Wednesday, April 24, 2019

Some Companies Offer To Pay All College Expenses For Their Workers

See Now Hiring, With Attractive New Perk: Free College Degree: Companies say benefits of a happy, better-educated staff outweigh the costs of paying for workers’ college education by Kelsey Gee of The WSJ.

Offering a good benefit in a tight labor market that leads to retention of workers reminds me of the "efficiency wage theory" that says that companies pay above market wages to lower worker turnover. This cuts hiring and training costs. Workers might also work harder so that they can keep a job that offers so many benefits.

There also might be economies of scale involved. That is when average cost falls as quantity increases (think of a factory that produces thousands of cars compared to producing only one car-the average cost is lower the more cars you produce, up to a point, since you spread the fixed cost of the factory over more cars).

If the broker firm can deliver thousands of student at once to a school, that lowers their average cost and the college might want to offer a lower tuition to get that many students so easily.

Also, if the broker acts as a single buyer or monopsony, then they can get a lower price. Monopsonies pay less than what would be the price if there was competition or many buyers in the market.


"Some of America’s largest companies are proposing that a good job can lead to a free college education, reversing the norm that requires workers to get the degree before launching a career.

Walt Disney Co. DIS 3.08% , Discover Financial Services DFS 4.93% and Yum Brands Inc.’s YUM 2.60% Taco Bell are among the high-profile employers sending front-line workers back to school, often paying the cost of tuition, fees, books and other expenses upfront and in full. The companies say the benefits of a content and potentially better-trained staff outweigh the costs.

Many large employers have long offered limited tuition-assistance perks to staff, reimbursing up to the federal tax-exempt maximum of $5,250 a year—after the student successfully completes course work. For most people, though, paying out-of-pocket and then waiting for the company benefit to kick in later proved too much of a barrier, said Jon Kaplan, Discover’s vice president of training and development.

Even so, Mr. Kaplan said, with around 80% of Discover’s 7,000 call-center and field staff lacking a college degree, the company saw a good return on every dollar invested in tuition, as participating employees stayed with the firm longer and moved into more senior positions at a higher rate."

"To secure new corporate partners, Brandman pays an undisclosed fee to Guild Education, a Denver startup that brokers deals between companies and colleges."

"The cost of a bachelor’s degree from a four-year U.S. institution averages $33,000 a year, according to the Education Department. Guild said that by providing schools a large number of part-time and full-time students, it can negotiate the total price down to between $6,000 and $10,000 in some cases"

"Some companies, including Walmart, pay 100% of those costs directly to the school, according to Guild, with minimal or no expense for workers."

"Other companies, including Taco Bell, cover up to $5,000 or so a year in costs up front and negotiate deals on textbooks and other student services for employees."

"the company now offers the college benefit to all 210,000 employees, after a pilot version last year boosted retention among participants by one-third to 98%."

"In the tightest labor market in decades, Disney, Discover and other companies say covering the full cost of college can help them hold on to valuable talent that has become more expensive to attract."

Thursday, April 18, 2019

What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee)

See The Obama-Trump Economic Boom: The current expansion may soon be America’s longest, and neither inflation nor tariffs are likely to stop it by Alan S. Blinder. He is a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve. Excerpts:
"A common answer in the modern era is that the Federal Reserve clamps down to fight inflation. But today inflation remains quiescent despite extremely low unemployment. That the Fed didn’t raise interest rates in January, even with the federal-funds rate barely above inflation, suggests that Jerome Powell may be an even more dovish Fed chair than Janet Yellen. It sure doesn’t look as if an overzealous Fed will squelch the expansion.

Another common expansion killer, though not lately, is a spike in the price of oil. Predicting the price of oil is a fool’s errand, and I won’t try. But a jump to, say, $90 or $100 a barrel doesn’t look likely any time soon."

Lots of people are fretting about a full-scale trade war with China. That remains possible—and a threat to the world trade system. But would it derail the U.S. expansion? Not unless it’s a whopper. Exports to China are only about 1% of U.S. gross domestic product. Even if they fell by half—well, you can do the math. America’s total exports to all countries are vastly larger. But lately, our bellicose president doesn’t sound inclined to declare trade war on Canada. Let’s hope it stays that way.

According to legend, stock-market crashes often end booms, but that’s an exaggeration. A crash may have to coincide with some other financial calamity, as in the banking, bond and mortgage disasters of 2008-09. In contrast, the U.S. economy sailed right through the megacrash of 1987. The current expansion has already survived a market “correction” in December without much apparent damage. So while I never predict stock prices, a market crash ranks low on my expansion worry list.

Last but certainly not least, expansions are sometimes killed by sudden drops in either consumer or business confidence—or rather by the declines in spending that such drops engender. Might that happen in the next few months? I suppose so, but recent economic data don’t point in that direction.
Recent political “data” are a different matter. It is certainly possible that the U.S. will find itself in a full-fledged constitutional crisis in the coming months, precipitated by, say, the “national emergency” over immigration. What then? If business managers and market traders behave like Mr. Trump’s base, they’ll shrug it off: Constitution, shmonstitution. But if threats to democracy shake confidence, look out.

A low probability, you say? I agree. My bet is that the current expansion will sail through June, setting a new record."
See also You Never Know When a Recession Will Sneak Up on You by Austan Goolsbee. He a professor of economics at the University of Chicago’s Booth School of Business and was an adviser to President Barack Obama. Goolsbee seems to think a recession is more likely than Blinder and that an unforseen event that hurts confidence is more likely. Excerpts:
"recessions don’t come only from large, foreseeable events. Modest, unpredictable incidents can cause economic downturns if they lead businesses or consumers to freak out."

Seemingly small events can cause enormous problems. Think back to 2001 and the last recession of a “normal” size. (The recession that started in December 2007 was, by far, the deepest and longest since the Great Depression — about as far from normal as a recession can be.)

The 2001 recession developed when the internet bubble popped, or at least that’s how we tend to remember it. But go back and check the numbers. The internet accounted for, at most, about 2 percent of the economy then. If we use the logic we’ve been applying to trade wars and government shutdowns, it would seem that popping the internet bubble shouldn’t have been enough to cause a recession. But it did.

The reason it did was that the pop freaked out people outside just the internet sector. Consumer confidence plunged, and businesses stopped investing. The recession spread far beyond its origin.
In this sense, virtually every recession in the last 40 years coincided with a signal of fear, like a significant drop in consumer confidence. Sometimes confidence fell and didn’t spiral into recession, but all recessions have started with a confidence spiral."

"Another government shutdown could spiral into something far more damaging than the small decline in workers’ share of the economy that the simple math suggests. An escalating trade war with China could ignite a recession, even if the numbers show that trade isn’t a large share of the United States economy. These events just need to spook consumers or businesses into putting off spending, and then more dire consequences can start to snowball."

"If something scares people enough, it can start a recession, and you probably won’t know until it’s too late.

That’s because recessions are hard to recognize at the start. Looking back, for example, we know that a recession officially began in April 2001, yet scarcely anyone understood that then. In June 2001, only 7 percent of economists in the monthly Blue Chip survey believed a recession was underway. In the months before that 2001 recession began, only 16 percent of economists expected that a recession would start within the next year. Now, 25 percent of economists in a Wall Street Journal survey say they expect a recession within the next year, and anxiety seems to be growing."

Wednesday, April 10, 2019

What Did The Justice Department warn the Academy of Motion Picture Arts and Sciences about?

See Justice Department Warns Academy Over Potential Oscar Rule Changes Threatening Netflix by Ted Johnson of Variety. This relates to anti-trust laws, something I covered in my classes recently. Excerpts:
"The Justice Department has warned the Academy of Motion Picture Arts and Sciences [AMPAS] that its potential rule changes limiting the eligibility of Netflix and other streaming services for the Oscars could raise antitrust concerns and violate competition law.

According to a letter obtained by Variety, the chief of the DOJ’s Antitrust Division, Makan Delrahim, wrote to AMPAS CEO Dawn Hudson on March 21 to express concerns that new rules would be written “in a way that tends to suppress competition.”

“In the event that the Academy — an association that includes multiple competitors in its membership — establishes certain eligibility requirements for the Oscars that eliminate competition without procompetitive justification, such conduct may raise antitrust concerns,” Delrahim wrote.

The letter came in response to reports that Steven Spielberg, an Academy board member, was planning to push for rules changes to Oscars eligibility, restricting movies that debut on Netflix and other streaming services around the same time that they show in theaters. Netflix made a big splash at the Oscars this year, as the movie “Roma” won best director, best foreign language film and best cinematography."

"Delrahim cited Section 1 of the Sherman Act that “prohibits anticompetitive agreements among competitors.”

“Accordingly, agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition by goods or services that consumers purchase and enjoy but which threaten the profits of incumbent firms,” Delrahim wrote.

He added, “if the Academy adopts a new rule to exclude certain types of films, such as films distributed via online streaming services, from eligibility for the Oscars, and that exclusion tends to diminish the excluded films’ sales, that rule could therefore violate Section 1.”"

Thursday, April 04, 2019

As Costs Skyrocket, More U.S. Cities Stop Recycling

With China no longer accepting used plastic and paper, communities are facing steep collection bills, forcing them to end their programs or burn or bury more waste.

By Michael Corkery of The NY Times. In one of my classes, we are reading the chapter on recycling in The Economics of Public Issues. So I thought this recent NY Times article would be relevant. Excerpts:
"Philadelphia is now burning about half of its 1.5 million residents’ recycling material in an incinerator that converts waste to energy. In Memphis, the international airport still has recycling bins around the terminals, but every collected can, bottle and newspaper is sent to a landfill. And last month, officials in the central Florida city of Deltona faced the reality that, despite their best efforts to recycle, their curbside program was not working and suspended it.
Those are just three of the hundreds of towns and cities across the country that have canceled recycling programs, limited the types of material they accepted or agreed to huge price increases."
"China, which until January 2018 had been a big buyer of recyclable material collected in the United States. That stopped when Chinese officials determined that too much trash was mixed in with recyclable materials like cardboard and certain plastics."
"recycling companies are . . . charging cities more, in some cases four times what they charged last year."
"many waste companies had historically viewed recycling as a “loss leader,” offering the service largely to win over a municipality’s garbage business."
"While there remains a viable market in the United States for scrap like soda bottles and cardboard, it is not large enough to soak up all of the plastics and paper that Americans try to recycle. The recycling companies say they cannot depend on selling used plastic and paper at prices that cover their processing costs"