Red letter day for NC State

Today was a red letter day at NC State.  President Obama visited the campus and gave a speech where he announced that NC State has received its biggest grant ever -- a $140 million contract for energy research.  Half of the funding comes from the US Department of Energy; the remainder comes from private companies (including ABB, Cree and Toshiba) and the state government.  The research will focus on new advanced semiconductor technology that has the potential for huge energy savings.  

Thoughts on the job market

We were starting to see a lot of happy talk in the press about the economy turning the corner in 2014.  Believe me, I hope the optimists are correct.  But Friday's jobs report was a big bucket of cold water.  Employment grew in December by 74k, well below the 180 to 200k that was expected.  Employment now is still over 1m jobs below its peak level in January 2008.  The unemployment rate dropped from 7 to 6.7% but only because more people dropped out of the labor force.

As I have said before, monthly jobs data are noisy and maybe the weather threw things for a loop. Looking at 2013 as a whole, WSJ reports that average monthly job growth of 182k was basically unchanged from 2012.

WSJ also has an interesting graphic showing how employment growth has varied by sector.  The biggest job losses have been in manufacturing and construction.  Retail and wholesale trade and financial services also have fewer jobs now than they did six years ago.  One legitimate concern is whether these jobs are ever coming back.

Should universities rethink some of their PhD programs?

January is peak season for the academic labor market, as graduating PhDs await news of whether they will get on-campus job interviews or come up with a Plan B.  In business and economics the market for PhDs is very strong.  In most scientific disciplines new PhDs move on to post-docs.  Then we have the humanities and liberal arts, where tenure-track jobs are few and far between and those with academic aspirations face years of one year appointments.  

Bloomberg's Megan McArdle had a stimulating (as always) post last week where she points out that academic labor markets have become tournaments, where a lucky few get great positions but most people miss out.  The performing arts and professional sports are two prime examples of tournament markets.  Potential athletes learn at a relatively early age whether they are going to make it or not.  Aspiring actors or rockstars end up devoting their best years to the pursuit of fame, and McArdle thinks academic labor markets are like this as well.

Her suggestion will be viewed as heresy inside the hallowed halls of academe: start shutting down PhD programs in disciplines where there is a glut of doctoral candidates compared to available positions.

That constant flow of grad students allows professors to teach interesting graduate seminars while pushing the grunt work of grading and tutoring and teaching intro classes to students and adjuncts. It provides a massive oversupply of adjunct professors who can be induced to teach the lower-level classes for very little, thus freeing up tenured professors for research. 

Unfortunately, I’m essentially arguing that professors ought to, out of the goodness of their heart, get rid of their graduate programs and go back to teaching introductory classes to distracted freshman. Maybe they should do this. But they’re not going to.

I agree that the professorate is not going to do this on its own.  But will state-funded universities start to see pressure?  Will those private schools who are cash-strapped see opportunity?

NC State Jenkins online MBA ranked in top 40 by US News

The US News rankings of online MBA programs were officially released today and I am proud to be able to announce that the NC State Jenkins MBA came in at #36, tied with Michigan Tech and Denver.  We were the highest ranked program in North and South Carolina and came in ahead of such established programs as Syracuse (#39), Florida State (#1 in football but #43 in online MBA), Northeastern (#51), Thunderbird (#51), East Carolina (#58) and George Washington (#64).

NC State Jenkins online MBA scored very high on admissions selectivity (#9 in the country) and also did well in terms of faculty credentials and training.  We just graduated our first online MBAs in fall 2013 and look forward to climbing higher in the rankings next year.

How the feds might rate universities

The federal Department of Education is working on its own rating system for universities, one under which those with the lowest rating would no longer be eligible for federal student aid support.  Bloomberg Businessweek recently ran a story on how Tennessee has been rating its institutions of higher education, a system cited as a model by the President.

Tennessee used to base educational funding entirely on enrollment.  Now it has a system where state-supported schools are evaluated on 10 criteria, including graduation rates, degrees awarded, research grants, and job placement.  The weights given to these factors vary by class of school, so research grants count a lot at the flagship school UT-Knoxville but it gets zero weight at schools where teaching is the primary mission.

Tennessee's system applied to state-supported schools, but the federal system will apply to private schools as well. Forcing disclosure on key variables such as graduation rates and job placement would be a useful step forward.

The way in which the rating system is designed will have a significant effect on university behavior.  Already schools take steps to game the ratings in US News.  For instance schools US News rewards schools with a large percentage of classes with fewer than 20 students and punishes those with a large percentage of classes with 50 or more.  So some schools have literally changed their class size constraints; there are a lot more classes with 19 and 49 students than there used to be.

The feds promise to rate schools in categories, such as exceeds standards, meets standards, near standard and deficient.  That may mute the gaming in some dimensions.  But wait until the feds try to deny financial aid to a school; you can bet they will hear from that schools congressperson and senators.

Insurance coverage and ER visits

Science just published the results of a new study showing what effect increased Medicaid coverage has on emergency room visits.  As reported in WSJ, Oregon conducted a controlled experiment where Medicaid coverage was randomly provided to 10,000 low income residents.  By comparing the health and health expenditure data for those who won the insurance lottery and those who did not, one can discern how much impact Medicaid expansion has on health and consumer behavior.  (Aside: the lottery was necessary because more people applied than anticipated so there were not enough funds to cover everyone.)

What should happen when more low income people get health insurance?  One possibility is that they will now go to doctors' offices during normal hours, so ER use will fall.  The other possibility is that the increased insurance coverage leads to increased purchases of medical services across the board, including ER visits.  

The answer is quite clear in the Oregon data: ER use increased by 40% for those newly covered by Medicaid compared to those who did not get coverage.  So as Medicaid coverage expands in most states as the Affordable Care Act comes into effect, we should expect a lot more ER visits.  

For further insight, be sure to check this post by Bloomberg columnist Megan McArdle.

Want to help micro-enterprises? Teach them something about business

Anyone who has ever visited a low-income country notices the very large number of very small enterprises that generate very little net income.  Would training in basic business concepts help these small firms?  To find out, three economists conducted a randomized study of 900 entrepreneurs in Zacatecas Mexico.  Half were invited to take a 48 hour course in business skills spread over six weeks.  They received instruction on costs, pricing, legal rights and organizations, product mix, marketing and sales skills.  Then the economists studied the experimental and control groups for the next 2.5 years.

The most striking finding is that those invited had more customers, higher sales and more profits than those who were not invited.  They also reduced costs and changed their product mix away from lower to higher margins.  The good news: profits grew by 20 percent; the sobering news, profits were initially $11 per day for all concerned.  

My take: it is hard to demonstrate the value of business education.  Simple comparisons of income by major or degree level are difficult to interpret because higher income of MBAs or business majors may be due to other factors such as diligence or skill.  The value of this study is that it provides experimental evidence that business training provides a genuine competitive advantage. 

What have the UI benefit cuts in NC done so far?

I just ran across three blog posts on what has happened to the North Carolina labor market since unemployment benefits were cut drastically in July.  One account is from the left, one from the right and one is data-focused.  (Aside: 2 of the 3 appeared in Tyler Cowen's Marginal Revolution website.)

Basic labor econ 101 says that the cuts in benefits will mean fewer unemployed persons and a smaller labor force.  Those collecting benefits must document job search efforts to continue receiving a check; if fewer people can collect checks, some of them will cut back on their search intensity and drop out of the labor force.

The impact on employment is more difficult to gauge.  One possibility is that the unemployed will become willing to work at lower wages and this would lead to faster transitions from joblessness to employment.  On the other hand, net income from a low wage job might not be all that much higher than the income generated from income maintenance programs and informal market activity, so there may be no change in employment.

I took a quick look at the data for NC from the US Bureau of Labor Statistics.  So far (June versus November) employment is unchanged, the number of unemployed is down by 18 percent, and the labor force has shrunk by 1 percent.  The unemployment rate is down from 8.8 to 7.4 percent, but it entirely reflects unemployed people dropping out of the labor force.  The good news is that there are fewer unemployed; the bad news is that they are not employed and have lower incomes.

A new twist on work hours

Work schedules are usually cut and dried.  The worker is scheduled for certain hours on certain days.  There is an implicit understanding that the worker may not be able to report in case of illness or accidents and that the job may not be there in case there is a flood or power failure.

Recently NPR ran a story about a new form of work scheduling at retail outlets.  Employees are still told to come in for specific shifts, but not as many as before.  Then they are given other shifts where they are instructed to call in two hours before to see if they are needed.  In essence the employees have to keep their schedule open so that the employers have a call option on their services.

Companies are selling software packages to help employers make better scheduling decisions.  According to NPR's account, the software advises managers to call more workers in on days when sales are running strong and vice versa.  Obvious problem #1 -- just because the noon rush is big, does that have anything to do with afternoon or evening sales?  Obvious problem #2 -- the focus here seems entirely on cost control; what about losing sales when lines get too long?

Nonverbal communication matters

Entrepreneur magazine ran a piece by Maryville University professor Dustin York who did an experiment with four identical classes.  He brought in a guest speaker for all classes who had the same script and slide deck for each class.  In two classes the speaker followed best practices of nonverbal communication during presentations: eye contact, vocal variety, moving around, hand gestures, and enthusiastic facial expressions.  In the other two classes the speaker made minimal eye contact, spoke in a monotone, clutched the podium and had a flat facial expression.

York then quizzed the students at the end of each talk.  Guess which classes did 30 percent higher?  It is not just what you say; it is how you say it.  Students in NC State's MBA program get lots of practice at presentations; this practice yields a lifetime of high dividends.

What will happen with a $15 minimum wage?

Seattle's SeaTac Airport is located in the town of SeaTac, a small blue collar suburb.  SeaTac voters appear to have approved a referendum that will set the minimum wage for hospitality and transportation workers at SeaTac Airport at $15.  Apparently other airports on the West coast also have such provisions; at LAX, the minimum wage is $15.67.  The SeaTac minimum wage is well above Washington state's minimum of $9.69, which in turn is the highest state minimum wage in the country.

Supporters of the higher minimum wage for airport workers point to full-time employees living below the poverty line.  Opponents argue that there will be fewer jobs and that airport customers will have to pay higher prices and receive degraded service.  The actual impact will depend on how price sensitive airport customers are to more expensive hot dogs and rental cars.  It also will hinge on how companies can substitute capital for labor; for a $5.31 increase in the minimum wage, we might soon see McDonalds customers inputting their orders and paying on iPads.  

A dirty secret about Black Friday

Some stores will open on Thanksgiving evening this year to get a jump on the traditional Black Friday sales.  (Maybe it's because the number of days between Christmas and Thanksgiving is at a minimum this year?)  Ads lead shoppers to believe that this is the best day of the year to make gift purchases.

The truth?  If you want the real bargains, stay home and rake leaves or watch football on Friday and do your shopping online closer to Christmas.  Yesterday's WSJ reveals the pricing strategy firms use year around to convince shoppers that they are getting a bargain.  It is a simple twist on versioning, a topic we cover each year in my MBA economics class.  Retailers start with an unrealistically high list price, one at which they know only the most dedicated followers of fashion will accept.  The price then comes down as time passes, either through direct markdowns or through sales and coupons.

Most consumers are not well informed about how much prices of close substitutes, so they use the sale or coupon as a signal that they are getting a good deal.  Money quote:

The red cardigan sweater with the ruffled neck on sale for more than 40% off at $39.99 was never meant to sell at its $68 starting price. It was designed with the discount built in.

To be fair, there will be a few items on sale Friday that are priced below cost, but these items serve as bait to get customers in the store.  Customers will make better informed decisions if they comparison shop online.  

Gaming your way into a job

Knack.it is a Palo Alto startup that endeavors to use gaming and big data and to lead to improved decisions on employee selection.  Knack has developed games such as Wasabi Walter and Balloon Brigade that test for personality traits.  Companies can then use the games to decide which traits are associated with good job performance and hire based on those measures.

MIT Sloan's Erik Brynjolfsson notes in a recent Business Week article, "People are our biggest resource, and right now a lot of them are mismatched."  Firms make screening decisions on such factors as interviews and number of short-term jobs held that in many cases are not reliable predictors of job performance.  Now they can have star employees play Knack and develop a profile of a successful hire that can be then matched against the Knack performance of job applicants.  The Economist reports that Shell and Bain are starting to use Knack; will this be the beginning of a trend?

MBA job market quite strong

The Graduate Management Admissions Council just issued a report on placement for spring 2013 MBA graduates, and the news is very good.  Among US citizens 95% of the spring grads had jobs by September.  This is up from 91% last year and is the highest since the Great Recession.  The overall placement rate (which includes international students) is somewhat lower at 92%, reflecting a tough job market in Europe and difficulties in obtaining green cards in the US.

These stats are consistent with the experience NC State MBAs have had this year.  Hopefully the 2014 market will be even stronger.

Student loans - time for change in repayment options?

Jenkins MBA students at NC State will soon be getting their tuition bills for spring.  Many will be borrowing money to cover the bills.  How should repayment terms be established?  Today students are asked to pay off the entire borrowed amount over a 10 year time period, similar to a car loan or a mortgage.

For most students, investing in college and graduate school has an ROI of 10% or more.  But there is risk involved especially because the earnings streams of gradates vary tremendously both within the same field of study (some engineering grads earn more than other engineering grads) as well as across all fields of study (engineering grads earn more than liberal arts grads).

In a recent WSJ column David Wessel considers whether the repayment schedule should be set in terms of percentage of income.  Currently this is an option for borrowers, but very few select it.  Two Michigan economists propose that all borrowers be put into a system where repayment is based on income, with those having higher incomes having higher payments than those with lower incomes.  This has desirable risk sharing aspects as it automatically reduces debt repayment obligations if one's income falls.

However, it effectively acts like a tax that reduces the incentive to move into a higher bracket.  By itself the effect may be modest, but when combined with eligibility for other government benefits, the disincentives could be sizable.

MBAs seeking out tech jobs, finance not so much

Earlier this week WSJ reported that nationwide we are seeing a shift in the types of jobs MBAs are seeking.  At schools like Cornell, Harvard, MIT, and Yale, the percentage of MBAs getting jobs in finance is dropping and the share of those seeking tech positions is rising.  At Stanford, more MBAs now go into tech than finance; two years ago finance grads outnumbered tech grads 3 to 1.

If you look at the academic offerings at most of these schools, you are not going to see the same shift. Finance and general management continue to dominate.  It will be interesting to see if students start showing more interest in schools with strong tech offerings.  I know one top 20 program that has tracks in supply chain, consumer innovation, high tech entrepreneurship and biosciences management.

NC State Professional MBA ranked #20 by Bloomberg Businessweek

Great news to share with the NC State Jenkins MBA community: Today Bloomberg Businessweek released its 2013 Part-Time MBA rankings and we came in at #20, up 10 spots from two years ago.  NC State's MBA placed #10 in the country in academic quality; we earned an A in teaching quality and curriculum.  I am very pleased to see the program get the recognition that its students, alumni, faculty and staff have worked so hard to achieve.

Stacy Wood's research featured in WSJ

NC State marketing professor Stacy Wood is featured in today's WSJ article "The Biology of the Sports Fan."  Wood found in a 2011 article in the Journal of Consumer Research that traffic fatalities increased significantly after close football and basketball games, with the increase in fatalities directly related to the closeness of the contest.  For more information about the research, click here for an NC State news release and here for the entire article.  Professor Wood holds the Langdon Distinguished Professorship of Marketing and directs the Consumer Innovation Consortium in the Poole College of Management.

Have airline change fees gotten out of hand?

If you run an airline, load management is a key determinant of whether you make money.  Left to their own devices, customers would gladly reserve seats and then decide at the last minute whether to show up or not.  An empty airline sheet is like yesterday's newspaper - no one is going to buy it.  To create an incentive for passengers to book flights that they plan to take, airlines came up with cancellation fees 20 years ago.   In 1991 they generated $51m in revenue; today they generate more than $1b.  (Aside: these fees are not subject to federal air service taxes or local fees for airline use.  Ditto for baggage fees and other incidental charges.  We have seen airlines shift their revenue flow significantly over the last five years to these untaxed revenue sources.)

Airlines now charge between $150 and $200 to change a reservation.  For an international flight, this is a charge that is hard to avoid, especially if you already have completed one leg of your journey.  But for domestic flights, passengers can compare the cost of a one-way ticket home and the cost of changing their reservation.  WP reports that more and more domestic customers are booking their own return flights and, if warranted, pulling no shows at the gate. 

In a nutshell, the change fees may have gotten so high that airlines are now facing a problem with no shows.  Given the choice between paying $200 for changing a reservation and paying $150 for a one-way return, the no show approach makes economic sense.  Better to pay $150 and never engage with the airline that sold the ticket than to spend 30 minutes on the phone and pay more. 

My take is that companies usually think through their pricing structure strategically, but in this case they may need to reconsider.  They may need to think about changing the penalty for changing a booking to a percentage of the cost of the flight. 

Mexico to tax soft drinks and junk food

Mexico has passed the US in terms of obesity, with seven of 10 adults now categorized as overweight or obese.  President Enrique Pena Nieto is proposing a series of tax increases to fund increased spending.  WSJ reports part of the package is a one peso tax on sugary drinks.  LA Times reports that there also is a five percent tax on packaged food which has more than 275 calories per 100 grams.

Predictably, the tax is already getting slammed both by citizens upset with the higher cost of simple pleasures and by the companies whose products are being taxed.  From an economic perspective, taxing food to combat obesity is similar to the logic behind taxing alcohol and tobacco.  It would make more sense to have a generalized calorie tax combined with rebates to help the less fortunate.  However, such a tax would have all food companies up in arms, so there is a certain divide-and-conquer element to the government's strategy.  Also many of the leading packaged food and soft drink producers are companies headquartered outside Mexico, e.g., Coca-Cola and Nestle.

Denmark tried a similar tax in 2011 but repealed it after one year after there was no change in eating habits and a lot of junk food smuggled across the border.  Other countries will be keeping an eye on how the junk food taxes work in Mexico.