stanford GSB Professor Ed Lazear tells the full story in this WSJ piece.  Preserving the delta smelt is an additional complication.

Maybe fears about student loan debt are overblown

Tuesday's NYT ran a story summarizing some recent research by two Brookings Institution economists regarding student loan debt.  The punchline -- maybe this is not such a big deal after all.  (For amusement be sure to see this Bloomberg Businessweek piece that links to a "sky is falling" NYT story on student debt that ran just two days earlier!)

The Brookings research makes two main points: (1) even though the debt numbers are up, so are incomes streams; the ratio of monthly student loan payments to income has not changed much over the last 20 years and (2) roughly 75% of those with debt owe no more than $20k; only 7% have more than $50k.

Of course there are still some serious issues, especially among those who borrow but do not complete degrees and those who complete degrees in fields with limited labor market opportunities.  But maybe students have a much better idea of what they are getting into than we think!

Wage increases on the horizon?

The national unemployment rate is almost back to where it was before the Great Recession.  Ordinarily that would lead us to expect a tighter labor market with rising wages and shortages in certain occupations.  But the economy has been anything but ordinary, especially the labor market.  The labor force participation rate has plummeted and many analysts think that once the labor market looks better, more people who are currently sitting on the sidelines will start looking for work.  If this happens, there likely will not be an uptick in wages for the average worker.

Many CFOs are expecting to have to give larger raises, according to Saturday's WSJ.  Wage rates have been flat since the recession started.  In a survey jointly performed by the Fuqua School of Business and CFO Magazine, CFOs expect wages to increase by 3% in the coming 12 months.  WSJ thinks that firms will have to accept smaller profit margins as a result, although raising prices or cutting non-labor costs are other options.

Pricing student loan risk

One peculiarity of the student loan market is that loan contracts are the same for all forms of post-secondary education.  This means that someone borrowing for a Harvard MBA pays the same interest rate and has the same repayment terms as someone borrowing for a degree from a Bible college or a barber school.  This happens, Bloomberg Businessweek argues, because (1) the federal programs make no distinctions and (2) FDIC rules forbid banks from making such distinctions.  Ironically, banks can have different terms across individuals for auto or home loans, but not student loans.  Default rates on student loans vary tremendously by college and program, below 2 percent at Stanford and Duke but 42 percent at Arizona Automotive Institute.

This is not an easy problem to fix.  Most students are young and do not have a work or credit history that provides good predictions about what their credit worthiness will be five to ten years into the future.  On the other hand, the bulk of the defaults are coming from schools that heavily rely on federal loan support for their very existence but are currently not being held accountable for their graduates' behavior.  Balancing access to higher education with responsible pricing will not be easy.

Teacher tenure and civil rights

A California judge ruled Tuesday that teacher tenure locked so many incompetent teachers in place in poor performing schools in distressed neighborhoods that students in those schools were being deprived of their right to an education.  Prominent economists were hired as expert witnesses in the case.  Judge Treu cited the work of Harvard economist Raj Chetty who found that a single year in a classroom with an ineffective teacher costs the students $1.4m in lost lifetime earnings.  Tom Kane, another Harvard economist, testified that one year with an incompetent teacher costs 9.5 months of learning.

California teachers go up for tenure after only 16 months on the job.  Once tenured it takes 2 to 10 years to remove an ineffective teacher at a cost of $50 to $450k, the judge noted in his ruling.  With such a daunting process and a far from certain outcome, principals choose to leave such teachers in place.

So how does this become a civil rights issue?  The judge cited testimony that inept teachers tend to be clustered in "high-poverty, low-performing" schools with large concentrations of minorities.

Of course the ruling will be appealed and the next judge may weigh the testimony differently.  Looking at the economic and management issues at stake, here are some key questions:
1) The judge cited testimony from an expert witness hired by the defendants that 1-3% of all teachers in California are ineffective.  Ineffective teaching is not an easily measurable trait such as height or weight. If the ruling holds up, how would teaching effectiveness be measured and how would one use those measures to make decisions at the individual level?  In practice performance measures are always noisy, so the consequence would be that some good teachers would be fired because of bad metrics.
2) Who replaces the fired teachers?  Would the replacements be more or less effective in the classroom?
3) Would principals use the power to fire?  Dismissal procedures are not any fun for either party.
4) If tenure is removed, this reduces the economic rewards for entering the teaching profession.  How much will salaries have to be increased to attract the same caliber of faculty?
5) There are many issues facing inner city schools and their students; if every ineffective teacher were replaced by an ideal teacher (think Mr. Chips, Sidney Poitier in Blackboard Jungle, or Robin Williams in Dead Poets) how much would the lives of the students in those schools change?  The roles of neighborhoods, parents and culture would remain more or less the same.

NC State MBA a top overperformer

Poets and Quants published an article this week on brand perception for MBA programs, pointing out that perception of program quality by deans often lags reality.  They have a nice table showing how little the dean assessments for top 20 schools change; over the last two years no school changed by more than 0.2 on a five point scale.  

But reputation often lags reality, as many schools outside the top tier do very well on objective measures of program success, such as employment outcomes for graduates.  P&Q came up with a list of the top over-performers, defined as schools whose overall rank is well above their dean assessment score.  NC State's Jenkins MBA came in tied for 4th (with Alabama and Binghamton), with the top three slots going to UT-Dallas, Rutgers and BYU.  Here is a direct quote from the article: 

For years, North Carolina State (Jenkins) was a recruiter’s dream, an unheralded program with a tech-driven, hands-on, multidisciplinary curriculum. While the program is no secret to companies like IBM, it has seemingly been stuck in neutral among academics, posting its second consecutive 2.7 score (despite soaring 23 spots overall from #88 to #65). With the school continuing to build partnerships within the nearby Research Triangle Park to complement its STEM roots, Jenkins is definitely a school to watch for innovation.

NC State is working to continuously improve the MBA experience.  In time the deans at other business schools will recognize what great opportunities we provide.  

FCC and net neutrality

The FCC made news last week when it issued a new set of regulatory guidelines that would allow broadband companies to charge content providers for faster access to customers.  In the "I could not make this up if I tried department," the proposal blocks the Comcasts and AT&Ts of the world from blocking or slowing down any website.  In other words, it is ok to shake companies down for money but you cannot block them out of pure meanness.

It is hard to find anyone who is happy with the proposal.  The hard-core net neutrality crowd is displeased because they want the internet to be the same speed for all.  They do not spend too much time thinking about what incentives Comcast and its ilk would have to build and maintain the bandwidth necessary to make that happen.  Moving 180 degrees to the other side of the political spectrum, any hint of regulation has stirred concerns that the FCC will impose 1970s style telephone regulation.

There is one basic point that is getting lost in this discussion -- as more broadband hungry services become available, someone's gotta pay for the pipes.  Either Netflix, HuLu and other heavy-duty video providers start charging their customers higher rates (to reflect the payments they will have to make to Comcast and Verizon) or the internet providers themselves will have to start directly charging heavy-duty video consumers more.  Hopefully the FCC can remember this simple fact before adopting final regulations.

Evidence that employers really care about internships

What do employers really look for in a resume?  To find out four researchers at three universities did a randomized study where they sent fictitious resumes to online job postings.  Each resume showed a college degree received in 2010 and one job held since then.  The resumes varied by major (half business and half liberal arts), GPA and whether the applicant held an internship in the same field as the opening.  

I was a bit surprised to see 17 percent of the resumes were invited for an interview; this strikes me as very high for an online application process.  But more importantly, what were the key variables in predicting who landed the interview?  It was not the major.  It was not the GPA.  It was whether or not the student had an internship!  Those with internships were 14 percent more likely to get interviews than those without.  

This may actually understate the true impact of internships because it does not include the most common scenario -- where the internship leads directly to a job.  So even though summer school starts tomorrow, don't give up on that internship yet!

Beware iPhone operating system upgrade

Upgraded my iPhone5's operating system to iOS 7.1.1 on Sunday.  Two days later the phone became totally non-responsive.  I was able to get it going twice, but then it died (bricked is the term used by the cognoscenti) Tuesday afternoon.  I then learned that many users are having similar problems.  

My phone was past warranty by five months and the local Apple store manager clearly had been directed to not accept any responsibility for its early demise.  Hopefully my case is a relatively isolated instance, but needless to say we are NOT going to do the same upgrade for the other iPhone in our household.  

Dependability has been a key reason over the years as to why Apple has been able to charge a premium for its products.  Already under pressure from cheaper Android devices, Apple had better hope that this ends up being a small scale problem.  (P.S. Typed on a five year old MacBook Pro.)

What does the Apple-Beats merger tell us?

Apple -- the revolutionary company that brought us iPads, iPhones, iTunes and countless other innovations -- is in talks to buy Beats Electronics for $3.2m.  What does this tell us?  First, Apple can leverage Beats' new music streaming service to offset the less than spectacular rollout of iTunes Radio.  At a minimum, Apple kills off a potential competitor and maybe there are some synergies (don't hold your breath).  

Second, more and more music is being consumed on headphones and Beats has become a force to deal with in that market.  Perhaps there are some technical payoffs to this, but carrying the logic further maybe Apple buys a company that makes receivers and another that makes speakers.  Somehow I do not think consumers will start getting a $300 headphone with each new iPhone or iPad.  Next step: will Apple buy a printer company to go with its Macs?

Third, Apple now thinks it has to buy innovation instead of creating it.  As many investors feared, the pipeline of breakthroughs has run dry.  Apple has a history of acquiring small firms in the technology space, but this would be its first big buy in the consumer electronics space.  

With or without the merger, the music biz will continue creating great product.  As the former rock-and-roll critic for the Michigan State News, I encourage you to give a listen to War on Drugs' "Lost in the Dream" and Future Islands' "Singles."  You can hear both for free on Spotify.  

Who stays in the top 1 percent?

The share of the economic pie that accrues to the top one percent of households in the earnings distribution has been increasing over the last 40 years in the US.  On the surface this implies that a small circle of people keeps getting richer and richer every year.  

However, the composition of the top one percent changes every year.  Recently two sociologists did a study to examine how much turnover takes place in the upper income brackets.  One would expect some turnover for a number of reasons.  First, most people start their careers in low to middle income categories.  Second, some income is transitory; for instance Thomas Piketty is a wonky French academic economist who has become a best selling author (but probably for only one year).  

The results of the sociologists' study, reported two weeks ago in NYT, will surprise many.  

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution. 

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.

One must be careful to distinguish between inequality in income, which clearly varies from year to year, and inequality in wealth, which is more likely to be stable over time.  It would be interesting to see how much change there is in the composition of the top one percent of the wealth distribution.

Chicago Booth economist wins top economics honor

Every year the American Economics Association presents the John Bates Clark medal to the most promising economist under age 40 (WSJ writeup here.).  This year's winner is Chicago Booth's Matthew Gentskow.  Gentskow is one of the first economists to use big data in research.  Some of his most notable work involves media bias.  Do some newspapers lean left or right because of the perspective of the owner or does it reflect the characteristics of their readership?  Gentskow finds the latter, which makes sense if you think of who reads the NYT (liberal upper east siders) versus WSJ (finance and business types).

Privatizing student loans

Vanderbilt Owen finance professor Miguel Palacios pinned a WSJ oped earlier this week where he advocated a new approach to finance student loans.  Money quote:

If you thought mortgage-underwriting standards were lax right before the housing crisis, wait until you take a closer look at student loans. Borrowing for a house at least requires an appraisal of the property and an assessment of the borrower's future capacity to pay. Student loans require neither. Instead, students and families are encouraged to invest in any program at any price.

Palacios argues for Income share agreements (ISAs), contracts between individuals and investors.  The investor pays for school in return for an agreed-upon percentage of future earnings over a given time period.

This is a marked contrast to the usual student loan, in which the student borrows a given amount and faces a predetermined income stream.  Under ISAs if students earn more than expected, the investor collects more than expected and vice versa.

Apparently this approach has been tried with some success in Latin America.  It would face some obstacles here.  Capital markets require accurate and timely data to operate efficiently.  There are plenty of data on stocks, bonds, housing and cars -- not so much for earnings by school and major.  Property rights and regulations also would need to be drafted and approved.

Then there is the question of how such loans would co-exist with the existing federal student loan programs, open to all comers.  I doubt private investors would support students in degree programs with limited labor market opportunities, so the feds would end up with a worse risk pool than now.  

I do support Palacios' basic point that some underwriting standards need to be developed and applied to student loans but, as always, the devil is in the details.

Two NC State MBA alums recognized by TBJ

Congratulations to Ted Mosler class of 2002 and Moss Withers class of 2010 for being named by Triangle Business Journal as the 40 top business leaders under age 40 in the Triangle.  The recognition is based on professional accomplishments and service to the community.  Ted is president, CTO and founder of GILERO, a medical device company.  Moss is a commercial real estate broker for NAI Carolantic Realty.  

NC State wins another competition

Kudos to the NC State team Cardinal Marketing Group for winning the Brand North Carolina Strategy Case competition.  MBA students Annie Bishop, Meagan Sams and Lauren Wright teamed with Master of Global Innovation Management study Christie Montague to take first place and the $5000 prize.  The competition was keen, with 106 total entries.  Of the 10 finalists, three were from NC State and all were affiliated with the Consumer Innovation Consortium.

Perils in big data

Worthwhile FT piece by economist Tim Harford about the big data phenomenon.  Make no mistake -- the availability of terrabytes of data on all things imaginable will eventually lead to exciting breakthroughs.  Harford's concern goes back to the old question of correlation versus causation.  Just because two variables appear together at a relatively high frequency, it does not mean that one causes the other.  And even if there was causation, it is hard to tell which way causality runs.

Another challenge is whether the correlation is spurious because it is based on biased data.  Harford notes this is a particular challenge for data sources such as Twitter, whose users do not represent the overall population.  Money quote:

“Big data” has arrived, but big insights have not. The challenge now is to solve new problems and gain new answers – without making the same old statistical mistakes on a grander scale than ever.

MBA students at NC State are getting training on a wide range of tools for analyzing big data, but they also are getting the theoretical insight they will need to make sense of the results they obtain.  

Rich and poor both getting richer

Are the rich getting richer and the poor getting poorer?  That's what a regular consumer of mainstream media would guess.  Trouble is, it's only half correct as a recent Congressional Budget Office analysis of Census data shows.  Between 1979 and 2010, income for households in the bottom 80% of the income distribution increased by 36 to 49 percent.  Growth for the top 20% was higher -- over 60 percent, with the top 1% seeing 200 percent gains.  

The CBO narrative for the lower and middle income brackets is more positive than what you have heard elsewhere for two reasons: (1) it takes into account taxes; (2) it adds in income from the entire range of government benefits.  The latter include "Social Security, unemployment insurance, Supplemental Security Income, Temporary Assistance for Needy Families (and its predecessor, Aid to Families with Dependent Children), veterans’ programs, workers’ compensation, state and local government assistance programs ... [plus] ... the value of in-kind benefits: Supplemental Nutrition Assistance Program vouchers (popularly known as food stamps); school lunches and breakfasts; housing assistance; and energy assistance and benefits provided by Medicare, Medicaid, and the Children’s Health Insurance Program."

How satisfied are execs with MBAs?

Poets and Quants reports that Hult Labs (affiliated with Hult International Business School) recently did a study "What Employers Want" focusing on how well business schools were meeting employer needs.  They interviewed 90 C-suite execs, managers and academics to gather their impressions about MBA programs.  There were three major concerns raised:
1.  Metrics: schools use grades to measure academic performance but they do not measure whether students are gaining skills in such critical areas as communication, leadership or team skills.
2.  Emphasis: MBA programs do a good job teaching traditional subjects such as finance and marketing but fall down in 10 areas: self-awareness, integrity, cross-cultural competency, team skills, critical thinking, communication, comfort with ambiguity and uncertainty, creativity, execution, and sales.
3. Theory vs. Practice: those surveyed think there is too much theory and not much application in most MBA programs.

My take: NC State's Jenkins MBA has a distinctive approach to management education that emphasizes applied learning.  All students must now complete a semester-long project sponsored by a real organization that forces them to apply theory from the classroom.  The program also provides strong training in most of the 10 areas cited above and is looking how to improve in all areas.  So in 2 of the 3 areas cited we are in much better shape than most business schools.  Alas we do give grades and probably should consider how to get real time feedback to students throughout the program on their communication and interpersonal skills.

The downside of cleaner vehicles: less gas tax revenue

The local N&O ran a front page story today about a dilemma facing federal and state governments.  They all use a gasoline tax to fund highway construction and maintenance.  Because of a combination of people driving less and cars getting more gas mileage, gas taxes are not generating enough revenue to cover highway costs.  Also the gas tax hits different road users in very different ways; if you own an electric vehicle you pay no tax, even if you use the roads as much as someone driving a truck or SUV.

The options are not attractive for policy makers.  One approach is to continue to raise gas taxes.  Another is to change the system and charge users by the mile driven.  This can be done via high tech (GPS) or low (annual odometer checks).  NC State experts are advising the state on another option: congestion pricing on urban freeways.

NC State faculty research in the news

My NC State colleagues David Henard and Christian Rossetti just had a paper come out in the Journal of Advertising Research that is getting international attention.  Titled "All You Need is Love? Communication Insights from Pop Music's Number One Hits," the paper has been featured in stories not just in the US, but also in the UK and Australia.

Henard and Rossetti find that the theme of popular hits has changed over the last 50 years.  Rebellion was in the air in the 1960s and 1970s (I know, I was there -- "Tear Down the Wall," as the Jefferson Airplane sang).   Today themes revolve more along desperation and inspiration (e.g., "Happy"), perhaps a reaction to 9/11.

Henard and Rossetti focus on number one hits.  It would be interesting to see if the results could be generalized; some of the most enduring music never hits the top of the charts (ask Neil Young who has had one number one in his lifetime)  Alternate acts like Bon Iver and Grizzly Bear have been used by Bushmills and Volkswagen to push product.  I am guessing rebellion is pretty strong no longer how you slice the 1960s data; I also am guessing romance has enduring power across the ages from Marvin Gaye's "Let's Get It On" to Drake's "Hold On, We're Going Home."

How best to help low-wage workers

President Obama has made two proposals to help low-wage workers: an increase in the minimum wage and expansions in eligibility for overtime.  On the minimum wage front, he already has increased it for federal contractors and wants Congress to approve a $10.10 minimum wage for all.  Economists are fairly split on the merits of increasing the minimum wage; to get a good idea of how split see these two links from Greg Mankiw (hundreds are in favor, hundreds are opposed).

As for overtime, employers hire workers as long as the extra revenue they generate offsets the cost of the worker.  Employees with supervisory responsibilities are not eligible for overtime if they make more than $455 a week.  Obama has directed the Department of Labor to raise that threshold so that more become eligible for overtime.  Once again economists have a split opinion on the desirability of this policy.  A reasonable case can be made that this would have zero impact.  Employers could offset the increased overtime costs by slowing the growth of base pay and cutting employee benefits.  Those who lack the flexibility to cut pay and benefits will trim back on overtime hours and employment.  The federal government can set pay rules, but it cannot repeal the law of marginal cost equalling marginal revenue.

The Earned Income Tax Credit is another mechanism for helping low-wage workers, as Princeton economist Alan Blinder argues in this recent WSJ op-ed.  This policy receives nearly universal support from economists.  However it is not so popular in Washington because it forces the federal government to come up with the extra cash for low-wage workers instead of trying to stick employers with the bill.

Student loans: more than meets the eye

Things we know: there is more than $1tr in student loan debt; a higher percentage of student loans are 90 days past due than credit card, auto or mortgage debt.  The popular press would have us believe that this is the result of rising tuition.

Reality is much more complicated, as a recent WSJ piece indicates.  Student loans are designed to cover tuition and living expenses.  The terms are relatively attractive and there is little to no screening for credit worthiness.  So student debt can be used to cover everyday expenses when there are no other funding sources available.  WSJ profiled one young man who was unemployed and signed up for part-time community college courses so he could borrow enough money to pay his rent.  A sad case, to be sure, but probably not what the designers of the student loan program had in mind.

If you take out an auto loan or mortgage, you get asked a series of questions designed to gauge the likelihood that you will pay the loan back.  The questions that should be asked about student loans -- which would reflect the odds of completing a program and the success of its graduates -- would shake the world of higher education to its very core.

More great ranking news for NC State Jenkins MBA

The US News MBA rankings came out today and, once again, the NC State Jenkins MBA is moving up.  The full-time program moved up 23 spots from #88 last year to #65 this year; the part-time program moved up 12 spots from #73 to #61.  According to Poets and Quants, only one other program made a bigger jump upward.

Why did the ranking go up?  On the full-time side there was improvement across the board: higher recruiter assessment score, higher starting salary and bonus, higher placement rates, higher GPA and GMAT, and more selective admissions.  On the part-time side the incoming class had more work experience.  Among local part-time programs, NC State ranks ahead of Elon (#77), UNC-Greensboro (#80), UNC-Wilmington (#175), Fayetteville State (#184) and East Carolina (#196).

Big changes for SAT; is GMAT next?

Today's big news story in higher education is the significant changes planned for the SAT.  The exam will make the essay optional, drop obscure vocabulary words, and no longer penalize for guessing the wrong answer.  Make no mistake -- none of this would be happening if the SAT had not been losing market share to the ACT.  Competition in the testing market will hopefully yield a better predictor of college performance.

But I would not be so sure.  The SAT now better measures knowledge obtained in high school.  But the main reason we have the SAT in the first place is that high school grades are a far from perfect predictor of college grades.  By testing different types of mathematical and verbal skills, it provided an independent measure of college potential, a second chance for students who had a bad year or two in high school.

The GMAT is facing a similar problem, losing market share as more schools (including NC State) accept the GRE or waive test scores for some applicants (e.g., those with masters degrees).  Poets and Quants reports that the volume of GMAT test takers dropped by 17% in 2013.

A testing operation has to add value to admissions decisions.  The GMAT works well for quant skills and deductive logic, not so well for leadership and communications.  If employers continue to take the former as a given for any MBA and place more emphasis on the latter, expect GMAT to either adapt or be replaced by other predictors.

NC State Jenkins MBA featured in Poets and Quants

Poet and Quants is a blog that regularly reports news about the world's most respected MBA programs.  Today P&Q posted a lengthy article about NC State's Jenkins MBA, highlighting our technology emphasis and industry partnerships.  Well worth reading!

Should employers be asking job applicants for SAT scores?

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

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

Will your pilot soon be earning the minimum wage?

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

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

Economic impact of Comcast - TWC merger

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

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

Another blow to the UAW

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

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

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

What would happen with a $10.10 minimum wage?

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

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

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

Lessons from a MOOC @ Chicago Booth

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

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

But a warning to faculty: Teaching the flipped classroom is a lot harder! The old model, we pretend to teach, you pretend to learn, filling the board with equations or droning on for an hour and a half, is really easy compared to guiding a good discussion or working on some problems together.

With high fixed costs and zero revenue, Cochrane asks how can universities monetize their MOOC investments.  One possibility is that MOOCs replace textbooks and schools charge other schools to use their materials.  Another is that universities will use MOOCs to build brand awareness and closer relationships with alumni.  The fixed costs will be high, but then again football teams, libraries and labs aren't cheap either.

Dealing with long term unemployment

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

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

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

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