College Cartel Tofu Edition

Frederick M. Hess and Grant Addison are at NRO discussing some trends in employment.  They start out with:

Earlier this month, the job-search site Glassdoor compiled a list of 15 major companies that no longer require applicants for certain posts to have a college degree. The list included an array of entry- and mid-level jobs —everything from barista to “Apple Genius” to “senior manager of finance”

It is worth reading the whole thing.  We are generally in agreement with Fred and Grant but we find that they go a bit overboard with the red meat.  That’s why we call this tofu edition.

Fred and Grant point out an important reason why lots of employers require a college degree when there isn’t a compelling reason to do so.  They have a useful term for it, degree inflation:

There are multiple factors to blame for degree inflation, but a big one is the unintended consequences of federal anti-discrimination law. Title VII of the Civil Rights Act of 1964 prohibited employers from discriminating against workers or job applicants on the basis of race, color, religion, sex, or national origin. It did, however, allow the use of “professionally developed” ability or employment tests, insofar as they were not “designed, intended or used” to discriminate.

Trying develop an entry level test independently  has been a magnet for lawsuits.  Requiring a degree has not although Fred and Grant don’t see why.  It is OK to disagree with the courts but there is no reason to expect they will suddenly change their minds and agree with us or Fred and Grant.  Here is where some of the red meat comes:

And colleges, of course, reap the outsize benefits of acting as the gatekeepers to employment. It’s an arrangement which allows campus bureaucrats to pull in six-figure salaries while tuition costs soar ever-higher and schools feast on billions in federal student loans and other taxpayer funds.

The actions by the employers in the first paragraph will have precious little impact on highly competitive colleges.  We are not going to name names on who is worried about those employer changes  but we are sure the Ivy League and the Big Ten are not.  Fred and Grant recommend:

While there are policy changes that could help, businesses have a chance to do well by doing good. They can take the initiative to cultivate new partnerships, expand apprenticeships, charge HR departments with reexamining outdated assumptions, and find ways to move beyond routines that close the door to qualified workers who lack the right piece of paper.

We are with Fred and Grant that it is not a policy problem.  We are with them that employers should cultivate and expand partnerships.  Paid apprenticeships, internships, other on-the-job training should be expanded.  The partnerships might be with colleges, high schools,  vocational schools, or on their own.  These programs at the various schools and businesses might be run by highly paid folks.  They might be bureaucrats.  Let the markets sort out the prices.

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Pensions, Careers, And Retirement

Pensions and careers have changed.  Ramesh Ponnuru thinks the retirement changes are for the better and we heartily agree.  We will give an example and explain why it matters.  Ramesh thinks Americans should stop mourning the loss of traditional (defined benefit) pensions concludes:

These are changes that would build on, rather than attempt to reverse, the last few decades of developments in the American retirement system. Those developments, especially the rise of the 401(k), have largely been for the better.

Sidebar One: Pensions can be divided into defined benefit and defined contribution.  In a defined benefit plan you typically get a pension equal to then number of years worked * highest salary over three years * a percentage.  So if you work 30 years and your percentage is 1.8 then you get 54 percent of your highest salary.  A 401 (k) is an example of a defined contribution plan where a defined amount is invested and you get the result at retirement.  We often think that the worker takes the risk in a defined contribution plan and the company takes the risk in a defined benefit plan.  That is only true if the worker retires from that employer.  We will show details later.  End Sidebar One.

Sidebar Two: Risk is both upside and downside.  If a worker spends his entire career with one employer then a defined contribution plan is more risky because he might get much more or much less than a defined benefit plan.  End Sidebar Two.

The big reason for changing pensions is that the nature of careers have changed.  Years ago it was bad to have a resume that indicated you were a job hopper.  Now career advice is:

If you are changing jobs less than every three years, you are in the minority.
You may need to have a well-prepared explanation when you front up to your next job interview.

It also true that employers come and go.  Both of these are reasons why we should cheer at the increasing number of defined contribution plans.

MWG has a defined benefit pension plan.  It worked very well for us although it limited our opportunities, as it was intended to do, in the time close to retirement.  It worked very well for us because we spent nearly 40 years with one employer.  Thus, our paltry year salaries in the seventies and eighties were irrelevant and only the years mattered in the computation of benefits.  If we had of switched employers it would have been bad for us because our salary was so low. Another benefit was sick days.  In our case sick days accumulate and can be used to pay for medical insurance after retirement.  The sick day benefit is based on your highest salary but you must retire in order to get it.  Thus, because of both sick days and defined benefit, as retirement approached it was financial suicide for us to leave before retiring.  When we became eligible for retirement, the sick days became a powerful incentive towards retirement because workers had to pay for part of the cost of health insurance but retirees, like us, with lots of sick days did not.

For us and our employer, the defined benefit plan worked.  We got a nice retirement and they got us to work for less than market prices late in our career.  We are not sure if the intent of the pension was to get us to retire.  It was effective at that too.  We retired because the tax on working was over 100 percent.  That is, we had more disposable income in the first year of retirement then we would have had if we worked that year.

Defined contribution was a fair deal for us in another era.  Even then we were a minority in staying with one organization so long.  Now we would be a micro-minority.  Defined contribution is the way to go in the new environment.  We need to find incentives to increase them.  We have three suggestions:

First make health insurance benefits taxable to the recipient.
Second, increase social security benefits for the needy by means testing benefits for high income individuals.
Third, increase the tax benefits of Roth IRAs.  Make the contribution tax deductible and keep the returns not taxable.

The first would help by producing a bit of government revenue and focusing both employer and employee on the retirement issue.  The second would provide a safety net to the really needy.  The third would reduce complexity at retirement because everyone would go Roth and there wouldn’t be any taxes having an impact on decision making.

As Ramesh says, let us build on the success of 401 (k) plans.  Folks are looking for freedom.  The right incentives will help them make good choices.

 

Life And Career Advice

Jonah Goldberg has some life advice in his weekly newsletter.  We concur but would like to use it to discuss your career.  Jonah said:

So, as I prepare to enjoy a vacation weekend away from politics, here’s some advice: Don’t invest that much of your soul in politics. In fact, don’t invest your whole soul in anything.

Folks that invest their whole soul in something make for interesting entertainment but the reason is that their lives are a mess.  You make choices to give some of your soul to, among other things, your spouse, children, vocation, and avocations.  These percentages usually vary widely over your life.

Let’s use an accounting example with a sports comparison.  Going to work for one of the Big Four accounting firms is like being a Division I athlete.  It is not exactly the same but in both cases you give much and, if that is what you want, you get much.  Even within these areas there is wide variation.  You could be Dan Gable.  He would be an example of somebody who gave much more of his soul than the program asked and they ask for lots.

Part of this discussion must be about the nature of your soul.  Is size of the soul pie fixed or can it be expanded?  The plays we have seen in the last couple of weeks are The Grinch and Christmas Carol and we agree with those shows that as the former says explicitly your heart can grow three sizes.

Because your soul is large it is important to give parts of it to lots of folks and places. Work, even part-time work, family, school, handball (and all sorts of avocations) , all can be better as you become more involved in them and keep you from being obsessed with one thing. When the interviewer asks what your passion is you should have several of them.  Don’t give all of your soul to politics, work, family, or even handball but do give your soul to several of them.