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.