Author Archives: awerther

(Revised) Gender Wage Gap: Equal Pay Needed

We no longer live in a world where only the man of the house works and brings home the bacon for his family. We live in a world where women are in the workplace in a huge way and in many cases are actually the ones making the most money for their family. According to Pew Research Center, a “record 40% of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family.” This is compared to just 11% back in 1960. That being said, it is clearly unfair for women to make less than a man in the workplace if they are doing the exact same job. But this is precisely what currently goes on.

President Obama, among others, believes the current circumstances need to be improved.

“A woman’s got to work about three more months in order to get what a man got, because she’s paid less,” Mr. Obama said, speaking at a White House event. “That’s not fair. That’s like adding an extra 6 miles to a marathon.”

This really puts things into perspective. First of all, I can’t imagine running 26.2 miles to begin with, but to add another 6 onto that? That is nuts. And it really is not fair. Especially when we have come to a point where women need to be paid equally to men in the workplace. With so many women being the sole or at least primary source of income for their families in this day and age, it is just not right for them to be getting this sort of unfair treatment.

Just yesterday, President Obama signed two executive actions having to do with equal pay among different genders and their work for federal contractors. The one that I think will have more of an impact will require federal contractors to give the Labor Department data consisting of employees’ pay given their gender and race. If I had to take a wild guess, these companies would not like it if the Labor Department knew they were paying men and women different salaries for the same positions. Hopefully this new executive action will have a positive impact on closing the wage gap between men and women.

Moving forward, it seems that more and more women will probably become the sole or primary moneymaker for their family (at least getting close to the 50% mark). And even if it were to stay at the current 40% level a change must be made. It seems especially important among single mothers, which make up 63% of the so-called “breadwinner moms”; and it is important for married mothers who happen to bring home more money than their husbands as well. Equal pay needs to happen, and hopefully the two executive actions, which President Obama signed yesterday, will be the start of this change.

It’s About Time: NCAA Food Rules to Change

It has been reported that the NCAA is going to change its rules regarding food consumption by Division I athletes. This comes very soon after University of Connecticut basketball player Shabazz Napier’s comments that he sometimes went to sleep starving (this just after winning the National Championship, thus being heard by many). NCAA President Mark Emmert commented on the situation, and regarding Napier’s statement, he said the rule change was not brought about because of it. While it is possible that this is true, I don’t completely buy it, and at the very least I think Napier’s comments only could have helped the cause. I believe that this sort of rule change was essential for the NCAA to make after all the talk about whether it should pay student-athletes due to the possibility that maybe the athletes are not well enough compensated for what they do for their respective schools. This has nothing to do with athletes being paid; rather it is about the NCAA meeting basic needs of student-athletes.

The previous rules for NCAA Division I athletes regarding food consumption were absolutely ridiculous. Even President Emmert thought so, not only because a basic need was not being met, but also because of a burden that was being placed on the NCAA. There is one rule that sticks out as one of the most ridiculous things I have ever heard, which Emmert discussed: “The infamous one is you can provide between meals a snack, but you can’t provide a meal. Well, then you got to define what’s the difference between a snack and a meal? So it was literally the case that a bagel was defined as a snack — unless you put cream cheese on it. Now it becomes a meal. That’s absurd.” I actually cannot believe that this was ever a rule. While this may seem like an extreme example, I’m sure it took place daily. How can a bagel with or without cream cheese be considered a snack versus a meal? This is insane. In terms of the burden on the NCAA, “We wind up having to enforce the stupid rule, which means you have to have someone watching if someone is putting cream cheese on a bagel,” Emmert said. Again, that is just completely unnecessary. With the rule change, things like this will not need to happen. Division I athletes will now be allowed to have unlimited food each day. A win for the student-athletes and a win for the NCAA.

Given this rule change, could some schools gain advantages over others? Absolutely. But is this any different from some of the advantages that some universities already have over others? Not at all. Some athletic programs have way more money than others, which is a huge advantage in many ways. Now, with unlimited food on the table, it will be very interesting to see if any schools try to take advantage of this when it comes to recruiting. While I don’t truly see this happening to the extreme, it could be fun to think about certain universities being able to offer incredible food at all hours of the day. In this Sports Illustrated article, the author lists a bunch of schools and discusses the different authentic foods they could offer from their respective areas. Of course for Michigan, he brings up unlimited sandwiches from Zingerman’s Deli, or tons of Domino’s pizza given A.D. Dave Brandon’s former career. For many colleges in the southern US, lots and lots of barbecue. It would be cool to see this add another level to recruiting.

Finally, there is a lesson to be learned from this likely rule change. Mainly, college athletes should speak up when they truly believe they have a case to make. Especially when there is research to back up their argument. While Napier’s statement alone was probably not the reason this rule change could take place, it lined up with the data and thus it was taken very seriously. Timing and placement of statements like Napier’s are also very important in order to be heard loudly and clearly. The UConn Huskies had just won the championship and thus Napier’s comments were heard by all. Hopefully when the NCAA Board of Directors meets on April 24, this rule change will be finalized.

Rising Prices of Fruits and Veggies

In a highly unfortunate piece of news, it has been reported that the prices of many fresh fruits and vegetables are going to be on the rise as we look forward to the next few months. In a country struggling with obesity (approximately 35% of adults and 17% of children are obese, with almost double those amounts being overweight), the last thing we need is for healthier foods to become more expensive and less desirable to purchase. However, fresh produce is in a pretty special category when it comes to supply and demand because even with a smaller supply causing higher prices, consumer demand does not generally change very much. Thus, the increase in prices for fresh produce should not have a drastic effect on the quantities that people will purchase.

The price jumps of these fresh produce items are due to a severe drought in California, which has destroyed 10-20% of the state’s crops for eight food items including, but not limited to, lettuce, avocados, grapes, and berries. The price increases that are projected fall in the range from 13% to as high as 34%. Different fruits and vegetables have various increases based on the consumer’s willingness to pay for each separate item compared to the ability to find a substitute good for said item. For example, lettuce comes in at the 34% price increase, the highest of the bunch. As Timothy Richards, an agribusiness professor at Arizona State University, put it, “People are the least price-sensitive when it comes to those items, and they’re willing to pay what it takes to get them. It’s hard to make a salad without lettuce.” I could not have said it any better myself. Compared to some of the other fruits and vegetables, lettuce has the highest price increase because it is essential and people are going to buy it regardless of the price increase (unless it is completely extreme). Taking a look at berries, for example, there is only a 14% price jump as berries are more of a high end fruit (already being fairly expensive) and are not as much of a necessity as something like lettuce because they can be replaced more easily with other, cheaper fruits. I would consider berries a “luxury” fruit.

Luckily, this period of price increases looks to be temporary. With the increasing prices due to what is going on in California, other producers including those in foreign countries, will have more of an incentive to supply the United States with their crops. This would obviously increase the domestic supply, which would then bring the prices back down, at least partially. It would be even more beneficial if the current California drought would come to an end, but that does not seem to be anywhere in sight. All we can do is hope!

Financial Literacy, or Lack Thereof

Financial illiteracy is currently a huge issue in the United States. It is quite obvious that we have a problem when less than a third of the population is able to answer three extremely simple questions regarding interest rates, inflation, and diversification. Financial literacy can be defined as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” This includes planning for the future (e.g. retirement) and the discipline to stick to such a plan. There are two main items that I would like to discuss in regards to financial literacy. The first is: what can be done (or is being done) about the problem we face? And the second is: would an improvement in financial literacy actually improve financial behavior (which is clearly what is important here)?

To answer the first question I posed, a lot can be done to improve the financial literacy of people in this country and around the globe. The best place to start is with young people. And that is exactly what Carrie Schwab-Pomerantz is doing. The daughter of Charles Schwab, Carrie did not have a lot of money growing up and knew what it was like to have to work and save her money. Thus, she is a huge advocate of teaching young people (kids) skills relating to basic money management, as “That’s where we learn the behaviors, attitudes and habits to take care of ourselves.” About 10 years ago when she became the president of the Charles Schwab Foundation, she started a program focused on the financial literacy of teenagers called Money Matters: Make It Count, a class in personal finance for members of the Boys & Girls Clubs of America ages 13 to 18. The course covers five different topics over a 10-week period, including budgeting, saving and investment, and planning for college. Interested in whether her program was really making a difference, Carrie found through a yearlong study that teens who partook in the program realized gains in 50 out of 53 subject areas related to financial literacy. This seems like a great start. If we can start up more programs like this one, America will certainly be on its way to becoming a much more financially literate country in the future. This is no easy task, but the more teens that get involved in courses like this one the better.

In regards to my second question, there is in fact evidence supporting the proposition that improvement in financial literacy improves financial behaviors. In a study done by Annamaria Lusardi of the George Washington University School of Business to measure financial literacy around the world, the findings showed that across all of the surveyed countries, financial literacy was linked to retirement planning or participation in a pension plan. Therefore there is a connection between financial literacy and the financial behaviors of people around the world (including in the United States). In even more detail, “for every additional survey question answered correctly, there was a 3 to 4 percentage point higher likelihood that the respondent planned for retirement. This was true across countries as diverse as Germany, the United States, Japan and Sweden.” This is absolutely huge. It is great to ensure that courses like Money Matters: Make It Count will make a difference in how teenagers will actually behave financially moving forward in their lives. Lastly in regards to this study, Lusardi was actually able to show the causality that financial literacy affects retirement planning, and not the other way around.

The implications are as follows. Financial literacy is an extremely complex topic, as it is difficult to pinpoint and even more difficult to say who has it and who doesn’t. As it is such a significant skill to have in order to make intelligent financial decisions throughout one’s life, we need more courses like Money Matters: Make It Count moving forward. Even better would be to have a mandatory course for teenagers during their high school years on personal finance in order to increase the financial literacy among our population. As in anything, there are specific groups of people that are more likely to be financially illiterate than other groups, and as difficult as it may be, these groups need to be targeted by programs such as Money Matters.

Stop It: After-Hours Work Emails

Emailing coworkers after work hours used to be something that only happened in the case of an emergency. Nowadays it has become commonplace for an employee to receive a work related email from their manager (or the like) after they are done at work for the day, or on the weekend, or even while on vacation. I’ll be interested to see if this will be similar for me as I begin a new job this summer after graduation. At first thought, it seems like getting as much done as possible, even when you’re not physically at work, would be a good idea since maybe you can get ahead of where you would otherwise be on a project, for example. However, one study done by “Right Management” suggests that this may not be the case. And that such intrusions, that are now routine in many fields, may in fact be counterproductive and possibly even detrimental. As hard as it is to separate work from personal time for many these days, I believe it is extremely important (in most situations) to be able to put down your work completely when you leave the office for the day.

The reason I bring this up is that it seems that France is on a track to actually make this happen. French labor unions actually made a pact between employees and companies, which would give specific workers in the technology sector the right to put down things like email and smart phones once they have completed a 13-hour work day (France’s state-mandated maximum). This pact would have a fairly small impact when you consider the overall size of the workforce, but it is a step in the right direction. Volkswagen in Germany has already put an end to corporate email to its workers between the times of 6:15pm and 7:00am, and ‘according to a company representative is a “huge success.”‘

It seems like the more companies (and countries) that start to do this sort of thing, the better. Not only do calls and emails outside of business hours add stress to employees trying to relax during their few hours off each day, ’employees will eventually “become resentful at best, burnt out and ineffective at worst”‘ in response to being blitzed outside of work. So while managers may think they need a response right now, it may be better for them to save it until the next workday. It will help them and it will help the employees. Everybody wins. I personally believe we are a long way from reverting back to the times when this sort of thing was only used in the case of an emergency, but any steps such as the one Volkswagen has already taken and the one France is seemingly about to take could lead the way.

Gender Wage Gap: Equal Pay Needed

We no longer live in a world where only the man of the house works and brings home the bacon for his family. We live in a world where women are in the workplace in a huge way and in many cases are actually the ones making the most money for their family. According to Pew Research Center, a “record 40% of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family.” This is compared to just 11% back in 1960. That being said, it is clearly unfair for women to make less than a man in the workplace if they are doing the exact same job. But this is precisely what currently goes on.

President Obama, among others, believes the current circumstances need to be improved.

“A woman’s got to work about three more months in order to get what a man got, because she’s paid less,” Mr. Obama said, speaking at a White House event. “That’s not fair. That’s like adding an extra 6 miles to a marathon.”

This really puts things into perspective. First of all, I can’t imagine running 26.2 miles to begin with, but to add another 6 onto that? That is nuts. And it really is not fair. Especially when we have come to a point where women need to be paid equally to men in the workplace. With so many women being the sole or at least primary source of income for their families in this day and age, it is just not right for them to be getting this sort of unfair treatment.

Just yesterday, President Obama signed two executive actions having to do with equal pay among different genders and their work for federal contractors. The one that I think will have more of an impact will require federal contractors to give the Labor Department data consisting of employees’ pay given their gender and race. If I had to take a wild guess, these companies would not like it if the Labor Department knew they were paying men and women different salaries for the same positions. Hopefully this new executive action will have a positive impact on closing the wage gap between men and women.

Moving forward, it seems that more and more women will probably become the sole or primary moneymaker for their family (at least getting close to the 50% mark). And even if it were to stay at the current 40% level a change must be made. It seems especially important among single mothers, which make up 63% of the so-called “breadwinner moms”; and it is important for married mothers who happen to bring home more money than their husbands as well. Equal pay needs to happen, and hopefully the two executive actions, which President Obama signed yesterday, will be the start of this change.

(Revised) Social Security Debate: To Delay or Not to Delay?

Just as Professor Kimball was discussing in class today, there is a large debate over when exactly you should start collecting social security benefits. On one side, there is the opinion that you should start collecting as early as possible (currently age 62). And on the other, there is the opinion that you should delay as long as possible to begin collecting social security benefits (until age 70). I am of the opinion that there is not a correct answer in this debate. When any one person should start collecting their social security benefits depends on far too many factors to claim that there is a single correct decision for everyone. Some of these factors include life expectancy, lifetime earnings, and individual as well as family financial situations.

Taking a look at the first view, the main idea is that you should “Take the Money While You Can Get It”. Paul Tully, a financial advisor at Eagle Wealth Strategies takes this side of the debate. Some of the main reasons he believes you should begin collecting as soon as possible include the recession, historically small retirement savings, and more expensive senior lifestyles. He claims that for most people, taking social security earlier, even at a lower payment rate per month, allows for more financial freedom and helps to pay bills more easily. I would tend to agree with him on these two points. However, he then goes on to say that it increases the likelihood of “achieving the best long-term personal outcome”. This I do not completely agree with. Once you start to think about delaying until age 70 to begin collecting social security, this may be a far better option to achieve the best long-term outcome. For every year that you wait to collect past your full retirement age (typically 66 or 67), you receive an additional 8% per year on your benefits. So if you can afford to wait, either if you are still working, or have other money that you can live off of in the mean time, this seems like a better option.

Someone who thinks they should collect early may believe that social security benefits are going to disappear. But this should not happen. As Dee Lee, a Certified Financial Planner, discusses, “You may have to contribute more and/or retire later to be eligible for full benefits and you may be taxed on all of your benefits, but there will still be benefits.” Professor Kimball also mentioned something similar to this in class today saying that what you receive in terms of social security benefits in the future may be something like 2/3 of what people currently get, but they will not disappear completely.

One reason to take the benefits as early as possible would be if you don’t think you have such a long life expectancy. If you think you’re only going to live until 75 or even 80, then maybe it would be a good idea to start collecting at 62 or some time before 70. But if you are in good health, and may live to the average life expectancy of 84 (for men) or 86 (for women), or beyond that, then delaying is probably a better idea.

In the WSJ article I have mentioned throughout this post, the financial advisor Paul Tully, and the vice president at a financial advising company, Jane Rose, who have each taken one side of this debate, give lots of exceptions and caveats to their viewpoints. This tells me that they may lean towards one decision over the other, but there are always circumstances where the other decision would be better. Like I said at the outset, I do not believe there is a correct answer that applies to everyone. It is a case-by-case decision that should be made by each individual and their family.

Trouble for Southwest?

Southwest Airlines has long been an airline with a completely different philosophy and system than most others in the airline industry. Everything was always very simple with Southwest and very cost efficient, as well as fast growing. More recently, however, the company has been showing some signs that it may not be heading in that same direction anymore. Is this company heading for troubled waters? While they may not be doing quite as well as they would like to be at this point in time, I believe Southwest is going to be okay.

Some of the biggest issues that Southwest is facing are as follows. First of all, their average one-way fare for a domestic flight increased by 21% from 2008 to 2013, more than 7% more than the second highest increase, possessed by Alaska Airlines. Next, they failed to hit their return on investment capital target of 15% since the year 2000. On the operational side of things, Southwest has started to fly fuller planes, connect more passengers, and serve larger airports than they traditionally have. The issue here is that these larger airports often have more delays than the mid-size airports Southwest has serviced throughout their 43 years as an airline. They also lost more checked bags per passenger than any other airline last year, which was extremely surprising to me. Outside of these (what I would call) minor issues, the largest problem involves the workers: all 45,000 of them. Over 80% of the workers are unionized and in negotiations with the company over their contracts.

Despite what seems like a lot of problems, they really are not as bad as they seem. To start, even with the average one-way airfare going up 21% since 2008, Southwest still has the lowest average one-way fare among major airlines (excluding Frontier and Spirit, but I honestly don’t know anyone that flies either of those). Plus Spirit has a bunch of hidden fees. So this does not seem like an extreme problem to me. Second, even though they failed to hit the return on investment capital target of 15%, they reached 13% in 2013, up from 7% in 2012. Then there is the issue of flying fuller planes and servicing larger airports. While this may not have been the original plan, it shows that Southwest can adapt to necessary changes in the industry. One of the major reasons for doing this is that gas ended up accounting for 35% of Southwest’s overall costs last year, which was over double the amount from 10 years ago. That being the case, they needed to be more cost efficient with their fuel, which called for more long flights between large destinations as opposed to their typical short flights between mid-size hubs. Thus, I don’t see this as a bad thing. In fact, “Southwest’s existing contracts were designed for a smaller, short-haul airline that didn’t fly late at night or adjust service levels according to demand”. But they knew that they needed to change with the times, resources, and costs, as well as demand. Recently, Southwest actually removed several flights solely based on the lack of demand. Just another sign that they are doing what they need to do in order to stay as competitive as possible.

Regarding the contract negotiations with their unionized employees: it really seems like Southwest treats their employees very fairly, even better than most other airlines. “The average Southwest worker earned nearly $100,000 in 2012, including pension and benefits, compared with about $89,000 at a traditional hub-and-spoke airline, according to MIT.” They even share profits with the workers, ($228 million last year) accounting for more than 6% of their salaries. And it is not like Southwest is trying to force pay cuts on their employees. They simply are looking for more flexibility and increased productivity: two very reasonable possibilities. The employees can’t expect Southwest to remain absolutely the same year after year. Founder of Southwest Airlines and ex-CEO, Herb Kelleher, made this statement to any employees worried about change: “What I tell them is…’What we’re talking about here is your future. If we don’t change, you won’t have one.'”

I could not agree more with what Mr. Kelleher said and hopefully for Southwest, the employees understand this and embrace any change that occurs. All in all, I believe Southwest is going to be just fine. In fact, this past year their stock jumped over 77% up to almost $24 per share and is still the only U.S. airline with an investment-grade credit rating. Even with all of these issues seemingly coming about over the past year, they are still doing quite well and at the very least are still competitive among all U.S. airlines; and saying that they are just competitive is probably an understatement.

Growing Gap Between Grandparents and Grandchildren

It has seemingly become increasingly popular for couples to wait until their thirties to think about having their first child. There are many different reasons for this, whether it is to pursue a higher educational degree, to become financially ready to welcome a baby into the family, or to travel the world, among many other possibilities. Is there a problem with this trend to start having kids after entering into your thirties, and later? According to some experts, as well as the would-be grandparents themselves, there may be.

The parents of potential parents (a.k.a. the would-be grandparents) are becoming more and more worried that the relationships they have imagined having with their grandchildren are no longer going to be the same because of the growing gap in ages. New grandparents may be more likely to welcome their first grandchild when they are closer to age 70 nowadays as opposed to somewhere around age 60. And this could change a lot about the relationship between them. There are many benefits for a child growing up with grandparents that are very involved in their lives. “Aside from serving as an extra source of child care and economic support, grandparents often ‘form an alternative attachment to the child that can be very important to the child’s development,’ says Merril Silverstein, a professor of sociology at Syracuse University who focuses on aging.” So while it may seem selfish of these would-be grandparents to want their children to produce grandkids sooner rather than later, they definitely have a good reason behind their selfishness.

Economics have played a large role in the shift to later pregnancies for many. The fertility rate in the United States fell to an all-time low between 2007-2012, thanks to the Great Recession. Many women (and couples) put off childbearing during this time or completely decided against having children at all. “Combined with longer-term cultural shifts, including greater educational and workplace opportunities for women, this has caused the proportion of first births to women ages 35 and older to rise to nearly one in 12 today from one in 100 in 1970. (Overall, nearly one in seven children is now born to women in that age group.)” It is simply a different world that we live in now than the one that these would-be grandparents grew up in.

Luckily, with advances in medicine, the average life expectancy is up to 78.7 years for men and 81 years for women. Compare this to 52 and 56.8, respectively from a century ago and you’re looking at about a fifty percent increase in length of life for men and forty percent for women. This is huge. The more time grandparents can stick around to be a part of their grandchildren’s lives and see them grow up, the better. The one issue that this does not solve is the age gap. But I believe that if this generation of grandparents is able to live longer, they are probably (not necessarily, but probably) going to be healthier at any given age than previous generations were. That being said, they will probably be able to be as engaged in the lives of their grandchildren at age 75 as their own grandparents were at age 65.

In the end, it is obviously up to the children of the would-be grandparents to decide when they would like to have children of their own. And while there can be complications with trying to have children at older ages, that is a risk that they must be willing to take. I completely understand the argument from the would-be grandparents and I do believe that they can make a very significant, positive impact on the lives of their grandchildren, but we must adjust to the times. Things change over time and we must change along with them.

Mexico: Ready for rise in US interest rates

It seems almost certain that at some point in the near future the interest rates in the United States are going to rise. Interest rates have been hovering around zero for several years now, and it is only a matter of time until they rise at least a little bit.

fredgraph

When this happens, it will not only have an effect on the domestic economy, but on the international economy as well as we have seen in class through the international finance diagrams. One country in particular that has struggled in the past with movements in the US interest rates is Mexico. However, according to Agustín Carstens, Governor of the Bank of Mexico, the country is in a much better place to handle an increase in US interest rates, whenever that may occur.

Previously, Mexico has suffered from movements in the US interest rates as they were not well prepared and not able to handle these changes very well. In the past, the issue would have looked something like this: the US increases interest rates, which would result in a movement along the US NCO curve up and to the left. This would then cause the supply of dollars to shift to the left, which would increase the exchange rate in the United States and lower net exports. Simultaneously in Mexico, this would cause the NCO curve to shift to the right and the supply of pesos to shift to the right as well, which would decrease the exchange rate and increase net exports. While an increase in net exports may not seem like such a bad thing, this would put Mexico above their natural level of output and may begin to overheat their economy.

But now that Mexico is better prepared and will be able to handle such an increase in US interest rates, this sort of trouble should not occur. “Mexico is trying to have this process of increase in interest rates as orderly as possible,” Ramos-Francia (Mexico’s central bank deputy governor) said. When in fact the US does raise interest rates, Mexico should be able to respond in such a way to stay at (or return after a brief stray from) their natural level of output. In order to do so, after an increase from the US, Mexico could sell bonds domestically to decrease their money supply in order to increase their interest rates. This should result in a partial decrease in investment and a movement up and to the left along their new NCO curve which would shift the supply curve of pesos to the left (about halfway between the original and the intermediate curve), decreasing net exports partially and increasing the exchange rate, but not all the way back to the original level. In this way, Mexico would lower both net exports and investment part way in order to get back to the natural level of output.

While there have been some complaints from emerging markets about how much US policy can negatively affect their growth and progress, Augustín Carstens has said that “there are limits to international policy-making coordination. Developing-economy leaders ‘should take policies in advanced economies as given’ and should ‘deal with their own problems’ through their own powers.”

In saying this, it seems that Carstens maintains a positive view that Mexico has reached a point where they have enough power that they can truly handle their own issues as they come along from movements in the US. This is obviously a good thing for both Mexico and the US, as the United States can make changes as they see fit (as we should) and Mexico will be able to respond accordingly.