Economists find recipe for charter school success

The evidence on the effectiveness of charter schools is mixed at best.  But a recent study by  economists from MIT and other schools (that was featured in NYT recently) shows that one type of charter school has been consistently successful -- schools that set high expectations for students and high levels of support for teachers and students.

The research team followed charters in the Boston public schools.  Lotteries determine who gets into charters, so there is a real experimental design to the research.  Those fortunate to get into charters learn more in school and are more likely to go to college.  Most of the charter students come from low income families and are learning at the same level as those in public schools from upper and middle income families.

One researcher noted that the impact of the charter environment was far greater than variables such as class size and new buildings.  Another, who used to be a union organizer, said the gains from these charters were the largest she had ever seen in her career.

Yesterday Massachusetts voted on a referendum to significantly expand charter schools.  It lost 62 to 38 percent.

NC State MBA rated in Global Top 100 by the Economist magazine

More kudos for the NC State Jenkins MBA!  The program was ranked #89 in the world by the Economist magazine in its annual Which MBA? rankings.  This is the first time our program has appeared in a global top 100.  NC State placed #24 among public universities in the US.  This will certainly help raise its reputation, especially among prospective students overseas.

Globally NC State stood out in the following areas:

• #10: % of graduates with jobs within three months of graduation.  
• #12: faculty quality
• #14: salary growth (post-MBA divided by pre-MBA salary)

Highly half of the top 100 programs were in the US, with most of the rest in Europe.  The top five programs were Chicago, Northwestern, Virginia, Harvard and Stanford.  

NC State MBAs excel at case competitions

In two recent case competitions, teams representing the NC State Jenkins MBA team have excelled.  At the National Black MBA Conference in New Orleans, 34 top-tier schools competed.  NC State's team placed second, just behind the University of Michigan.  Other schools that competed include Boston University, Cornell, Emory, Georgetown, MIT, Ohio State, Penn State, Purdue, Rice, Rutgers,  Southern Cal, Texas A&M, UCLA, UNC-CH, and Vanderbilt.  

Kudos to David Satterfield, Rudhawarsh Loganathan, Chandan Dash, Malcolm Scott, Aarathi Sree Srinivasan, and Vishnu Kotipalli for representing the program so well.  Rudhawarsh also was one of six contestants recognized as one of the best presenters in the first round.  Also at National Black, Jelyse Dawson finished fourth (out of 300) in the Innovation Whiteboard Challenge.  

Kevin Weisner's team finished in first place in the US division of the Novo Nordisk Innovation in Action Case Competition.  Kevin goes to Denmark in two weeks to compete against a Danish team for the global championship.  

NC State is hosting its first case competition starting tomorrow, the NC State Grand Business Challenge sponsored by Merck.  There will be nine other schools competing

How are those pay raises working out for Walmart?

In early 2015 Walmart made a strategic decision to start paying higher wages to store employees.  Starting pay went up to $10/hour with department managers getting bumped up to $15/hour.  Walmart also started investing more in training that would make workers promotable.  What happened?

According to a recent NYT article, the good news is that customer satisfaction and sales have both increased.  The not so good news is that profits have lagged the averages for S&P Retail and the S&P 500.  Managers report that Walmart is now attracting a different sort of employee, one looking for a career instead of just a job.  Productivity seems to be higher as well.  Conceivably the profit situation will turn around once enough workers have been trained that Walmart can get a return on the training investments.

Regulating driverless cars

According to WP, the National Highway Traffic Safety Administration is in a big hurry to issue "aggressive" regulations on driverless cars.   The regulations are likely to encompass "how and where they expect their vehicles to operate, how they will interact with other cars and the roadway, how they validate their testing, how they intend to protect privacy and prevent hacking, and how they would share data collected by onboard computers."

Two ways of looking at this.  The good news is that one set of federal regulations will make compliance easier than 50 sets of state regulations.  The not so good news is that the feds are insisting on pre-market approval with testing monitored by an independent party.  This looks like a sure way of putting the US behind other countries in the race to develop this new technology.  

Driverless car experiments are already taking place.  Hopefully the industry and the regulators can wait until there is more certainty about how such cars are likely to operate before coming up with a regulatory framework.  

An incentive plan fiasco at Wells Fargo

NC State online MBA students have been studying incentive plans this semester.  The main motivation behind such plans is to change employee motivation to generate additional net income for the employer.

This week's revelations about Wells Fargo show how a poorly designed plan can backfire.  WF wanted its employees to cross-sell more accounts, e.g. get someone with a checking account to take out a mortgage.  Employees ended up with aggressive sales targets and thousands of them created new accounts without the customer's knowledge so that they could collect bonuses.

Maryland Smith Professor Clifford Rossi argues that none of the traditional lines of defense against such behavior held.  Line managers did not hold front line employees accountable until it was too late.  Corporate risk management missed all signals as well, ditto for internal audit.  According to WSJ, only 10% of the 5000+ employees who have been fired were at the branch manager level or higher.  No senior officers have departed yet.

While the plan was in effect the number of Wells Fargo products per household rose from 5.5 to 6.4 over a four year period.  And the four year period was 2009-2013, not exactly a time when people were taking out second mortgages to buy a new vacation home.

NYU finance prof Kermit Schoenholtz argues in the New Yorker that enforcement of financial regulations depends on bank self-monitoring.  Right now, that "mechanism isn't working."  Fines are supposedly designed to punish wrongdoing and send a message that banks will pay a stiff price if caught.

Wells has been fined $185m.  Net income in the 2nd quarter of 2016 was $5.6 billion.  The CEO John Stumpf still has his job.

Forced grade distributions

Wharton management prof Adam Grant argues in a recent NYT op-ed that colleges should not use forced distributions when handing out grades.  In a forced distributions, there are limits on the number of students who can receive a particular grade, e.g., only 25% can get A's, the next 35% can get B's.  This type of system is in place in core classes at many of the world's leading business schools.

Grant sees two serious defects: one related to fairness and the other related to collegiality.  The forced curve might say there can only be ten A's in a class, but what if 15 students have performed at A level?  What if only five students perform at A level, do the other five get an A anyway?  Experienced professors who have taught the same course year after year are in a very good position to make sure grades are equitable relative to standards, Grant argues.  As for collegiality, forced distributions turn classmates into adversaries in what Grant calls a "zero-sum game."

Forced distributions do prevent grade inflation.  Today over 40 percent of all grades are in the A range.  Grant in essence is arguing whether the cure is a larger danger than the disease.

Closing note:  there are no forced grade distributions in the NC State MBA program.

Is the NFL leaving money on the table?

So argue two WP economic writers.   Their basic point is that the NFL could relocate some of its teams and create a stronger revenue stream and global brand presence for the league.

The recent move of the Rams from St. Louis to Los Angeles underscores the basic idea: some very large US markets are not being served.  So the article suggests that San Diego Chargers head to Orange County, the Buffalo Bills move to Brooklyn, the Cincinnati Bengals move to Vegas and the New Orleans Saints move to Austin-San Antonio.

But wait, there's more.  Why not move franchises to Jacksonville to London, Detroit to Toronto and Cleveland to Mexico City to create a true global presence?  Better do it quick before Clinton or Trump imposes a relocation tax!

My only pushback is whether relocation makes more sense than expansion.  And why not have games  on Tuesday and Wednesday night?

Big data creates big opportunities for economists

More economists are getting jobs in Silicon Valley to mine insights from data sets that NYT calls a "Candy Store."  Amazon currently has 34 job openings for economists, with top pay of $200k per year plus bonuses and options.  Airbnb recently hired an economist away from Harvard Business School.

In addition to higher pay than they would receive in academic settings, Silicon Valley firms offer economists the opportunity to work with transactional and click data that are not ordinarily available for research.  They can conduct experiments on questions dealing with pricing, promotions and workplace incentives.

At the same time more and more economists are keeping their academic positions and consulting for companies such as Microsoft.  The likely result is economic research that is better executed and more meaningful for businesses.

Taxes due versus taxes collected

Catherine Rampell's WP blog examines the question of how much tax cheating is taking place and how much federal revenue might change if the problem were addressed.  Studies show that the feds collect about 84 cents of every dollar legally owed.  If the IRS were able to collect all taxes legally owed, it would collect an additional $600b, which is larger than the federal budget deficit of $590b.

Rampell recommends simplifying the tax code and increasing the IRS budget for enforcement and customer service.  It will not result in 100% compliance, but would get us closer to that goal.

On EpiPens

Ever since an unfortunate encounter with some smoked salmon imported from China, I have been buying EpiPens for 10 years.  Fortunately the state health plan has shielded me from the tremendous price increases that Mylan has been imposing, now up to $600 for a two-pack.

Most of the discussions in the mass media have been of the predictable shame-shame-on-you variety.   Scolding pharma is a good way to vent, but does it really get to the heart of the issue?  Wouldn't any company raise prices 600% if they could get away with it?  I do not normally pull items from other economics blogs, but this article from Slate Star Codex that is featured today on Marginal Revolution is both informative and (in parts) hilarious.

Here are the informative parts:
1) A number of companies have developed EpiPen substitutes but they keep getting rejected by the FDA.  In contract there are eight competing EpiPen-like products in the EU.
2) There is an approved substitute called Adrenaclick but most doctors are unaware of it and keep prescribing the EpiPen.
3) Mylan spends heavily on lobbying to keep things the way they are.

Here is the funny part:

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

Aging populations and the slow recovery

Macroeconomic analysis typically focuses on money markets, government spending, private saving, and the like.  When explaining the causes of recessions and recoveries, the analysis typically looks at variables such as exchange rates, interest rates, and tax policy.  Demographic factors typically receive scant attention.

But we know we have an aging society.  Japan has faced this challenge for 20 years and has had flat growth.  Most European countries are in the same boat, at least for their native populations.  So could aging have something to do with the not-so-hot recovery we have experienced over the last seven years?

A study by economists in the RAND Corporation and Harvard Medical School suggests there could be something to this.  (Click here for a WP summary.)  They explored different states of the US and found that the regions with the most aging had the slowest growth.

What might be going on here?  Obviously with more retirees, the labor force shrinks and that hurts economic growth.  Maybe today's more elderly population saves more because of uncertainty about Social Security, pensions, longevity and their own savings.  With an apparent surplus of savings chasing ever lower yields, this also could be a drag on growth.  The study finds that productivity falls with aging, a wrinkle that is hard to easily rationalize.

Bottom line: if this study is correct, then we may be in for a longer period of slow growth than anyone has anticipated.

Tuition: at private schools it is just the sticker price

Harvard's Danielle Allen (no relation) has a great WP op-ed today about tuition.  At private schools tuition is just the sticker price paid by the students with the wealthiest parents and little athletic ability.  Most students get some scholarship funding, which acts as a discount.  Those from low-income families pay no tuition.  At prestigious private schools, the posted tuition number is actually well below the full cost of schooling; the rest is paid through endowment income, grants, and other sources.

Allen argues that publishing a single tuition number has adverse effects.  When private schools increase their tuition, it also increases the demand for public universities, thereby allowing them to charge more tuition as well.  But in the publics, financial aid is much more limited and a much higher percentage of students are paying the sticker price.

Instead of publishing a single tuition number, Allen would have universities publish the full cost of education, the range of aid options, and how much aid the average student gets.

Job gains in the middle of the wage distribution

For at least two decades the data have shown a hollowing out of jobs in the middle of the wage distribution.  Job growth has been concentrated in the two extremes: the high end and the low end.

But that trend may be coming to an end.  Today's WP has a short article summarizing research by the New York Fed on job growth by wage tiers.  There was much more job growth in middle-wage jobs between 2013 and 2015 than there was in the low and high wage tiers.  Industries such as construction, education and transportation led the way.

Court ruling allows more MBAs to take tax deduction

Saturday's WSJ reports great news for MBAs for the coming school year: more of you will be able to write off your tuition against your tax liability.  Here are the rules as stated by the IRS:

To be deductible, your expenses must be for education that (1) maintains or improves your job skills or (2) that your employer or a law requires to keep your salary, status, or job. However, even if the education meets either of these tests, the education cannot be part of a program that will qualify you for a new trade or business or that you need to meet the minimal educational requirements of your trade or business.

Professional MBA programs, such as NC STate's evening and online MBA, have qualified for some time, especially for those who plan to stay with their current firm.  The new ruling apparently opens the door for Executive MBA programs too.  Also, the new ruling allows a deduction even for those who are unemployed part of the year.

I am not sure these changes will make a big difference for NC State MBAs, but all MBA students need to be aware of the opportunity to take a tax deduction for their schooling expenses, including tuition, books and transportation.  

Join Amazon "Prime Student," get a deal on a student loan

I'm not making this up.  See WSJ for more details.  This is a partnership between Wells Fargo and Amazon.  Binge watch and binge borrow at the same time?

Fewer young men are working or in school. What are they doing?

Playing video games.  Seriously.  See this blog post about Booth Chicago's Erik Hurst in Marginal Revolution for details.

Apparently able to depend on parents, spouses or significant others, it is a bit hard to imagine these young men are going to be qualified for jobs or even looking for jobs anytime soon.  I am reluctantly concluding that we are getting as close to full employment as we are going to get.

How to Misuse Analytics

Catherine Tucker at MIT Sloan and Anja Lambrecht of London Business School have a great HBR piece on how to make big mistakes with analytics.  Here are what they see as the biggest challenges:

1. Size isn't everything.  Usually managers have to merge data sets from different sources that were designed for different purposes.  If the data sets cannot be cross-referenced in a meaningful way, their usefulness can be limited.  
2. Our ability to analyze structured data is well ahead of our ability to analyze unstructured data.  The authors observe that firms have had more success with unstructured data when analyzed in conjunction with structured data.  
3. Data processing skills are more critical to reaching meaningful conclusions than bigger data sets.  Companies need to invest in both.
4. Correlation is not causation.  Any well-trained PhD in economics has had this drummed into their head all the way through graduate school.  But now lots of employees are looking at computer-generated results, see a correlation and think they have something.  Field experiments on relatively small amounts of data are likely to lead to greater insight.  

NC legislature experiments with teacher incentives

Pay for public school teachers in North Carolina has been a big focus for the legislature over the last two years.  After no raises for many years, pay for starting teachers received a boost last year and pay for more experienced teachers is scheduled to increase this coming year.

This coming year's budget also includes two incentive plans that I would call unique.  One would allocate $10m to give a bonus to third grade teachers whose student growth scores place in the top 25%.  Bonus plans for individuals make sense when the employee has some control over the work environment and the metrics map reasonably well with employee effort and performance.  Although well-intentioned, I cannot help but wonder why the legislature did not consider two obvious problems with their scheme:
(1) Why put all the money on third grade teachers? Don't the other grades matter at least a little?
(2) Why didn't they select a more objective measure of actual learning?  The reward goes to the top 25%, regardless of how much or how little student growth took place.

The second plan pays a $50 bonus to Advanced Placement teachers for each student who passes the AP test.  So a student passes the AP Calculus test with flying colors, but is that because the AP teacher was so great or did it have something to do with the Algebra 1 and other teachers that they had before AP?  Also, what happens in parts of the state where school systems lack the budget to offer AP courses?  And should we be focusing incentive dollars on AP students or on those who are struggling to graduate?

The big mistake that legislators are making is the decision to use individual as opposed to group incentives.  Student achievement hinges on a collective effort of teachers from K to 12.  School-based plans are likely to be more effective than individual-based plans.

However, the third grade plan will solve one problem -- principals will not have any trouble filling open third grade positions!

Using workplace incentives to reduce carbon footprint

In a fascinating new NBER research paper by economists at Chicago and LSE, pilots at Virgin Atlantic Airways were offered recognition and incentives if they successfully took steps to reduce fuel consumption.  Separate targets were developed for pre-flight (how much fuel to load), during flight (course corrections), and runway decisions.  Over the eight month study, the researchers found a robust response to the incentive programs, saving Virgin over $500k.

Usually when the topic of carbon abatement comes up, the response from economists and policy makers alike is to impose caps, require new equipment or charge a tax.  This paper shows that there is another avenue that should be considered: adjust management decisions!

Why are waiters so anxious to grab your plates?

Have you noticed how quickly your plate disappears once you have finished?  Regardless of whether others in your party have finished or not!  This sends an awkward social signal, according to this recent WP blog entry:

When a server clears a plate before everyone is finished, he or she leaves the table with a mess of subtle but important signals. Those who are still eating are made to feel as though they are holding others up; those who are not are made to feel as though they have rushed the meal. What was originally a group dining experience becomes a group exercise in guilt.

So what is going on here?  Are restaurants running lean inventories of plates and tableware?  Do customers get really upset if their empty plate isn't removed instantly?

George Mason economist and Marginal Revolution blogger Tyler Cowen thinks that economic forces are at work.  Land prices in urban areas are going up and that means higher rents.  As a result, restaurants feel more pressure to turn tables so that they can get more customers per day.

Incentives matter: the case of Medicaid

A critical challenge in designing income maintenance programs is the tradeoff between benefit generosity and the incentive to work.  In a recent WP column, Catherine Rampell compares work incentives in the states where Medicaid has expanded under Obamacare to the states (including North Carolina) which have kept the pre-Obamacare system.  In the 19 states that have rejected the Medicaid expansion under Obamacare, if a working parent earns more than 61% of the poverty line ($12,300 for a family of three), then that household loses ALL of their Medicaid benefits.

Rampell suggests that a sliding scale be used instead, so that as the parent starts earning more than $12.3k, the family loses a fraction of their Medicaid benefits as opposed to the whole amount.  The current practice in effect penalizes work effort that generates more that $12.3k, locking millions of households into poverty.

Now there is a catch -- a sliding scale means that more families become eligible for Medicaid.  Benefits might not be entirely phased out until the parent earns $25k or more.  But as more parents work more hours, extra revenue gets generated because (1) their families rely less on Medicaid and other income maintenance programs and (2) they pay more income and payroll taxes.

I expect this to be a big issue in the NC gubernatorial contest this year.  Gov. McCrory famously turned down federal funds that would have provided significant increases in health care for poor North Carolina families.  They have a big incentive to remember that on Nov. 8.

Words that needed to be said

Today in Bret Stephens "Global View" WSJ column:

Meanwhile, let’s state clearly what shouldn’t need saying but does: Americans are blessed to have Mexico as our neighbor and Hispanics as our citizens. On this point, disagreement is indecency.

Stephens notes that the murder rate in Mexico is about the same as Philadelphia (and less than Miami), no one from Mexico has attacked the US since Pancho Villa, Mexico is the 2nd largest purchaser of US products, and more Mexicans are headed south of the border than in the opposite direction.  

The myth of the unemployed college grad

Great online NYT piece on unemployment of college grads.  Last week's jobs report put the US unemployment rate at 4.7 percent.  The NYT article leads off with a quiz that had been part of a Google survey:  The unemployment rate for high-school grads between the ages of 25 and 34 is 7.4 percent; guess the unemployment rate for college grads in the same age range!

Here are the answers they received: the average Google respondent thought the unemployment rate for college grads was 9.2%, whereas the average NYT website respondent thought it was 6.5%.  

These answers are way wrong: the actual unemployment rate for 25-34 year old college grads is 2.4 percent.  Keep in mind that this represents all college grads -- all majors, all types of schools (even the for-profits).  

So what is going on here?  One obvious lesson is that the mainstream news media have been running so many stories about unemployed college grads (usually with heavy loan obligations as well) that anecdotes have become accepted as data.  Maybe the unemployment rate for journalism majors is a lot higher than for other majors?  Maybe journalism schools don't teach their majors how to find labor statistics, so they keep writing these misleading stories.  

Rethinking the full-time versus part-time equation

Today 27m Americans are working part-time and 6.430m of them would prefer to have full-time jobs.  The latter number is only slightly smaller than the number of unemployed persons (7.436m).

An employer thinking about whether to hire full-time or part-time help has to consider the following factors:

1. Differences in compensation cost per hour: full-time workers must receive health insurance and usually receive other employee benefits as well, whereas part-time workers typically just receive hourly wages.  Also, hourly wages in part-time jobs tend to be lower than in full-time jobs.  Advantage: part-time.
2. Costs of hiring and training workers: It takes twice as much effort and time to find and develop two part-time workers as it does for one full-time worker.  Also, turnover is much higher for part-time workers, so that means even larger hiring and training costs.  Advantage: full-time.  

A recent WSJ article shows that some companies are rethinking this tradeoff and hiring more full-time workers.  The Sheetz convenience store chain found that 83% of its part-time help left within a year, much lower than the 25% of its full-time hourly help.  Sheetz also finds its full-time workers are more committed to customer service.  Buffalo Wings & Rings finds that full-timers ring up more sales and have lower rates of absenteeism.  

There is a simple economics lesson here:  you cannot just focus on cost comparisons; you also need to think about productivity.  As the unemployment rate keeps getting lower and more individuals drop out of the labor force, expect to see more companies calling up Sheetz's CEO.  

Private unemployment insurance

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

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

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

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

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

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

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

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

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

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

New overtime regs go into effect

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

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

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

Is the TSA a lose-lose proposition?

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

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

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

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

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

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

Raleigh-Durham ranked as #4 startup hub

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

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

The future of set-top boxes

Two recent news items on set-top boxes:
1) The Federal Communications Commission has proposed a new regulation that would force cable companies to allow customers to provide their own set-top box.  Today most cable customers pay about $10 per month per box.  The FCC argues that once companies can compete for customer's business, costs will fall and consumers will be better off buying instead of renting boxes.
2) Comcast, the largest cable provider, has come up with a new program that will allow owners of recent models of smart TVs to have full access to Comcast programming without using a cable box.  

Looks like Comcast is The Road Runner and the FCC is Wile E. Coyote! Beep beep!

Professional MBAs take 1st place

Kudos to Professional Jenkins MBAs Pierre Marcella and Graham Ransom who took 1st place yesterday in the Poole College of Management's 8th Annual Leadership and Innovation Showcase.  Teaming with College of Design student Sunny Su, Marcella and Ransom have developed a smart coffee device that can roast, grind AND brew coffee.  Buyers will be able to save a lot of money by doing their own roasting, plus they will get a much tastier brew.

Their project comes from MBA 555 Product Innovation Lab, a course that has been very well received over the years including recognition from Forbes as one of the ten most innovative MBA courses.

Marcella and Ransom will both graduate by the end of the year and they plan to turn their project into a business.  They already have a working prototype.  Looking for a great investment opportunity?

Kudos also to the second place finishers full-time Jenkins MBAs Dana Magliola and Lindsay Schilleman for their research project that measured the size and economic impact of North Carolina's supply chain.

Fuqua prof's secrets to time management

Business schools do a great job training their MBAs to handle big picture items such as strategizing and execution items such as budgeting (especially if they can be performed on spreadsheets).  I can safely say that MBA programs totally ignore a critical skill everyone needs to have to be successful: personal time management.

One book I found helpful is David Allen's Getting Things Done.  But who has time to read a 300 page book?

Luckily Fuqua's Dan Ariely has an opinion piece on Observer.com that will rescue many minutes each day for you.  Needless to say, meetings and email are on Ariely's list.

On living standards

Over the last few months, we have frequently heard politicians (and a real estate tycoon) claim that living standards have not increased over the last 20+ years.  That conclusion is based on comparing the rate of growth of wages (or weekly earnings) to the inflation rate.

Let me illustrate: average wages were $4.96 per hour in March 1976 and were 4.31 times higher ($21.37) in March 2016.  The Consumer Price Index increased by a factor of 4.13.  So the gain in wages after inflation turns out to be quite modest (4 percent over 40 years).

Here's the rub: there are well known problems with estimating average wages and inflation.  For instance, the composition of the work force has changed tremendously; today there are more women and immigrants than 40 years ago and more service and fewer manufacturing jobs.  Also the mix of goods changes a lot; no one bought iPads in 1976 and no one buys typewriter ribbons today.

Another way of looking at the living standards question is to compare consumption patterns.  For instance, one can compare housing, food consumption, and car ownership patterns.  If this shows the same 4 percent growth over 40 years then the Labor Department numbers hold up.

Yesterday's WSJ reported on airline travel.  If we were to time travel back to 1971, 49% of the adult population in the US had flown at least once in their lifetimes; today more than 80% have flown.  If you slice the data to look just at who flew last year, 45% flew in 2015 compared to 21% in 1971.  This is not broken down between business and leisure travel, but the overall implication is that living standards in this dimension have increased.

Of course air travel is a small share of overall spending in today's economy and comparisons of other goods and services undoubtedly will point in the other direction.  Economists use data on total spending rather than physical units consumed, making it hard to separate price and quantity changes. More basic research into consumption of goods and services that can be measured accurately would shed light on this issue.

How big is the gig labor market?

The internet has enabled online transactions for real time services between service customers and providers.  You can reserve an overnight stay in someone's home or apartment.  You can get a ride to work in someone's car.  You can get a voiceover narration performed by someone in the Czech Republic.

The gig economy provides new options for workers to make money when they want and how they want while providing customers with more choice.   But it also undercuts existing business models.  Licensed cab owners are less than fond of Uber; hotels are hardly enamored with Airbnb.  Also because Uber drivers are independent contractors, there is no guarantee of a minimum hourly wage and they are unable to organize into unions (as if unions could organize any private sector workers anyway).

With all the headlines, my colleagues Larry Katz at Harvard and Alan Krueger at Princeton set out to measure the size of the gig labor market.  The results, as reported in WSJ: a mere 0.5% of workers were engaged in a typical week.  Uber accounts for two-thirds of this modest number.

Wave of the future?  We would do well to suspend judgment.

NC State Jenkins MBA climbs in US News rankings

The US News rankings of graduate programs came out yesterday; NC State's Jenkins MBA had its best performance yet.  The Jenkins Professional Evening program came in #34 in the part-time rankings while the full-time program came in at #52 in the full-time rankings.  Historically both programs have been in the 60s and 70s.  Last year full-time was #70 and part-time was #103 (which was a total outlier that none of us have ever figured out).  We moved up 18 spots in the full-time ranking, the second largest move of any school.  

What happened?  On the part-time side, the deans’ assessment score increased, selectivity increased and GMAT scores increased a lot.  For full-time, recruiter assessment was up, GPA was up, selectivity increased, starting salaries were up, and placement rates were up. 

This has been a remarkable year for the Jenkins MBA in terms of external recognition.  We have been #15 for US News Online MBA, #29 for Bloomberg Businessweek Full-time MBA, and #45 for Bloomberg Part-Time MBA.  

I think the best is yet to come.  The forthcoming improvements to the curriculum will put us on the cutting edge for working professional MBAs.  We have fantastic professional staff to enrich the applicant/student experience and enhance career success.  Add these ingredients to the outstanding opportunities that our faculty provide in the classroom and our hands-on “Think and Do” attitude and we have a recipe for continued success.  

Jay Bilas on how to select teams for NCAA Tournament

Puzzled why mediocre teams from power conferences (I'm talking about you Vanderbilt and Syracuse) get into the NCAA men's basketball tournament while deserving teams from smaller conferences have no chance of getting in if they lose a game in their conference tournament?  

Jay Bilas, Duke alum and ESPN announcer/analyst has a plan:

• Tournament selection committee would meet prior to the conference tournaments and rank the top 68 at-large teams. 
• Teams that win conference tournaments receive automatic bids. If that team is not one of the 68 teams, the lowest-ranked team in the field of 68 is knocked out.

In practice this would help the best of the smaller conference teams.  Using RPI as a measure of overall team quality, they placed 28 teams in the top 68, with 40 from the power conferences.  There are about 20-25 teams that get into the conference as automatic qualifiers that would not be in the top 68 and the displaced teams would come almost equally from the big name and smaller conferences.   

Additional advantages of this approach would be (1) enhanced transparency and (2) greater emphasis on the regular season.  As a Kentucky fan who is still trying to figure out why his team could beat Texas A&M and then be seeded behind them, let's just say I am open to suggestions for improvement.    

NC State MBA team excels in case competition

The Kellogg School at Northwestern took 1st; other participants included Duke, UNC-CH, Chicago Booth, Oxford and Manchester.   Kudos to Graham Givens, Shannon O'Shea, Anindo Chatterjee, Mike Vigars, and Rafael Estevez for representing the NC State Jenkins MBA program so well.  

NC State placed second at the Invest for Impact competition at UNC-Chapel Hill
last Friday.  This is a unique competition where students play the role of investors looking for opportunities that pay off socially as well as financially.  They evaluate business plans for three potential startups, decide which one is most worthy of funding and make a pitch for that startup.  Actual investors and entrepreneurs participate in the process as well, with the investors serving as judges.

Why tuition is rising

As Margaret Spellings takes over as the new UNC system president, I am sure that tuition in the UNC system will be getting a careful look.  Harvard economist Greg Mankiw recently did an NYT Upshot column where he noted three key factors:

1. No increases in productivity accompanied by rising costs.  Higher education remains a labor-intensive industry with limited opportunities for capital-labor substitution.  There has been some labor-labor substitution as schools use more non-tenure-track and part-time faculty.  But this has not been enough to offset rising salaries for faculty and staff.  
2. The widening gap in earnings between highly educated labor and less educated labor.  Colleges make extensive use of workers with advanced degrees and such workers are about the only ones getting ahead in today's economy.  If colleges employed more roofers and gardeners than professors, their labor costs would be holding steady or even dropping.  
3. Sticker versus actual prices.  Everyone knows the sticker price at Harvard, but no one knows the actual price paid by the average student.  Mankiw shows that list prices have risen by 70 percent over 20 years, whereas the net price (after scholarships) is up 32 percent.  

Two other factors that may be at work behind the national trend: (a) rising financial aid and loan access serves as a subsidy and pushes prices even higher and (b) declining teaching loads for tenure-track faculty.  

In the UNC system we have seen declining state support lead to tuition increases over the last eight years.   

Spellings has put a stake in the ground around expanding access to higher education.  Looking forward, I imagine the UNC system will be looking at innovative ways to deliver education in a more cost effective manner. 

NC State Online MBA ranked #15 by US News

The NC State Jenkins MBA received more great rankings news this week.  US News and World Report issued its most recent ranking of online MBA programs and NC State placed at #15.

This is very close to where we finished in 2015.  The program was most highly rated in the area of student engagement (#9).  We also did well on admissions selectivity (#37) and student services and technology (#39).

For whatever reason we did not do as well on faculty credentials and training (#69), despite the fact that -- unlike most other online MBAs -- the faculty teaching online are the same as those teaching our and face-to-face students.  The top two schools on this dimension are Arkansas State and California Baptist; well-regarded schools such as Carnegie-Mellon, UNC, Indiana, and Arizona State are not even in the top 10.

Student interest in the NC State Online MBA continues to grow by leaps and bounds.  We are meeting the market test, as well as scoring well on the rankings.  I expect the best is yet to come.

More competition for full-time MBAs

Competition in the full-time MBA market is heating up.  The University of California at Irvine just announced that all newly admitted full-time students who are California residents will automatically get a fellowship of $10k.  This follows recent announcements by Arizona State and UMass-Amherst that full-time students will get free tuition.

Now here's the fine print: In-state tuition at UCI is $40k and change per year.  Here at NC State the full two-year cost of the degree is $45k for in-state and $74k for out-of-state.  Over half of our full-time students get a graduate assistantship or fellowship, which makes NC State an even greater value.

What is going on in the full-time MBA market?  We see some schools (Wake Forest, Virginia Teach) dropping the degree whereas others are doubling down to attract students.  The real challenge all full-time MBA programs face is that the biggest cost to students is not the tuition; it is two years' lost earnings.  If a school cannot deliver post-graduation a significant bump in income, then that school will have trouble attracting students.

The real numbers applicants should be looking at are these: (1) where am I now?  (2) where will I be immediately after completing the degree? (3) where will I be five years later?  In the most recent Bloomberg Businessweek full-time MBA rankings, their survey of 2007-09 NC State Jenkins MBA alumni found that
-- pay more than doubled between the start and finish of the program
-- pay almost doubled again five years later

That is a big reason NC State's Jenkins MBA placed #25 in alumni satisfaction and #29 overall in the Bloomberg Businessweek rankings!

Judgment versus algorithms in hiring decisions

Companies now have massive amounts of data about employee performance.  Is it possible to find meaningful correlations between performance and indicators that can be measured before a job offer is made?  If so, then there is room for algorithms based on these correlations to make improved hiring decisions.  

Economists at Harvard, Toronto and Yale business schools recently did a study that examined this question.  They examined the hiring of low-level service workers at 15 firms.  They focused on what happens when an employee is hired based on the algorithm versus what happens when a hiring manager overrules the algorithm and hires based on his or her own judgment.  

The results, summarized in Bloomberg Businessweek and available in National Bureau of Economic Research Working Paper No. 21709, are sobering.  Job candidates picked by the algorithm stay longer and perform better than those picked by hiring managers.  Also, there was a strong correlation between algorithm predictions and actual performance.  

One caveat: this study looked at relatively unskilled jobs where performance could be measured objectively.  What would happen in more complex jobs such as trial lawyers or university professors?   My guess is that we will find out in the not too distant future.  

Launch event for McLaughlan Leadership series

The kickoff event for the McLaughlan Leadership series last Friday at the Poole Clubhouse was a tremendous success.  All 24 members of the initial class attended.  They had the opportunity to meet Russ and Cara Mclaughlan and network with each other.

This series is a watershed event for the NC State Jenkins MBA program.  Our ultimate goal will be to make leadership development training available to all Jenkins MBAs and to have a more intense experience available for those who can best benefit.  Click here to learn more about the experience planned for the McLaughlan Leadership participants this coming spring.  

Student financial aid: debt versus equity

Have been meaning to share this article from the Economist regarding how to best provide student financial aid.  In the US the dominant approach has been student loans.  But as any finance student knows, why can't equity be an option as well?  Why not let students sell shares of future earnings in return for up-front funding for college?

In pure financial terms, such loans would be viewed as very risky.  Would the student finish their undergraduate degree?  What earnings stream would the student generate once schooling is completed?  There is a company called Upstart that is doing this on a peer-to-peer platform; think crowdsourcing your degree!

There also would be a moral hazard problem.  Students receive the funds up front and then may choose to select a low income career or even have no career at all.  Funders would want some sort of collateral to offset this, but if you could post collateral you probably do not need a loan.

Income-based loan repayment plans are a variant on this theme.  When Yale experimented with this approach in the 1970s, it found that students who expected to have high earnings preferred traditional methods of loan repayment and those who expected no to low earnings took the "pay a percentage of earnings" repayment method.

What happened to construction workers

Today builders say they are facing a profound shortage of qualified, trained workers.  Yet construction employment dropped by 2.3m jobs between 2006 and 2011 and is still 1.3m below the 2006 peak.  So what happened to over one million workers?  Why aren't they coming back in the market?

WSJ's Real Time Economics blog has the answer: some have switched to other industries but many have dropped out of the labor force.  At the same time hiring of young workers has been slow, so now there are not enough trained workers to meet demand.

This evidence further supports the view that despite the lowest employment to population ratio we have seen in 40 years, the labor market is close to having a balance between supply and demand.  Those who have dropped out of the labor market after they lost their jobs in the Great Recession do not appear to be coming back.

An MBA for free

Arizona State recently announced that it would not charge tuition any more for its full-time MBA program.  In addition, ASU plans to expand the size of the program.  Right now ASU charges $54k to in-state students (over two years) and near $90k for out-of-state students.  The free tuition offer could cost ASU as much as $20m each year.

ASU is betting on a stronger applicant pool generating more employer interest and higher rankings, resulting in a rankings boost.  To their credit ASU is taking a big risk to better position its MBA program.  They are investing money from their own endowment.

What impact will this have on the MBA market?  The answer depends on how the offer changes the matching process between students and schools.  I doubt students originally bound for Stanford and Harvard will now go to ASU for free tuition.  Also, many schools in ASU's tier already give lots of financial aid to full-time students.  If ASU already was supporting half of its class, another 50 to 60 free rides will not have a dramatic effect on the entire market.

Most importantly, tuition costs are but one part of the MBA ROI calculation.  Lost earnings are a much larger component.  The earnings bump from the degree is also critical.   Arizona State does a good job in that regard (#41 in employer satisfaction in the latest Businessweek rankings), but I have to wonder whether ASU would have been better off spending less than $20m and focusing on the student experience (#62 in alumni and #61 in student satisfaction) and employer development.

At NC State, we provide full tuition graduate assistantships to a significant share of our full-time MBA students.  In exchange, these MBAs support faculty teaching and research.  Other students receive scholarships that offset some tuition costs.  Our key differentiator is not our tuition policy; it is the "think and do" spirit of NC State and the company-sponsored projects that are a key part of our classroom experience.

NC State MBA vaults to top 30 in Businessweek full-time rankings

The NC State Jenkins MBA program made a huge leap to #29 in the US in the prestigious Bloomberg Businessweek full-time rankings, up from #54 a year ago.  Harvard was #1, Duke was #8 and UNC-Chapel Hill was #17.  NC State was ranked ahead of many well-established MBA programs, including Michigan State, Maryland, Vanderbilt, Ohio State and Wisconsin.

Why did NC State jump so high, so quickly?  Just ask employers, which is exactly what Businessweek did.  NC State ranked #20 in employer satisfaction.  This reflects the "think and do" spirit our graduates bring to the workplace, especially the skills they develop in the company-sponsored projects that are a cornerstone of the program.  We also did very well in terms of alumni (#25) and student (#38) satisfaction.

The part-time program also received a solid ranking at #45.  This is down from two years ago, but we should be very proud to be one of just 26 schools that received top 50 recognition for both the full-time and part-time program.

Kudos to the alums, faculty, staff and students who have made the NC State Jenkins MBA such a special program.  This latest ranking, along with the #9 online ranking from US News earlier this year, shows that NC State's MBA program is on the move.

Will those who left the labor force ever come back?

Everyone who has been looking at labor markets over the last five years has been asking, "What is going to happen to labor force participation (LFPR)?"  We know unemployment is down to near normal levels, but LFPR remains at its lowest point in almost 40 years.  The question is important because it cuts to the heart of the issue of whether we are at or near full employment.  The unemployment numbers say yes; the LFPR numbers say no.  So what are the odds that those who have left the labor force will actually return?

Today a WSJ blog reported one relevant item of evidence, based on a sector of the economy that I have researched heavily in the past -- the construction industry.  We all know what happened to construction in 2007-08; it tanked.  That means there are a lot of former construction industry workers out there who have the skills to return.

But are they coming back?  So far the evidence is that they have found other things to do and that this has put construction contractors in a bidding war for scarce talent.  Employment is still well below 2007 levels, yet builders are having a hard time finding qualified help.  This would imply that we should take the unemployment numbers more seriously as an indicator of aggregate labor market conditions.

Inc. magazine lauds RTP as an entrepreneurial hot spot

Brian Hamilton, Chairman of the Board at Sageworks, has a nice piece in Inc. magazine about why the RTP area is an entrepreneurial hotbed.  Brian came here to get an MBA at Duke, which makes his comments about NC State even more compelling:

NC State is a true hidden gem that, to me, produces by far the strongest engineers and employees of the three.

One "tax" that makes economic sense

I ran across two pieces this week about the "Cadillac tax" on high-cost health insurance plans.  This tax, part of the Affordable Care Act, goes into effect in three years.  It will tax as ordinary income employer-provided health insurance premiums in excess of $10,200 for individuals and $27,500 for families.  It has been in the news because a number of politicians (including Hillary Clinton) have endorsed its repeal.

Ritu Agarwal, a b-school prof at the University of Maryland, argues the tax is an essential element of any policy that can successfully reform our health-care system.  The revenue from the tax finances ACA subsidies for health insurance purchases.  Also, the tax will force employers to shift more health care spending to individuals, who will be more careful with their own money than with someone else's when making decisions about their own care.  This will help bring down costs.

WP columnist Catherine Rampell points out another benefit from this tax: it will increase take-home pay.  One reason employee benefits represent at least 25% of the cost of labor is that many of these benefits are tax-deferred or are not taxed at all.  If the employer spends $1000 on wages, the employee takes home less than that after taxes.  If the employer spends $1000 on health insurance, the employee gets full value.  But total spending on compensation must equal the value created by the employee for the company, so an extra dollar spent on health insurance means one less dollar in wages.  And as premiums rise over time, wage growth slows.  So the Cadillac tax, which will lead employers to cut back on premium expenditures, will mean a raise for many employees!

Most economists would go one step further and tax all employer-provided health insurance premiums.  Why should individuals buying insurance on their own get no tax benefits, whereas those with employer-provided insurance get a big break?  Rampell points out that employer-provided health insurance was quite rare until wage controls were imposed during World War II.  Employers then used health insurance as a way to get around the controls and raise pay as labor became more scarce.

We are already in the 2016 election cycle and whoever is elected to national office will have to make a decision on what to do with the Cadillac tax.  Will they let it go into effect in 2018?

Why student loan debt has grown

The media continue to be obsessed with stories about indebtedness on student loans.  But I had yet to see any tough analysis of microdata on where the growing debt burden has been coming from until a few days ago when a NYT blogger reported on a new study by a Stanford PhD student and a Treasury Department economist.  The study matched student loan records from colleges with earnings profiles from 1040s over the last 20 years, with all other identifying information removed of course.

Here are the main findings (direct quotes from the study's abstract):

• Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. 
• In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers—borrowers who represent the vast majority of the federal loan portfolio—have remained low, despite the severe recession and their relatively high loan balances. 

A couple of anecdotes from the study: (1) In 2000 the school whose graduates and former students had accumulated the greatest collective debt burden was New York University and they had piled up $2.2b.  In 2014 the school with the greatest debt burden was The University of Phoenix with $35.5b.   (2) Borrowers from for-profit and two-year institutions account for 70 percent of student loan defaults.  

Bottom line: despite all of the stories we read in the media about students who left Stanford with $100k in debt, the focus of future research needs to be on for-profits, 2-year schools and non-selective institutions.  Completion rates at these institutions are low and earnings opportunities after school attendance are often quite limited.  Loan applicants need to know that before paying their first tuition check.  

The new federal College Scorecard is a step in the right direction.  Prospective students can now get solid data on completion rates, indebtedness and earnings after attendance.  NC State fared very well on all measures, by the way.  

What is the ROI from investing in employees?

A study released last April by Harvard Law School looks at whether there is a connection between investing in employee development and financial success.   Based on a review of 92 papers, the authors conclude that there is a strong connection between human capital investment and financial rate of return.  The connection is so strong that the authors claim that financial analysts should start paying more attention to human resource policies when they are evaluating firms.

Such an analysis is not easily performed.  We lack ways of measuring training in ways that are consistent across different organizations.  But with rising social interest in triple-bottom-line analysis, this could end up being an active research topic in the years ahead.

Upskilling

I ran across the term "upskilling" this weekend when I read this WSJ piece about Wal-Mart.  It seems that the term is of recent origin, and is meant to indicate the opposite of downskilling.   A Google search points to a White House initiative called "UpskillAmerica," encouraging employers to make investments in on-the-job training, employee education, and internal career paths.

Wal-Mart has already made the decision to increase entry level wages.  Recently it announced a new training program that will be rolled out to over 4500 U.S. locations, focusing on entry-level workers.  Both of these steps make sense economically if the cost savings from reduced turnover and higher productivity offset the cost of higher wages and more training.

Employee turnover costs money—by industry estimates as much as $5,000 per front-line worker, or 20% to 30% of an entry-level salary. Standard turnover in retail is 50% in the first six months. If Wal-Mart can reduce this churn, persuading people to stay at least 12 to 18 months, it will save “tens of millions of dollars a year.”

Increased customer satisfaction is another possible payoff.  A key issue will be how responsive turnover really is to higher wages and more training.  Unless Wal-Mart plans to build a lot more stores, I have to question its ability to create long term career options for its entry-level help.

Employers are keenly aware of training costs.  If they think workers can be persuaded to stick around, they will consider investing in skill development.  Otherwise they will either avoid training altogether or shift the cost to the worker via lower compensation.  Over the last seven years, the trend has been toward reduced investment in employee development.  If the tide is turning now, that is a pretty good signal that we are getting near full employment and employers are fearful of labor shortages.

Has student loan debt eroded startup activity?

Since 2006 there has been a slowdown in the rate at which new companies have been created.  Is rising student loan debt a possible culprit?  We know student loan debt has been growing rapidly since 2000.  Unlike other forms of debt, there is no collateral for student loan debt, which is why it is so difficult to get out of such debt in bankruptcy.  Also growing amounts of student loan debt can discourage all sorts of asset acquisition and investment, so it is natural to think that business formation could suffer as a result.

Three economists at the Philadelphia Fed took a careful look at how new business formation across counties is related to student loan indebtedness, along with other types of debt.  (Summary here; full study here.)  The counties where student loan debt grew the most were also the ones with the slowest rates of new businesses being started, especially for businesses with fewer than five employees.  This is not necessarily proof of causation, but it certainly means that the subject merits further research.