Why is investing in education important?

Economics Wednesday

A: The returns from investing in education are better most financial investments that is why...

According to " Estimating Returns to Schooling from State-Level Data: A Macro-Mincerian Approach" by Steven J. Yamarik, California State University at Long Beach, the social return to investing in education can be as high as 16%.

Abstract (from The B.E. Journal of Macroeconomics.)

In this paper, we use information from U.S. states to determine the social return to schooling. We estimate a macro-Mincerian model where aggregate earnings (or income) depend upon physical capital, labor, average years of schooling and average labor force experience. We find that the social return to U.S. schooling is 9 to 16 percent, which matches estimates of the private return found in the labor literature. Our results therefore provide evidence that U.S. schooling is indeed productive, but generates no positive externalities.

The last word on survey evidence in wage and hour cases

What do the courts say about survey evidence?

Take a look at:

sciman00.pdf

Reference Manual on Scientific Evidence, Second Edition 2000, 638 pages

The second edition of Reference Manual on Scientific Evidence has been published and distributed to federal judges.

Attack II: Your expert is not an expert

Is the bar too high for survey evidence in wage and hour cases?

The second approach that the defendant's in Marlo v. UPS employed was an attack on the plaintiff's expert's qualifications as a survey expert. Although the expert had done a lot of surveys, the defendant's were able to convince the court that she was not quite expert enough.

Specifically,

According to the defendant's, Rules 702 and Daubert, the Reference Manual
details specific expertise requirements for survey experts and provides that experts
who design, conduct, or analyze a survey be appropriately skilled with the
following qualifications:

• Experts prepared to design, conduct, and analyze a survey generally
should have graduate training in psychology (especially social,
cognitive, or consumer psychology), sociology, marketing,
communication sciences, statistics, or a related discipline.

• That training should include courses in survey research methods,
sampling, measurement, interviewing, and statistics.

• In all cases, the expert must demonstrate an understanding of survey
methodology, including sampling, instrument design (questionnaire
and interview construction), and statistical analysis.

• Publication in peer-reviewed journals, authored books, membership in
professional organizations, faculty appointments, consulting
experience, research grants, and membership on scientific advisory
panels for government agencies or private foundations are indications
of a professional's area and level of expertise.

• In addition, if the survey involves highly technical subject matter (e.g.,
developmentally disabled adults with limited cognitive skills), the
survey expert also should be able to demonstrate sufficient familiarity
with the topic or population (or assistance from an individual on the
research team with suitable expertise) to design a survey instrument
that will communicate clearly with relevant respondents.

In short, the defense said the expert met none of the above.

Attack I: - more details..

Is the bar for wage and hour survey evidence too high?

As mentioned in the last posted the defendant's in Marlo v. UPS attacked the plaintiff's wage and hour survey on several levels. The following discusses the details of the attack.

(see yesterday for discussion on 1. sample not representative)

2. The survey questions were not framed in a clear, precise,
and non-leading manner


The questions to be asked of interviewees were not framed in a clear,
precise, and non-leading manner. First, many questions in the Telephone Survey
use biased words and phrasing that were designed to lead to a specific or desired
response.

Second, the [Federal] Reference Manual explains that the "yes/no/not applicable"
response format results in inaccurate data because it encourages "acquiescence"
(the tendency of respondents in some surveys to agree or disagree, known as "yeahsaying"
and "nay-saying") and "social desirability" (the desire to present oneself in
a favorable light). Reference Manual at 375-377

Third, the Telephone Survey elicited responses to all questions, even
though some questions clearly did not apply to all respondents because they did not
pertain to all three of the relevant FTS positions.

....The fact that most of the respondents answered every question regardless of whether it applied to them confirms that the questions encouraged acquiescence and guessing.

Attack I: Inadmissible Hearsay - a detailed look

Is the bar for wage and hour survey evidence too high?

As mentioned in the last posted the defendant's in Marlo v. UPS attacked the plaintiff's wage and hour survey on several levels. The following discusses the details of the attack.

1. A representative sample was not selected.

First, no precautions were
taken to ensure that only qualified respondents were included in the Telephone
Survey....the Telephone Survey did not ask any questions to ensure that
respondents were qualified to participate in the survey, such as whether they were
currently employed at UPS in one ofthe FTS job positions, or if they ever held one
of the relevant FTS job positions at UPS.


Second, there is no evidence that the respondents who participated in
the Telephone Survey are representative of all class members. Of the 614
"qualified respondents" provided by Plaintiffs counsel, only 160 interviews were
completed. The plaintiff's expert does not provide information about relevant characteristics of the 160 respondents, such as the region or district where they worked, whether they worked as a full-time on-road, hub, or preload supervisor, or the length oftheir employment. fd. Nor does it compare the characteristics of the respondents to the population the Telephone Survey was
intended to represent.

The plaintiff's expert confirmed at deposition that she did not know whether
the sampling frame was representative of the universe, whether the sample was
random from any other larger universe of people who were being surveyed, or
whether the sample was stratified as to any larger list, and that she did nothing at all
to evaluate the representative nature of the sample.

Attack I: The survey is inadmissible hearsay

Is the bar too high for survey evidence in wage and hour cases?

The defendant's first attack was the survey was inadmissible hearsay of the type not reasonalbly relied on by experts in the field.
According to the defendants:

The results of the Telephone Survey are out-of-court statements by
respondents purportedly discussing their knowledge and application of UPS's
methods and procedures. Plaintiff seeks to use the results ofthe Telephone Survey
to prove the truth of those statements, i.e., that the respondents know and apply
UPS' methods and procedures. This is classic hearsay. FED. R. EVID. 801(c)

Some courts have allowed the admission of survey evidence under the
residual or "catch all" exception to the hearsay rule upon a finding that the survey is
"material; . .. more probative on the issue than any other evidence; and ... has
'circumstantial guarantees of trustworthiness. "

A survey is trustworthy if it "is conducted in accordance with
generally accepted survey principles, and if the results are used in a statistically
correct way, since proper survey and statistical methods are intended to assure a
poll's reliability."

The defendant's attacked the plaintiff's wage and hour survey on several levels. Using the defendant's definition of 'trustworthy' means that a trustworthy survey is one where:

(1) the "universe" was properly defined;
(2) a representative sample of that universe was selected;
(3) the questions to be asked of interviewees were framed in a clear, precise, and nonleading
manner;
(4) sound interview procedures were followed by competent
interviewers who had no knowledge ofthe litigation or the purpose for which the
survey was conducted;
(5) the data gathered was accurately reported;
(6) the data was analyzed in accordance with accepted statistical principles; and
(7) the objectivity of the entire process was ensured.

According to the defendant's motion, the plaintiff's expert's survey did not meet any of these requirements for a sound study.

Is the bar too high for survey evidence in wage and hour cases?

So, now that the backdrop for the survey in the Marlo v. UPS case has been laid, what then is the problem? The company that performed the survey had performed numerous surveys...that was their job. In addition, the witness, at least one of them, was the president of the survey company. The other witness was a Ph.D. Industrial Organization professor.

Here is a summary of the defense's motion to exclude the survey. (More discussion in follow-up posts)


However, any opinion or testimony about the Telephone
Survey must be excluded for two separate and independent reasons. First, any such
opinion or testimony is inadmissible because the results of the Telephone Survey
constitute hearsay of a type that is not reasonably relied upon by experts in her
particular field. Second, any such opinion or testimony is inadmissible under
Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 (1993), because

(I) the expert does not qualify as an "expert";
(2) the expert's opinion will not assist the trier offact;
and (3) the expert's opinion is not (a) "the
product of reliable principles and methods"; (b) based upon sufficient facts or data;
and (c) based upon a reliable application of principles and methods to the facts of
this case. Thus, any opinion or testimony by the expert about the fact, contents, results,
or purported scientific validity ofthe Telephone Survey must be excluded at trial.

Survey adminstration

Is the bar too high for survey evidence in wage and hour cases?

Here are the details of how the survey was conducted:

SAMPLE

A list of 614 cases was provided. This list was checked for duplicate phone numbers and valid area codes and 64 cases were thrown out. Of the 550 remaining numbers, 166 were unusable, leaving 384 viable phone numbers. The remaining 384 cases we dialed up to 5 attempts in an effort to complete the questionnaire with as many as possible.

INTERVIEWING·
Interviewing took place between the dates of November 18th and November 24",2004. Calling times were scheduled from 6:00-9:00 PST weekdays, 9:00 am-4:00 pm PST on Saturday and 2:00-8:00 PST Sunday.

Interviewing took place at various times during these calling windows. Daytime dialing also occurred on the 220d and 23'd of November.

Interviewing was completed following sound, standard marketing research call center practices Including reading verbatim and administering the interview in a non-biased fashion. 20% of completed interviewers were silently monitored (10% is industry standard). 13% of respondents were called back to confirm qualification and study participation (10% is industry standard).

Supervision ratio was 1 hour for every 3.5 interviewing hours. Industry average is approximately 1:8.
A total of 7 Intervij1wers were briefed and dialed on this study at some time during its 7days in field ranging from 1to 5 during any given shift.

QUESTIONAIRE·

Aquestionnaire wjth 42 yes/no/na questions was provided to ORI, atrue and correct copy of which Is attached hereto ap Exhibit 1. This questionnaire was programmed Into CATI (computer assisted telephone interviewing) software commonly used within the industry to administer telephone interviews. In addition to providing the script and capturing data the software also regulates the phone numbers to be called in reference to callbacks times, resolved vs. non resolved numbers, etc.

Part I : Background on survey in wage and hour case

Is the bar too high for survey evidence in wage and hour cases? Part I


In November 2004, Plaintiff Michael Marlo's counsel of record, John
Furutani, retained a "data collection execution and management" to conduct a telephone survey ("Telephone Survey") of current and former UPS employees.

The survey asked questions related to procedures that the UPS employees followed. The survey also asked about the authority that the UPS employees had to fire, change schedules, etc. of other UPS employees.

Plaintiff intends to offer the expert testimony of the president of the survey firm regarding the fact, content, results, or purported scientific validity of the Telephone Survey.


The survey:

Application of knowledge and training!manager's desires
1) Do you apply your knowledge ofUPS' prescribed procedures when
determining which procedure to follow in a given situation?
2) Are the decisions you make on a daily basis as a UPS full-time supervisor
based on UPS' rules, procedures or methods that you have been trained on?
3) Are the decisions which you routinely make as a UPS full-time supervisor
based on the experience you have gained working for UPS?
4) Have you been traioed in UPS' methods and procedures?
5) Are the decisions which you routinely make as a UPS full-time supervisor
based on the training you have received while working for UPS?
6) Are the decisions of consequence you make in the operation dictated by the
training you have received on the proper procedures and methods?
Training on the methods
7) Do you have the authority to modify training methods if you feel you have a
better way of doing something?
8) Do you train employees on UPS' methods?
9) Do you ever disregard the methods while training?
10) Do you train outside of the prescribed methods?
11) Do you train outside of the prescribed procedures?

12) Do you have the authority to train an employee in your own methods if you
feel they are better than UPS'?
Changing and adherence to goals set by UPS
13) Do you have the authority to unilaterally change the goals set by UPS?
14) Do you have the authority to unilaterally change the goals given to you by
Industrial Engineering (IE)?
15) As a full-time supervisor, do you have the authority to disregard "Packages
Per Hour" (PPH) goals?
16) As a full-time supervisor, do you have the authority to disregard "Stops-peron-
mad-hour" (SPORR) goals?
Assigning staff/vacation/salary decisions
17) If staffing is low going into the following week, do you have the authority to
unilaterally cancel the planned vacations of your employees for the following
week?
18) If one ofyour drivers has an accident, do you have the authority to decide that
the driver does not need a ride along the next day?
19) If a driver has a minor accident, do you have the authority to instruct the
driver to ignore it and not report it?
20) Do you determine the hourly wages for the hourly employees assigned to you?
21) Do you have the authority to supervise those employees who do not work
directly under you?
22) Does the Collective Bargaining Agreement dictate how many hourly
employees can be off on vacation at any given time?
23) Does the Collective Bargaining Agreement dictate which hourly employees
get to pick vacation first?
24) Are the decisions which you make as a UPS full-time supervisor limited in
any way by the Collective Bargaining Agreement for hourly employees?
25) Do you have the authority to ignore the Collective Bargaining Agreement?
26) As a full-time hub, preload or on-road supervisor, do you have the authority to
hire more employees to your rosters without Industrial Engineering (IE) or
Human Resource (RR) approval? '.
27) As a full-time hub, preload or on-road supervisor, do you have the authority to
hire a new employee on behalf ofUPS?
Disciplining staff
28) If you see an employee violating a method, such as walking on a moving belt,
do you have the authority to iguore the behavior and allow it to continue?
29) Do other supervisors have the authority to discipline your hourly employees?
30) Do you have the authority, as a full time supervisor, to discipline the hourly
employees of another supervisor?
Working as directed
31) Are you directed by your manager or division manager to do traininglon-jobsupervision?
32) Are you required to follow UPS' methods?
33) Are you required to make sure that UPS' hourly employees are following
UPS' methods?
34) Are you required to follow UPS' methods and procedures in achieving the
goals dictated by corporate?
35) Are you required to work as directed by your manager or division manager?
36) Do you have the authority to disregard any safety method prescribed by UPS?
37) Are you required to do daily audits?
38) Do you use a checklist to perform these daily audits?
39) When you are doing a checklist audit, do you have the authority to disregard
any methods or procedures?
40) Are you required to document audits on UPS checklist or audit forms?
41) Does your manager have the final say for operational issues?
42) Does your division manager have the ultimate decision-making authority for
the facility?

Is the bar too high for survey evidence in wage and hour cases?

In 2004 California Federal Court case, Marlo v. UPS, the court excluded the plaintiff's survey evidence in a misclassification case. The plaintiff's hired a survey firm to ask UPS employees about the duties that they performed. Based on the survey, the plaintiffs expert opined that the UPS workers were misclassified as exempt from overtime payments.

The defendant's motion questioned the reliability of the survey and the qualifications of the plaintiff's expert.

Over the next few post, we will be discussing the ins and outs of this case.

The economic value of a law degree

(From September 26, 2008, What is the NPV of a JD? , Posted by Karl Okamoto )

Is law school a good value? That’s the question I ask my students to figure out, hoping to teach them a bit about finance. Using crude numbers, the answer looks like a resounding “yes.” As they say in the investment business, it looks like a “three bagger.” Even if you have to put $230,000 in, you get over $700,00 back!

What crude numbers, you may ask? Well the Wall Street Journal reported recently the median salary for persons holding just a BA has slipped to $47,240, ... Labor Department numbers show the median salary for lawyers at $106,120.

... So, as I say to my students, think of your law degree as an annuity. It represents a payment stream that lasts for a career (say 40 years) that equals the spread between what you would have earned without your law degree versus what you can with it.

Using the median salary numbers, that spread is almost $60,000. Discounted at 8%, the annuity has a present value of over $700,000. The present value of three years of tuition (at $40,000 a year), books and foregone salary (at the median) is about $230,000. So, as your stockbroker used to say about Lehman bonds, a “no brainer!”

(Accounting for taxes:

The salary differential will face a high marginal tax rate. Let's say 50% (future federal upper income marginal tax rates - including social security payments, future state tax rates).

Present after-tax value of annuity: by your base numbers, over $350,000.
The median salary over the three years that is foregone to get a J.D. faces lower current average tax rates; let's say 25%.

This gives an after-tax NPV at 8% of about 98,000.
I believe that the $120,000 in tuition comes out of after tax dollars (I don't think folks get to carry-forward a tuition tax deduction until they're earning again). After-tax NPV at 8% of about $111,000.

Net after-tax NPV of decision to get JD then $140,000. (That's noticably less than the naive method of taking your $700,000, subtracting $230,000 to get $470,000 and then applying a 50% marginal tax rate to get $235,000.))

So what’s all the brouhaha about misleading students about the value of a law school education?
Well, here is where class gets fun.

According to the Department of Labor, the distribution of annual lawyer compensation in 2001 was:
first 10%, less than $45,000;
next 15%, $45-60,000;
next 50%, $61-137,000;
next 15%, 137-145,000;
and top 10%, over $145,000.

Now if you are standing in the ex ante position, i.e., where law school applicants stand, how do you decide what salary statistic to use in your present value model? Might it not be rational to use the “expected value” that comes from this distribution? You might immediately object that we need more data. True, while we can ballpark the first four quintiles, how do we come up with a value for the top 10% contingency? And if we already know (which I do not tell my students) that the “mean” salary was $92,000, isn’t that our answer? Mathematically, yes, but the exercise is revealing.

So much of one’s answer to the question of law school value depends on how you envision the top quintile. So the bi-modal distribution in starting salaries that Bill Henderson has identified has serious implications. The more skewed the distribution, the less helpful means and medians become.

None of my students assumed they would climb atop the Olympus of the AmLaw 100 (funny, I assume a few will). But they revealed a commonly-held notion of “average” incomes that far exceed what the numbers show us is realistic. It appears that my students, as a group, have a very similar notion of what lawyers make on average. Unfortunately, it happens to be more than what at least 90 percent of lawyer actually do earn.

Undocument worker' lost wages in NY

From Bender's Immigration blog:

"[U]ndocumented workers who violate IRCA may not recover lost wages in a personal injury action based on a violation of New York Labor Law." Ambrosi v. 1085 Park Ave. LLC, S.D.N.Y., Sept. 25, 2008

See decision...