Home Ice Disadvantage in the NHL Playoffs (Updated April 27)

The first round of the NHL playoffs has ended and the lower seeded team won half of the eight series.  The higher seeded team won only 11 out of 27 games on their home ice compared to 14 of 21 games as the visiting team in this year’s NHL playoffs.  The higher seeded team has been 26% less likely to win a game on their home ice compared to an away game.  It appears, throughout the first round of the playoffs, that there is a home ice disadvantage in professional hockey.

In the previous six seasons there has been a smaller home ice advantage in first round playoff series compared to the regular season.  Between 2006 and 2011 the higher seeded team:

• Won 57.5% of first round playoff games on their home ice
• Won 54.6% of first-round playoff games on the road

If one examines the regular season games between teams that will eventually meet in the first round of the playoffs, between the 2005-2006 and 2010-2011 seasons, the higher seeded team:

• Won 64.1% of regular season games on their home ice
• Won 43.2% of regular season games on the road

In other words a home ice advantage of 17.9% in the regular season is reduced to 2.9% once the playoffs begin.

Why did favored home teams lose so many of their first round games in the 2012 NHL playoffs?  The higher seeded teams actually had a home ice disadvantage against their lower seeded opponents during the 2011-2012 regular season.  The higher seeded team won 53% of away games and only 44% of home games against their first-round playoff opponents during the regular season.  This 9% disadvantage to playing on a team’s home ice was even larger in the playoffs.

This year’s NHL playoffs have shown that a home ice advantage either doesn’t exist or is much less important than the advantage that home teams have in the playoffs in other professional team sports.

More Quits means the Job Market is Looking Up

This week’s Job Openings and Labor Turnovers Survey (JOLTS) had some good news about the labor market.  The JOLTS survey, which began in 2001, gets much less attention than other BLS reports.  The results released on Tuesday indicate that more private sector workers quit their jobs in the first two months of 2012 than at any point since 2008.  Quits are strongly pro-cyclical.  Workers are much less likely to quit their job if they don’t already have a job offer or they are pessimistic about their prospects for finding a new job.

The JOLTS survey indicates that 3.4 million workers quit their jobs in January and February, up almost 18% from early 2010, when only 2.9 million quits occurred.  The job market still has a long way to go; between 2002 and 2008 an average of 4.8 million quits occurred in the first two months of each year.  In other words, quits are about 29% below their pre-recession average.

Women’s Declining Labor Force Participation

The Hilary Rosen – Ann Romney controversy about women’s choices between market work and home production is a reason to take a closer look at the trend in women’s participation in the labor force.  The labor force participation of adult women (age 25 and above) increased steadily from 1948, when the Department of Labor began measuring monthly participation rates, until the fourth quarter of 2008.  Since then the participation rate of adult women has declined by about 1.4%.  In the first quarter of 2012 the participation rate of adult women fell below 59% for the first time since 1996.  The participation rate for women in their forties has dropped by 2% in just three years.  In the first quarter of 2012, 75.6% of women in their forties participated in the labor market compared to 77.6% in the first quarter of 2009.  The percentage of women age 40 to 49 who participate in the labor market is at its lowest point since 1988.

In Majors Tiger Doesn’t Compare to Jack

Comparing great athletes across generations is often an entertaining conversation.  No such discussion has garnered more attention than comparisons of Tiger Woods and Jack Nicklaus.  Comparing the two greatest golfers in the past 50 years is like asking a Chicago Bears fan whether Walter Payton or Gale Sayers was the better running back.  Comparisons are complicated by improvements in equipment, changes in training techniques, and differences in the strength of each golfer’s competition.  My comparison uses the World Golf Rankings methodology and leaves no doubt that Jack Nicklaus’ record in major championships is superior to Tiger’s, at the same point in their careers.

The World Golf Rankings award 100 points to a golfer who wins a major tournament, 60 points for second place, 40 for third, 30 for fourth and 24 and 20 points for fifth and sixth place finishes.  The points drop steeply with rank order finish with 1.5 points awarded to any golfer who made the cut and finished 60^th or lower in the tournament.  This system rewards winning and competing for a championship more than consistent top ten finishes.  For example a golfer who wins one of the major championships but misses the cut at the other three earns more points for the year than a golfer who finished fifth in all four majors.

Jack Nicklaus won his first major at the 1962 U.S. Open and Tiger Woods won his first at the 1997 Masters, 35 years later.  Since then Tiger has played in 57 major championships (and missed four due to injuries).  Over that span Woods earned 33.8 points per major played, a remarkable record but far less than Nicklaus’ 45.3 points per major over a comparable span of 57 tournaments.  In other words Nicklaus averaged better than a third place finish in majors over nearly 15 years, using a scoring system that penalizes performances that are less than spectacular.

The World Golf Rankings takes a weighted average of the past eight major championships (over two years).  The following chart illustrates the difference in the rankings of Nicklaus and Woods in major championships over the fifteen years after they each won their first major.  The difference in rankings is presented as the percentage of the highest possible ranking (eight straight major championships).  Nicklaus had a higher ranking in majors over 82% of their overlapping careers.  The exceptions are that Woods’ performance in 2000-2003 was better than Nicklaus’ record in 1965-1968, and again in 2008-2009 compared to Nicklaus in 1973-1974.

In the years following this chart, Nicklaus would go on win four of the next 40 majors he played culminating in the 1986 Masters.  Even in this second half of his career Nicklaus averaged 27.6 points per major championship played.   Tiger’s disappointing performance at the Masters this weekend makes it seem doubtful that he will tie or break Nicklaus’ record of 18 Major championships (Tiger has 14).  Woods has earned 18.6 points, on average, in the eleven major tournaments he has played since 2009.

Woods is one of the greatest golfers of all time and may again become the best player in the world.  When evaluating performances on the biggest stages against the best competition, Jack Nicklaus from 1962 to 1977 was better than Tiger Woods from 1997 to 2012, with few exceptions.

 

 

A Tale of Two (Types of) Cities

The key to high wages, rapid economic growth rates, and low unemployment is human capital investment.  Economic growth fueled by human capital investment is more durable and stable than growth fueled by real estate speculation.  We need only look across cities, not countries, to understand this fact.

The ten fastest growing metropolitan areas in the U.S experienced population growth of about 40%, on average, between 2000 and 2010.  One typically expects strong economic conditions in cities with large inflows of population.  The promise of better pay and employment prospects is often what causes internal migration.  Today, however, some of our fastest growing cities have the weakest local economies because of the collapse of local real estate markets over the past four years.

The ten fastest growing metropolitan areas between 2000 and 2010 include: Austin TX, Bend OR, Cape Coral-Fort Myers FL, Greeley CO, Las Vegas NV, Myrtle Beach SC, Palm Coast FL, Provo-Orem UT, Raleigh NC, and St. George UT.  Three of these cities: Austin, Provo and Raleigh have a much more educated workforce than the cities whose growth was largely fueled by a real estate boom.  The “human capital” cities have 50% more adults with a graduate degree and 58% more adults with a college degree, per capita, than the “real estate” cities.

The following chart shows the composite unemployment rate between 2000 and 2011 for the three “human capital” cities, the seven “real estate” cities, and the U.S. unemployment rate overall.  The unemployment rate increased sharply in the recession, but less so for cities with a highly educated workforce.

An educated workforce is the key to high wages and rapid economic growth.  The recession took a much greater toll on the economic prospects of less educated workers.  More educated workers are better able to adapt and learn when market conditions change.  Cities that benefited from a real estate and construction boom just five years ago have been unable to generate jobs for all their new residents and now have some of the weakest local economies in the U.S.

Senior Recovery or Delayed Retirement?

A closer look at today’s BLS jobs report reveals that 30% of the job gains in the past two years (and 27% in the past year) have been due to increases in the employment of adults age 65, despite the fact that senior citizens represent less than 5% of the labor force.  In March 2012 there were one million more employed adults age 65 and above compared to March 2010.  Employment growth among seniors has been about nine times higher than for the rest of the adult population.  The rapid job growth for seniors is because: (i) we added 3 million seniors in the past two years, and (ii) older workers are delaying retirement.  The 2008 recession and sharp drop in home values reduced the wealth of many households.  It is likely that many workers who reached age 65 in the past two years have delayed their retirement in response to the decline in their net worth.

If Presidents Can’t Lower Gasoline Prices, Can They Be Blamed For Stagnant Wages?

Many pundits have opined that there is little President Obama can do to lower gasoline prices.  Richard Thaler, of the University of Chicago’s Booth School of Business, explained in the Sunday New York Times that this is because the U.S. is a “price-taker” in the world market for petroleum products.  The U.S. has a limited influence on world prices because we control only about 2% of the world’s oil reserves and consume about 20% of the world’s oil, according to Thaler.  He also cited a University of Chicago panel of leading economists who unanimously agreed that changes in U.S. gasoline prices are “predominantly due to market factors rather than U.S. federal economic or energy policies.”

The U.S. is also a “price-taker” in the market for unskilled labor.  There are about 50 million Americans with a high school diploma or less in our labor force.  The world’s adult population exceeds four billion and most are relatively unskilled workers.  U.S. demand for and supply of unskilled labor is small relative to the rest of the world.  Thus changes in the wages of less educated and less skilled workers are also “predominantly due to market factors” rather than U.S. federal economic or labor policies.  Working class wages have stagnated relative to the salaries of college educated employees over the past few decades primarily because of shifts in labor supply and demand and not the policies of Presidents and Congresses, whether Democratic or Republican.

Does this mean that federal policy has no impact on gasoline prices or the wages of working class Americans?  Obviously not, but as Professor Thaler noted some policies are more efficient than others in achieving “societal goals.”  For example Thaler, an informal advisor to President Obama, described the Obama administration’s decision to increase the corporate average fuel economy standards for automakers to 54.5 miles per gallon by 2025 as “not the best way” of reducing oil consumption.  Similarly, minimum wage laws are “not the best way” of raising the standard of living of young, inexperienced and relatively unskilled workers.

Thaler’s discussion of oil prices illustrated why one can’t evaluate policies or assess the welfare of consumers or producers by merely observing price fluctuations.  In one section of the op-ed he wrote:

Presumably, no one would call President George W. Bush unfriendly to the oil industry.  Yet the price of gasoline rose steadily during most of his administration. In February 2001, just after Mr. Bush took office, the average price of regular gasoline was $1.45 a gallon. By June 2008, that price had risen to $4.05. Still think presidents and oil-friendly policies can determine oil prices?

Many readers are probably confused by this passage.  Doesn’t the oil industry want higher gasoline prices?  Wouldn’t a President friendly to the oil industry be pleased that gasoline was $4.05 per gallon?

The price of any good or service, including wages and interest rates, can rise or fall for many different reasons.  Corn producers prefer higher corn prices if they result from demand increases but not if they are caused by a drought.  Energy policy should distinguish between high oil prices caused by high GDP growth in the U.S., Europe and Asia, a moratorium on oil exploration, uncertainty in the Middle East or the declining value of the U.S. dollar.  A price change alone tells us little about what caused the change and which policies might be effective at mitigating the impact of the change.

Increasing gasoline prices and a widening wage differential between more educated and less educated workers are determined largely by shifts in supply and demand.  Without understanding the market forces that caused these changes one can’t be sure whether they are a cause for concern.  If the policy goals are to mitigate the impact of these price changes the least effective and efficient government policies are direct price controls, such as the minimum wage.  Price controls treat a symptom of a problem but do not address the underlying forces of supply and demand that caused the problem.

Commentators and pundits who are quick to note that presidents  have little control over gasoline prices, should also make it clear that the decline in the pay of less educated workers relative to college graduates has much more to do with world supply and demand for unskilled labor and much less to do with presidential politics.

A Penny Earned – Every Two Seconds

Canada recently announced that they are ceasing production of the penny.  The U.S. should follow Canada, Australia, New Zealand and other trading partners and stop production of the penny.  There are many arguments in favor of eliminating the penny.  First, it costs more than a penny to mint a penny.  Moreover, a one cent difference in prices and wages is so negligible that calculating values to the nearest penny is not worth the cost (of handling and producing pennies) for almost any conceivable transaction.

In 1955 the median full-time employee worked about 20 seconds to earn a penny but today earns a penny every 1.9 seconds.  In 1955 a penny was about one half of one percent of a typical worker’s hourly wage but today is only about one twentieth of one percent of the median wage.

Workers and consumers, regardless of their income, should support legislation to eliminate the penny despite what some have written.  It is counterproductive to produce coins that cost more than they are worth.  Consumers should not be concerned that rounding prices to the nearest nickel will result in higher prices, on average.  Prices are set by competitive forces.  Moreover, retailers effectively round prices by not continuously adjusting prices as cost and demand conditions change from one day to the next.  A recent paper by Martin Eichenbaum and co-authors analyzes over twenty years of price changes of individual items and finds that small price changes are relatively rare; the vast majority of price changes are at least 1% in absolute value.  Requiring companies to round prices to the nearest nickel is sensible because the penny’s purchasing power has been devalued so much by inflation.

Kentucky by the Numbers

This is the seventh time in the past 28 years that the NCAA Men’s Basketball championship game has matched a number one and a number two seed.  In fact, the one-two matchup is the most common championship game since the 64 team format began in 1985.  The first time a number one seed faced a number two seed in the final game second seeded Louisville defeated Duke in 1986.  (Louisville had a higher Ratings Percentage Index).  Since then the number one seed has won five straight championship games against number two seeds and six of eight games against teams seeded third or lower.

Number one and number two seeds have met 54 times in the past 28 years of March Madness.  48 of these match-ups were in the regional finals and the national semi-final games.   In these 48 games number one seeds won exactly half of the games.  So far this year, a number one seed has not defeated a number two seed, but second seeded Ohio State and Kansas defeated top seeded Syracuse and North Carolina in the regional finals.    

The number one seeds that advance to the championship game, however, appear to be the strongest teams playing the best basketball in March.  Since Georgetown’s loss to Villanova and Duke’s loss to Louisville, a number one seed has won 85% of championship games against lower seeded opponents.  Look for Kentucky to continue this trend and defeat Kansas by 6 to 7 points, the average margin of victory in championship games between one and two seeds.