TIME Business

Labor Day: Raising the Minimum Wage Stiffs the Poor

Demonstrators take part in a protest to demand higher wages for fast-food workers outside McDonald's in Los Angeles on May 15, 2014.
Demonstrators take part in a protest to demand higher wages for fast-food workers outside McDonald's in Los Angeles on May 15, 2014. Lucy Nicholson—Reuters

There are at least three better ways to help low-income workers — and few ways that are worse

Another Labor Day, another bold plan to increase the minimum to help the working men and women of America!

On Monday, Los Angeles Mayor Eric Garcetti will announce a proposal to jack his city’s minimum wage from $9.00 all the way up to $13.25 over three years. That puts him ahead of President Obama, who has called for goosing the federal minimum wage from $7.25 to $10.10.

Increasing the minimum wage is typically sold as a way of aiding poor people — LA business magnate and philanthropist Eli Broad says Garcetti’s plan “would help lift people out of poverty.” But it’s actually a pretty rotten way to achieve that for a number of reasons.

For starters, minimum-wage workers represent a shrinking share of the U.S. workforce. According to the Bureau of Labor Statistics (BLS), the percentage of folks who earn the federal minimum wage or less (which is legal under certain circumstances) comes to just 4.3 percent of hourly employees and just 3 percent of all workers. That’s down from an early 1980s high of 15 percent of hourly workers, which is good news — even as it means minimum wage increases will reach fewer people.

What’s more, contrary to popular belief, minimum-wage workers are not clustered at the low end of the income spectrum. About 50 percent of all people earning the federal minimum wage live in households where total income is $40,000 or more. In fact, about 14 percent of minimum wage earners live in households that bring in six figures or more a year. When you raise the minimum wage, it goes to those folks too.

Also, most minimum-wage earners tend to be younger and are not the primary breadwinner in their households. So it’s not clear they’re the ones needing help. “Although workers under age 25 represented only about one-fifth of hourly paid workers,” says BLS, “they made up about half of those paid the federal minimum wage or less.” Unemployment rates are already substantially higher for younger workers — 20 percent for 16 to 19 year olds and 11.3 percent for 20 to 24 year olds, compared to just 5 percent for workers 25 years and older — and would almost certainly be made worse by raising the cost of their labor by government diktat. While a number of high-profile economists such as Paul Krugman have lately taken to arguing that minimum wage increases have no effect on employment, the matter is far from settled and basic economic logic suggests that increases in prices reduce demand, whether you’re talking about widgets or labor.

Finally, there’s no reason to believe that people making the minimum wage are stuck at the bottom end of the pay scale for very long. According to one study that looked at earning patterns between 1977 and 1997, about two-thirds of workers moved above the minimum wage within their first year on the job. Having a job, even one that pays poorly, starts workers on the road to increased earnings.

If we want to actually raise the standard of living for the working poor via government intervention, the best way to do it is via transfer payments — food stamps, housing subsidies, or even plain cash — that directly target individuals and families at or below the poverty line.

University of California sociologist Lane Kenworthy, a progressive who has called for a more generous social safety net, argues that virtually all increases in income for poor families in the U.S. and other wealthy countries since the late 1970s have been a function of “increases in net government transfers — transfers received minus taxes paid.” That’s partly because workers in poor households often have “psychological, cognitive, or physical conditions that limit their earnings capability” and partly because today’s “companies have more options for replacing workers, whether with machines or with low-cost laborers abroad.”

To be sure, arguing that you want to increase direct aid to poor families doesn’t give a politician the same sort of photo-op as standing with a bunch of union leaders on Labor Day and speechifying about the urgent need to make sure an honest day’s work is rewarded with a living wage.

But making just such a case could have the benefit of actually helping poor people in the here and now. Certainly a savvy politician could sell that to voters who know the value of hard work — and the limits of economic intervention.

TIME Companies

Here’s Why Abercrombie & Fitch Is Ditching Its Logos

The retailer's earnings are falling as logos become less fashionable in North America

Abercrombie & Fitch was “the brand of the moment” a decade and a half ago. Sales of its preppy clothes had jumped into the billions, teens had ranked it as the sixth coolest brand, and its newly launched surfer-lifestyle line, Hollister Co., was an instant sensation. But now, with stores like H&M and Zara turning white tees into fashionable pieces, Abercrombie wants to win back its base.

The retailer reported its 10th straight decline in quarterly sales on Thursday, with net sales decreasing by 6% to $891 million, according to an earnings conference call. Shares dropped as much as 8.5% after the announcement.

CEO Mike Jeffries said in the announcement that while Abercrombie’s clothes have made “great progress” in evolving their fashion component, the company is now rolling up its sleeves to reduce its use of logos.

“In the spring season we are looking to take the North American logo business to practically nothing,” Jeffries said on the call.

Higher pricing at Abercrombie stores have kept customers back, according to the Chicago Tribune, as stores like Forever 21 are selling jeans for less than $10 while similar items at Abercrombie can go for $75. Jeffries said that Abercrombie has been cutting costs, which is allowing it to achieve lower prices, the Wall Street Journal reports.

The shedding of logos on most Abercrombie clothing is the company’s latest rebranding effort as it regains its footing from a over decade of bad publicity. Abercrombie settled for $50 million in 2004 after being sued for discrimination against racial minorities. Last year, quotes made by Jeffries during a 2006 interview resurfaced; he had said the brand targeted “cool, good-looking people,” a statement that generated heavy, even viral backlash. (And earlier this year, researchers suggested that its crowded, cologne-filled stores may actually cause anxiety.)

What’s next for Abercrombie? While the company has said it plans to close 60 stores this year after leases expire, Jeffries is hoping that Abercrombie’s back-to-school clothing line and logo-free options will allow it to escape the climate of declining popularity and earnings that is also being faced by rivals like American Eagle and Aéropostale.

“We are confident that the evolution of our assortment will drive further improvements going forward,” Jeffries said in the announcement. “We remain highly focused on returning to top-line growth and driving long-term value for our shareholders.”

TIME Companies

Apple Wins Patent for Its Glass Cube Store Design

Apple Wins Patent on Glass Cube Store Design
A general view of the glass cube facade of the Fifth Avenue Apple store in front of the Plaza Hotel on February 9, 2012 in New York City. Ben Hider—Getty Images

The 14-year patent will protect the building's "ornamental design"

The U.S. Patent and Trademark Office approved Apple’s application this week to patent its iconic glass cube design at its flagship Fifth Avenue store in Manhattan.

Filed in 2012, the 14-year patent sanctions the “ornamental design” of the 32-foot cube, which underwent a $6.7 million remodeling in 2011 to achieve a cleaner look with 15 glass panels instead of 90, according to Apple Insider. Apple had applied in 2010 to trademark the “distinctive design of the building” but that has not yet been approved.

The glass staircases inside Apple Stores were also patented last year, according to documents published by the USPTO. Apple previously won a patent in 2012 for the glass cylinder design of its flagship store in Shanghai.

The cube was designed by several people including former Apple CEO Steve Jobs, who died in 2011, according to the patent application. Jobs had reportedly paid for the construction of the glass cube himself and owned the structure.

TIME Companies

Apple Confirms Sept. 9 Event, Likely to Debut iPhone 6

"We wish we could say more"

+ READ ARTICLE

Apple has confirmed that it is holding a press event on Sept. 9, most likely to unveil new products. The company is widely expected to debut a new version of the iPhone, and the company will reportedly offer at least one model with a larger 5.5-inch screen.

Reports also indicate that Apple may show off the long-awaited iWatch, a wearable device that would likely run on iOS.

The event will take place in the company’s hometown of Cupertino, California at 10 a.m. Pacific time.

Here’s a look at the invite:


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TIME Companies

IFTTT Has Big Plans For the Internet of Things

It just pulled in $30 million in venture funding

A tech startup focused on helping users make sense of all their separate online accounts has just pulled in $30 million in venture funding, the New York Times reports.

IFTTT (an acronym for “If This, Then That”) allows people to automatically link the actions of different types of online services. Users can be alerted via text when they are tagged in a photo on Facebook, for instance, or have each photo they add to Instagram automatically be uploaded to their Dropbox account. IFTTT connects all of those services, as well as Twitter, Gmail and more than 100 others.

The simple-but-useful concept has gained the company its largest-ever funding from Andreessen Horowitz and Norwest Venture Partners. With the additional cash, the company is looking to expand its service to the physical world by tapping into Internet-connected devices and the so-called Internet of Things. Future IFTTT software could be used to program lights or air conditioners to turn off in a home at a certain time of day, for example — indeed, some IFTTT users are already using Yo-based recipes to do just that.

The company is likely to face competition from giants like Google, which is expanding into the connected home through acquisitions like smoke alarm manufacturer Nest, and Apple, which is bringing its iOS platform to automobiles and is rumored to be working on “Smart Home” products as well.

[NYT]

TIME Business

Watch Johnny Manziel Dancercize in New Snickers Ad

Meet Johnny JamBoogie

+ READ ARTICLE

As the Snickers tagline goes, “You aren’t you when you’re hungry.” So what does Cleveland Browns backup quarterback Johnny Manziel turn in to when his tummy is growling? According to a new commercial, Johnny Football transforms into Johnny JamBoogie, an aerobics instructor jazzercising his way into our hearts.

While the entire point of the commercial is that a bite of a candy bar has the power to get his football helmet-wearing head straight and turn his back on florescent leotard-wearing older women, we must ask — does Manziel have to choose? Dance can be an important part of any pre-game or post-touchdown routine.

Signature steps can get you new endorsement deals, Manziel. Embrace the JamBoogie.

MONEY retirement planning

Why Gen X Feels Lousiest About the Recession and Retirement

THE BREAKFAST CLUB, from left: Molly Ringwald, Anthony Michael Hall, Emilio Estevez, Ally Sheedy, Judd Nelson, 1985.
Three decades after "The Breakfast Club" hit theaters, Gen X is still struggling. Universal—Courtesy Everett Collection

Sandwiched between much larger generations and stuck with modest 401(k)s, Gen Xers get no love from financial planners, marketers or media. No wonder they're feeling low.

The Great Recession took a heavy toll on all generations. Yet the downturn and slow recovery seem to have left Generation X feeling most glum.

Defined as those aged 36 to 49, Gen X members are least likely to say they have recovered from the crisis, according to the latest Transamerica Retirement Survey. They are most likely to say they will have a harder time reaching financial security than their parents. Gen X also is far more likely to strongly believe that Social Security will not be there for them and that personal savings will be their primary source of income in retirement.

“Generation X is clearly behind the eight ball,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. “They need a vote of confidence. But they still have time to fix their problems.”

Arguably, Gen X was feeling most beat up even before the recession. This group is in the toughest phase of life: kids at home, a mortgage, not yet in peak earning years. Mid-life crises typically hit at this age. Studies show that the busy child-rearing years tend to be the unhappiest of our life. The happiest years are 23 and 69 with a big dip in between.

And let’s not forget that Gen X is only two-thirds the size of Millennial (ages 18 to 35) and Baby Boomer (ages 50 to 68) populations. Marketing companies and the media have largely ignored this generation, which early on acquired the downbeat label: slackers. Collinson believes the financial industry is equally focused on older and younger generations, leaving Gen X all alone.

“They have to stake out a plan and pursue it on their own,” she says. “The harsh reality is people have to take on increasing responsibility for their own financial security.”

Maybe that’s why Gen X believes it must build a bigger nest egg. Asked for their retirement number, the median Gen X respondent said they need $1 million. Nearly a third said $2 million or more. The median figure for both Millennials and boomers was $800,000 with only 29% and 23%, respectively, saying they would need $2 million or more.

Perhaps Gen X is being realistic. Even $1 million won’t provide a cushy lifestyle. A 64-year-old retiring next year with that amount would receive an annual payout of only $49,000 a year, according to Blackrock’s CoRI index, which tracks the income your savings will provide in retirement. Looked at another way: purchasing an immediate annuity for $1 million today would buy $5,000 of monthly income, according to ImmediateAnnuities.com. Not bad. But less than most might expect.

Gen X has boosted savings since the recession, the survey found. The typical Gen X nest egg is now $70,000, more than double savings of just $32,000 in 2007. This suggests that Gen X did a good job of sticking to their 401(k) contribution rate during the downturn, buying stocks while they were low and enjoying the rebound. Millennials did a little better, going from $9,000 to $32,000. Baby Boomers were less likely to hang in through the tough times, partly because older boomers were already retired and taking distributions. The median boomer next egg has risen to $127,000 from $75,000 in 2007.

Overall, Baby Boomers felt the brunt of the downturn. They suffered more layoffs and wage cuts, took a bigger hit to their assets, and by a wide margin more Boomers believe their standard of living will fall in retirement. But at least many Boomers are still blessed with traditional pensions and have a better shot at collecting full Social Security benefits.

Millennials are old enough to have learned from the downturn but not so old that they had many assets at risk. This generation began saving at age 22, vs. age 27 for Gen X and age 35 for boomers. Millennials also benefit from modern 401(k) plan structures with easy and smart investment options like target-date funds and managed accounts.

Meanwhile, Gen X is largely pensionless and was something of a 401(k) guinea pig when members entered the labor force. Plans then were untested and lacked many of today’s investment options or any educational material. The plans may have been mismanaged, subject to higher fees or even ignored. Even today, the Gen X contribution rate of 7% lags that of Millennials (8%) and Boomers (10%). Gen X is also most likely to borrow or take an early withdrawal from their plan (27%, vs. 20% for Millennials and 23% for boomers). Some of this relates to their period in life. But they have other reasons to feel glum too.

Still, there is some hope for Gen X. Recent research by EBRI found that if this generation manages to keep investing in their 401(k)s, most could end up with a decent retirement—no worse than Baby Boomers. And they still have time. If Gen Xers raise their savings rate a bit more, they can retire even more comfortably.

TIME Crime

Feds Investigating Cyberattack on JPMorgan Chase and Other Banks

U.S. Banks Post Near-Record Profits In Second Quarter Of 2014
A man walks past JP Morgan Chase's corporate headquarters on August 12, 2014 in New York City. Andrew Burton—Getty Images

The motivation is still unclear

Federal authorities are helping to investigate reported cyberattacks against JPMorgan Chase and other banks, the Federal Bureau of Investigation said.

FBI Supervisory Special Agent Joshua Campbell told the Washington Post in a statement late Wednesday that the agency was working with the Secret Service “to determine the scope of recently reported cyber attacks against several American financial institutions.”

Multiple news outlets, including Bloomberg News and The New York Times, are reporting that the banks were infiltrated by hackers who stole gigabytes of data, including information that would enable them to siphon money from accounts. Both organizations cite unnamed sources.

The motivation behind the attacks and the identity of the attackers is still unclear, though Bloomberg, which first reported the intrusions, reports that at least one of the banks was linked to Russian hackers.

Earlier this month, a U.S. cybersecurity firm said that a Russian crime ring was suspected of obtaining access to a record 1.2 billion username and password combinations.

[Washington Post]

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