Here’s How You Help the Poor Without Soaking the Rich

AFGHANISTAN-SOCIETY-TULIPS
Afghan children Malik, 8, and Popal, 11, wait at a roadside with wild tulips for sale to potential customers driving through the Shamali plains, north of Kabul. SHAH MARAI—AFP/Getty Images

We have to clear our minds of a fallacy about poverty alleviation: Helping the poor does not mean welfare. This isn’t to say that we don’t need welfare. Ignoring the unfortunate who can’t put enough food on the table or afford proper education or healthcare is not just cruel, it’s bad economics. The impoverished make either good consumers or productive workers.

But government aid can only reduce the suffering of the poor; it usually can’t make them escape poverty permanently. We know that from watching what has happened in the developing world over the past half century. Those countries that have tried to use wide-scale state programs to alleviate poverty—such as India—have not achieved results as quickly as nations that did not, such as Singapore and South Korea. (See my recent piece on this subject.) Generally, the high-performance economies of East Asia didn’t fight poverty by playing Robin Hood—soaking the rich and handing out cash to the poor. There is no reason why we’d have to do that today.

Instead we have to give the downtrodden better jobs, more opportunities, more tools to improve their incomes and fairer treatment in economic policy.
That means we must improve the climate for investment. I’m pretty sure you didn’t expect me to write that when you started reading. There is a widespread assumption that what’s good for companies is bad for the little guy. But if Asia’s example teaches us anything, it’s that there are two ways to end poverty: (1) create jobs and (2) create more jobs. The only way to do that is to convince businessmen to invest more.

That’s why it is imperative to make investing easier. We should press ahead with free-trade agreements like the Trans-Pacific Partnership to bring down barriers between countries and encourage exports and cross-border investment. Though CEOs complain far too much about regulation—the sub-prime mortgage disaster, the recent General Motors recall, or Beijing’s putrid air all show that we need to keep a close eye on business—we should also streamline regulatory procedures, standardize it across countries and thus make it less onerous to follow.

We also need to improve infrastructure like transportation systems to bring down the costs of doing business. I think it is a national embarrassment for the U.S. to allow the Highway Trust Fund to run out of money at a time when the country needs both jobs and better roads. The environment for investment shouldn’t just improve for Walmart and Apple, but also entrepreneurs and small companies. In many parts of the world—in certain European countries, for example, and China—there’s too much red tape involved in starting a company, and not enough finance available.

We also need to invest in the workforce. U.S. Senator Marco Rubio, in an attack on a proposed minimum-wage hike, said that “I want people to make a lot more than $9—$9 is not enough.” He’s right, but that just won’t magically happen on its own. To get people’s paychecks up, workers have to possess better skills. We are simply not doing enough to improve schools, teachers and job training programs. We should also be doing more to make higher education more affordable.

While overall U.S. spending on education is among the highest in the world, it still lags in important ways. Take a look at this data comparing education spending across countries. U.S. public expenditure on education has remained more or less stable, at 5.1% of GDP in 2010, but that’s lower than a lot of other developed countries, from Sweden to New Zealand. What is also interesting is how the cost of education is pushed onto the private sector in the U.S. much more than in most other countries.

Spending is also heading in the wrong direction. The U.S. Census Bureau calculated that in fiscal 2011, expenditure per student dropped for the first time since statistics have been kept.

Clearly, the U.S. spends so much money on education already that we should be getting more bang for our buck. Reform is crucial to put all those billions to better use. But slicing spending isn’t the answer, either. The latest budget from U.S. Congressman Paul Ryan streamlines some U.S. education programs he considers wasteful and recommends measures that would add to the financial burden of going to college for some families. Meanwhile, he’s leaving the military budget generally unscathed. Do Ryan and his colleagues believe the Pentagon isn’t wasteful? Apparently not enough to put the military on a diet.

The fact is we have the money to do more for education. U.S. federal spending is about $3.5 trillion—roughly the size of the entire economy of Germany. The problem is how we choose to spend it.

We also must restore performance-based pay. The idea that people should benefit from their hard work is a cardinal belief of capitalism, but there is ample evidence that it hasn’t held true for quite a while. Productivity growth has far outpaced wage increases in the U.S. going back to the 1970s.

This appears to be a global phenomenon. The International Labor Organization (ILO) looked at 36 countries and figured that average labor productivity has increased more than twice as much as average wages since 1999. Some have disputed this argument, but we can’t deny that wages are going nowhere. According to the Bureau of Labor Statistics, real weekly earnings in the U.S. in March were a mere $1.82 higher than a year earlier. Generally, workers are losing ground to capital globally. The ILO has shown that wages’ share in GDP has decreased in recent decades, meaning that the regular worker isn’t benefiting as he should from economic growth.

There are many factors behind this trend, including the formation of an international labor market. But globalization itself isn’t the problem—it’s how the benefits are being allocated. Corporate management doesn’t seem to care so much about shareholder value when paying themselves. Professor Steven Kaplan noted that in 2010 the average CEO of a major U.S. company earned more than $10 million, or about 200 times more than the typical household.

Companies also have the money to raise wages: They just choose not to give it to their employees. Rating agency Moody’s recently reported that U.S. non-financial companies are sitting on $1.64 trillion in cash. Companies also spent $476 billion buying back their stock in 2013, 19% more than the year before.

The question is: How get management and shareholders to disgorge more corporate profits to their employees? There isn’t an easy answer. William Galston, former advisor to President Bill Clinton, once suggested tax rates should be linked to a company’s worker compensation strategy (though that strikes me as a bit too intrusive). The ILO recommends we support stronger collective bargaining to allow workers to fight for their fair share of corporate profits.

But the crux of the problem is the idea of shareholder value. How do we convince shareholders and management that higher wages are positive for the long-term prospects of their corporations? Maybe we should consider altering the way we tax capital gains. Rather than breaking them down into two main categories—short and long term—it might help to decrease the rate the longer the asset is held. That would encourage longer-term shareholding, and perhaps make owners more interested in the long-term outlook for the companies in which they hold shares. I also think we should rebalance tax rates between capital and labor. I understand the principle that low capital-gains taxes reward people for wise investments. But what about rewarding people who work hard at their jobs every day? The Organization for Economic Co-operation and Development noted in a report this month that the tax burden on wage earners has increased in most of its member states in recent years.

These are just suggestions, and I’m interested in hearing more of them. The basic point is that we have to take steps to improve both the outlook for corporations and the many ordinary employees who work for them. The game should be win-win, not zero-sum.

Technology & Media

Microsoft’s Brand New CEO Needs to Do Much More

Satya Nadella
Microsoft CEO Satya Nadella speaks at the Build conference on April 2, 2014 Harry McCracken / TIME

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published atFortune.com.

How does a CEO grab attention when he’s the follow-up act to a brash, voluble leader like Steve Ballmer? For Satya Nadella, who hardly seems prone to the same kind of sweat-soaked stage performance of his predecessor, the answer lay in a bold strategic gesture: Get Microsoft Office onto the iPad.

Office, of course, had long been Microsoft’s great cash cow fenced off from the green pastures of the tablet market. Some believed it was the reason Microsoft started making Surface tablets after decades of not manufacturing personal computing devices. That expensive experiment hasn’t exactly delivered a hit. Surface sales are growing, but its 2% market share lags those of Samsung, Amazon’s Kindle Fire, and of course the iPad.

With Nadella taking the reins from Ballmer, Microsoft has the chance to begin a new era — distinct from the Ballmer years that saw modest growth and a move into enterprise software, and even more remote from the Gates years when Microsoft ruled PC software with an iron fist. Nadella’s Microsoft appears to be a company that aims to compete in markets rather than control them.

MORE: Nadella: Microsoft needs a ‘data culture’

Nadella’s experience is aligned with the same technologies that promise future growth — cloud computing, multi-platforms, mobility, big data — the antithesis of the proprietary software that Microsoft built its historical success on. That’s why the Office 365 for iPad announcement was notable. It wasn’t so much two longtime enemies sharing revenue. It was Microsoft risking its own mobile platform by expanding to another, bigger platform. It was a Microsoft open like never before.

The announcement was also Nadella’s first big public appearance, a product launch cum CEO debut. The move was a risky one: It could telegraph that Microsoft was capitulating to Apple, running its prized wares on its old rival’s device while paying a 30% share of revenue for the privilege. Increasingly, Nadella is instead being seen as a leader who can finally usher the company out of the PC era and into the cloud economy.

Last month, when Microsoft announced that Office apps would be available for the iPad, the news stirred a ripple of notice. Analysis was mixed. The New York Times wondered if it wasn’t the right move too late. Techcrunch found it to be worth the wait. Someone at Forbesdismissed it as a non-game changer.

After a few weeks in the App Store, Office for iPad is proving the early skeptics wrong. More than 12 million people downloaded Office Apps in the first week. Today, Word, Excel, and Powerpoint are the three most popular free apps in the iPad App Store (excluding games, which shows that tablets may be better for idleness than productivity). The basic apps are free for bare-bones functionality, but a subscription to Office 365 opens up more features.

For investors, the arrival of Office for iPad is unlikely to translate into material earnings, at least any time soon. It may open Microsoft to businesses that prefer tablets over traditional PCs, but it could also cannibalize the company’s older, high-margin markets. Desktop and laptop sales have been declining since the iPad’s introduction, although recent months have shown signs those declines are stabilizing.

MORE: For Microsoft’s Nadella, signs of leadership potential

If the move has little short-term benefit for Microsoft, its symbolic value is higher. CEOs of prominent companies like Microsoft often set the tone of a company, and in some ways Microsoft now appears to have lost the cloud hanging over it when Ballmer was there. Ballmer, of course, also worked to push Microsoft into a more open direction, but somehow Nadella’s presence makes it seem like it may finally be happening.

Office, of course, is only one part of Microsoft’s business. It’s the prime contributor to the company’s business division, along with Sharepoint and Exchange. That division makes up a third of Microsoft’s revenue and three-fifths of its operating income. But growth in the division has been flat — revenue rose only 2.5% in Microsoft’s last fiscal year (ended June 2013) and declined 6% in the last six months of 2013.

Microsoft is seeing faster revenue growth in its server and online services divisions, although these segments have much lower margins. (The online division has been a perennial money loser.) So while the Office move is seen as a symbolic victory for Nadella’s Microsoft, the company is still weighed down by many of the same old issues: an enterprise software market and the aging business in PC operating software.

Office for iPad is a strong start to Nadella’s follow-up act to Ballmer. But it will need to be followed by a lot more creative, bold moves to change Microsoft into the dynamic, future-oriented company that investors are hoping it can become.

5 Fundamental Truths for Tech Companies

Google
Justin Lane—EPA

Maybe that correction in technology stocks wasn’t such a bad thing after all. As tech companies have started the quarterly ritual of reporting earnings, the early indications are that, while many are still growing, they aren’t growing enough to meet the outsize expectations the market had built up.

So far, the flagship tech companies that have posted earnings bore few big surprises or disappointments. While several companies posted solid results, it wasn’t enough for the more hyped, overvalued stocks like Google. Others, like Intel, that were left out of last year’s tech rally performed much better.

It’s almost enough to make a fundamental investor believe the market hasn’t quite lost its head. There are several more weeks to earnings season to come, but if this week is any indication of what’s ahead, there are several trends emerging.

Internet companies are growing fast, just not fast enough. At Google, revenue excluding traffic acquisitions costs rose 23%. That’s a far cry from Facebook’s recent 63% growth but it’s still pretty impressive. According to RBC Capital, only two other large companies have maintained growth above 20% for 16 straight quarters: Amazon and Priceline. Being as big as Google and growing that fast is a tough act to keep up.

But for investors who have strongly associated Internet giants with growth, Google’s feat doesn’t impress much. The stock slid 4% Thursday after Google fell short of revenue and profit expectations. The growth simply wasn’t good enough to justify the stock’s lofty price. Even after its recent slump, Google shares are up 36% in the past year, pricing it at 29 times revenue.

Mobile is driving down ad prices, and it’s starting to be a problem. If there was one worrisome part of Google’s report, it was the decline in cost per clicks, the price charged for ads. CPC’s fell 9% at Google, a decline that has been accelerating for the past few quarters. In fact, Google’s CPC’s have been negative for a couple of years, around the time mobile ads began supplanting ads on the desktop Web.

Mobile is an opportunity and a problem for Google. It’s where the users are going, but it’s also, according to Google, a key reason why CPCs are in decline. Google may also be seeing lower CPCs from emerging markets and ads outside its own sites. The company plans to offer more detailed data on CPCs in coming quarters. Facebook has had better rates with its targeted ads in mobile feeds, but most other companies are struggling to see mobile ads pay.

The market is getting competitive for IT services. IBM’s stock dropped 3% after it said revenue fell 4% last quarter to $22.5 billion. For years, IBM was a stalwart leader in the market for managing IT services for other companies. But rivals like HP and Dell are getting aggressive on costs, and cloud computing is cutting IT costs in general, and it’s all taking its toll on IBM.

Revenue at IBM’s IT and outsourcing business fell 3%, its consulting division was flat and its server and storage business declined 23%. Software was a bright spot, rising 2%. IBM is still vowing to reach $20 in earnings per share next year, although some analysts noted earnings growth is coming from a lower tax rate and an aggressive buyback program.

Old school tech still has the ability to impress. Intel shares reached their highest level Thursday in nearly two years as it delivered earnings slightly above Wall Street estimates, but showed the company is making a slow but sure move into chips powering tablets and mobile devices. That makes for a 23% rebound in Intel’s stock since last September.

Bulls and bears have been arguing over whether Intel can make the transition without eating into costs, which have been weighing on margins in recent quarters. Intel’s manufacturing prowess may be able to lower costs in the long run, while also pushing into new markets like sensor chips for the Internet of Things. So while Intel is still struggling in its legacy market for PC chips, it fighting for footing in growing markets.

Growth in Asian giants is outpacing US peers. For all of Marissa Mayer’s attempts to turn around Yahoo’s core business, investors still scour its earnings announcements for information on another company: Alibaba. Yahoo’s earnings from equity interests in Alibaba and Yahoo Japan rose to $301 million last quarter from $218 million a year ago.

China-based Alibaba was by far the big contributor to Yahoo’s equity earnings. Alibaba’s operating income rose 66% in its most recently reported quarter. Yahoo’s operating profit, by contrast fell 84%. And yet Yahoo’s stock has risen 6% since reporting earnings. Wags have joked that investors like Yahoo as a hedge fund better than an Internet company, and numbers like that show the truth behind the humor.

Video Games

5 Reasons the Latest PlayStation 4 and Xbox One Sales Figures Don’t Mean What You Think They Do

Sony's PlayStation 4 (upper-left) and Microsoft's Xbox One (lower-right). Sony, Microsoft

It's not as simple as 7 million PS4 units minus 5 million Xbox One units equals a 2-million sales shortfall.

Two million. That’s the global gully, valley or chasm — you pick — dividing Sony’s PlayStation 4 from Microsoft’s Xbox One in unit sales as we round the bend from March to April. That’s a lot of units in the short term, or it’s a drop in the bucket thinking longer-term, where bestselling platforms like Sony’s PlayStation 2 and Nintendo’s Wii went on to push more than 100 million and 155 million units, respectively.

It’s vogue to say console sales don’t matter, but those who do are just telegraphing fatigue with the irrational (and unintelligible, and often downright cruel) conversations that erupt on message boards like so much digital effluvium. (Fandom is as fandom does.) But there’s a very sound, perfectly rational reason to care who’s winning hearts and wallets in the monthly numbers, especially if it’s by wide margins. And it’s this: they determine where the games go.

Wii U owners are struggling with this unfortunate reality as we speak (and will increasingly as we roll forward), unable to play multi-platform games like Battlefield 4, Madden NFL 25, Tomb Raider, Metal Gear Solid V, Destiny, Batman: Arkham Knight, and Assassin’s Creed Unity. It’s not necessarily because the Wii U isn’t capable of running downscaled versions of some or all of those games, but because the sales base isn’t there (and doesn’t seem likely to get there soon) to justify spending time and money on ports.

But let’s focus on the PS4 and Xbox One, in view of the latest sales claims, and delve beneath the surface of reductive analyses like “7 million minus 5 million equals 2 million!” That’s an oversimplification, of course, for at least the following five reasons.

You can buy the PlayStation 4 in 72 “countries and regions.” You can buy the Xbox One in 13.

Everyone misses this, and it’s easy to see why, since you have to scour the fine print to find it. It’s not clear what the nature of Microsoft’s problem is, exactly — whether it’s manufacturing or regulatory or who knows — but the Xbox One was originally supposed to launch in Belgium, Denmark, Finland, the Netherlands, Norway, Russia, Sweden and Switzerland alongside the 13 countries in this list back in November. Microsoft scrapped those plans at the last minute, and so to date, the Xbox One exists in just 13.

Not all “countries and regions” are equal when you’re talking about potential audience size, of course, and Microsoft’s going to have its biggest bases covered by the time fall 2014 rolls around, raising its total markets figure to 39. In other words, the gulf between 72 and 13 is huge, but 72 and 39 — because we’re talking most of the key remaining ingredients added in that 39 — not so much.

Still, the clock’s ticking. If you’re a game developer, you want to be, as lyricist Howard Ashman put it, “where the people are.” Microsoft’s challenge at this point is as much (or more) about ramping up Xbox One availability as it is landing crucial third-party exclusives or thinking about price drops.

$100 is $100 (even when it’s not $100).

Show me a significantly more expensive game platform that trounced its competition in the long run. Don’t say Sony’s PlayStation 3, because a few million ahead at the end of the marathon’s hardly trouncing. Don’t say the PC because it’s a wildly different animal, and as gaming platforms go, it’s certainly seen better days. Of course, the PS3 had to drop in price dramatically to catch back up to the Xbox 360, and it did, managing to catch and just barely inch past Microsoft’s console in global sales toward the end.

Nintendo’s Wii left everything in the dust during its prime sales years, I’d argue as much, if not chiefly, because of its lower price tag. Microsoft’s Xbox One is $100 more expensive than Sony’s PlayStation 4, and all the shell-game price discounts and bundles and temporary retailer price overrides in the world won’t change the “much more expensive” public perception until Microsoft makes an Xbox One price drop official (perhaps by offering a version without Kinect). Forget all the blather about which platform’s more technically capable (answer: both!), if the Xbox One had launched at $400, we’d be having a very different sales conversation right now.

The point being this: Price is a big deal, and it’s almost surely hurting the Xbox One, as we knew it would. But you could also argue Microsoft selling 5 million Xbox One units at that higher price point is as much an achievement as Sony selling 7 million PS4 units at its lower one.

It’s impossible (for us) to know whether production constraints are impacting these numbers.

All we have are vague claims from Sony and Microsoft and anecdotal evidence provided by retailers, but production constraints could be masking demand (and almost certainly are if we factor regional availability, as noted above).

Sony knows precisely how impacted it is. So does Microsoft. But all they’re sharing are unverifiable vagaries about production issues. And so we’re left to speculate. Maybe Sony’s PlayStation 4 would’ve sold thousands or hundreds of thousands or millions more. Maybe that’s just marketing spin. But the possibility alone means we should be wary of reading these numbers as reflective of actual consumer demand.

Both the PS4 and Xbox One are performing sales feats of derring-do.

Both the PS4 and Xbox One are selling at unprecedented levels. As NPD noted in its March 2014 sales rundown last night, if you add both systems together through their preliminary five months of availability, you’re talking twice the sales of the PS3 and Xbox 360 for the same period. What’s more, if you run the same figure for retail software sales, combined PS4 and Xbox One software is up some 60 percent. You’d be mad to read those kinds of generation-on-generation numbers as bad in any way for either company.

Titanfall wasn’t supposed to change March 2014′s sales figures, but it did anyway.

Anyone paying attention to point number one (as well as Sony’s and Microsoft’s prior global sales figures) knew Titanfall wasn’t going to eliminate the Xbox One’s sales deficit. Imagine Microsoft selling 2 million consoles over the course of 30 days — that’s just wishful thinking unless you’re the Wii and it’s 2007 (or 2008) again. Titanfall‘s a core online-only game for a very specific sort of player. That it took the number one software sales spot for March 2014 despite the PS4′s unit sales lead speaks volumes in an industry where hardware paves the roads and sets up the shipping lines, but where it’s software that ultimately carries the lion’s share of your profits.

Autos

Mazda Recalls 109,000 Older Suvs for Rust Problem

(DETROIT) — Mazda is recalling 109,000 Tribute SUVs in cold-weather states to fix rusting frame parts.

The recall covers SUVs from the 2001 through 2004 model years. Mazda says in documents filed with U.S. safety regulators that the frame can rust and a wheel control arm can separate from it. That could result in a loss of steering control.

The SUVs were originally sold or registered in 20 states and Washington, D.C., where salt is used to clear snow and ice from roads.

Dealers will install a reinforcement brace to fix the problem. Mazda says it will notify owners by letter when parts are available.

The same problem caused a recall of nearly 386,000 older Ford Escapes earlier this month. The Escape and Tribute are nearly identical vehicles.

Autos

It’s Time to Ditch the Booth Babes

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STR—AFP/Getty Images

It’s the holiest time of the year. No, not Easter or Passover. It’s the New York International Auto Show, an occasion to worship true gods: horsepower, sheet metal, chrome. If you’re a business journalist working in New York, there’s nothing like attending the press days ahead of the auto show’s public opening. Walking into the cavernous exhibition hall is a lot like walking into Chartres with its spectral light and thick solemnity—except way better because you don’t have to feel guilty about all the terrible things you’ve done and, for the most part, there’s no organ music.

I make the arduous pilgrimage to the far west side of Manhattan every year for the show and always end up, a few hours later, stumbling out dilated and deliriously happy. You might call it auto-erotic-euphoria. But this year was different. As I strolled around the show floor, taking in the ludicrously cute new Jeep and admiring Mercedes’ heavy metal, I found myself feeling uneasy, rather than blissful. Unlike years past, my flânerie wasn’t taking me to my happy place.

The problem, I suddenly realized, wasn’t Land Rover’s anodyne and deeply disappointing Discovery Sport. It was that a fixture of the auto show has become nauseatingly passé. It’s well beyond time that auto shows—and, really, trade shows of any kind including the Consumer Electronics Show and Comic Con—dump their tradition of employing young women in tight dresses and high high-heels to hang around “the product” like a tablecloth in a Flemish still life.

We need to ban the “booth babes.” The auto companies are increasingly being run by some of the smartest, most interesting executives in business (of any kind). It’s time they ditch this outmoded practice and do it as fast as they presumably blurt out that electric cars are a great idea in mixed company. If nothing else, the auto makers can look at the bottom line. Some trustworthy-seeming marketing experts have figured out these women don’t actually help sell anything.

And another thing: It’s awkward. For me. Here I am wandering around, casting a lecherous gaze at this motorcycle or that coupe and I suddenly find myself making eye contact with an exploited model. First of all, the muscles in my face aren’t developed enough to be able to configure themselves to telegraph a message of “I’m not lusting after you, pardon me for looking at you that way. I was lusting after that inanimate object six inches to your left.” More importantly, the practice takes attention away from the point of the show: the cars, which every year get more impressive and more technologically stunning.

I know what some booth babe enthusiasts are going to say: trade shows provide a much-needed employment stimulus to New York City’s struggling acting and modeling community. (This year, I heard one of the guys unfolding tables for a cocktail reception gripe, “This isn’t where I thought drama camp would take me.”) And it’s true that many of the hard-working models act as ambassadors during the show, answering questions and giving succinct history lessons on this or that particular brand. I’m sympathetic.

So I have a proposal. Why not repurpose a segment of the show floor nobody cares about—like, say, the weirdly huge cargo van area in the basement that must only be popular with serial killers from New Jersey—and instead put on a couple of the Theban plays gratis? That way the unemployed actors and actresses can benefit economically from the influx of car lovers like me into the city and the auto show itself can simply be—as it should always—a feast of the moveable.

Here’s Why You Might Finally Get a Raise This Year

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Getty Images

If you think you’re underpaid, you’re probably right.

If the amount on your paycheck hasn’t budged in years, this should come as no surprise: Companies have been able to hold down wages for the past several years because the economy was crummy and people were happy to have a job, any job.

It’s taken a long time, but that’s starting to change. Although it’s possible your company doesn’t realize it yet, they’re going to figure it out when their talent starts heading for the door. New research shows that American workers are increasingly willing to leave employers that don’t pay enough — and that means the most tight-fisted companies stand to lose their best workers.

In consulting company ManpowerGroup’s most recent Talent Shortage Survey, roughly one in 10 U.S. employers said they were raising starting salaries in response to not being able to find the right workers for their open positions. That’s good news, but a recent CareerBuilder.com survey shows we still have a long way to go. In a recent study, it finds that 35% of employers feel they can pay employees less because there are still more workers than jobs.

But companies unwilling to pay up for good workers are finding that going for the bottom dollar on labor can carry hidden costs. “If you’re paying below what the market dictates for skilled labor, there are implications for employee performance and retention,” says CareerBuilder CEO Matt Ferguson.

“The job market, while competitive, is improving,” Ferguson says. Workers are feeling better about their job prospects.” As a result, he says, “There’s a disconnect happening between what job seekers may expect and what employers are willing or able to provide.”

New research from jobs and salary site Glassdoor.com finds in a new survey that roughly two in five American workers think their pay is unfair. “That’s a big number if you’re trying to attract, retain and motivate employees,” says Glassdoor’s career and workplace expert, Rusty Rueff.

“We still have the hangover from the Great Recession that says, ‘I’m doing the work of two,’” Rueff says. Productivity has risen, and now workers want that what they earn to reflect that a little better.Plus, regular workers are watching CEOs collect huge salary and bonus packages and feeling like they’re entitled to a bigger share of the pie.

And if they don’t get it, they’ll walk — which can be expensive for employers. Glassdoor finds that 62% of survey respondents would consider looking for a new job if they didn’t get a raise in their first year on the job.

CareerBuilder’s survey finds that it costs a company, on average, more than $14,000 for every job position that goes unfilled for three months or more. When the good workers leave, the ones that stay are less skilled and less motivated. Companies surveyed by CareerBuilder that can’t fill positions say they’re experiencing work delays, declines in customer service, lower work quality, higher turnover and lost revenue.

One recent New York Federal Reserve survey finds that New York-area employers rank basics like punctuality and reliability as some of the toughest qualities to find in a worker.

“I think that’s the typical employer complaint when they’re unwilling to pay decent wages,” says Eileen Appelbaum, senior economist at the Center for Economic and Policy Research. “If you want to get better qualified, trained workers… who have a good work history, you have to pay for that.”

Aereo

Barry Diller Blasts Obama for Backing TV Broadcasters

Media tycoon Barry Diller attends the performance of "One Night Only" benefiting the Motion Picture and Television Fund in Los Angeles
Media tycoon Barry Diller. Phil McCarten / REUTERS

The billionaire says the Obama Administration is aligning itself "against competition, choice and the consumer" by supporting TV broadcasters aiming to kill Aereo

Billionaire mogul Barry Diller blasted the Obama Administration and the nation’s largest TV broadcasters on Thursday for trying to shut down Aereo, the upstart online video service backed by the media investor. Next week, Aereo will square off against the broadcasters in a landmark Supreme Court case with billions of dollars at stake that could transform the TV business.

Aereo uses thousands of dime-sized antennas to pick up free, over-the-air TV signals, which it transmits to customers over the Internet for a monthly fee starting at $8. The startup has angered the major broadcasters, including NBC, FOX, ABC and CBS, which claim the service is illegal because it’s ripping off their copyrighted TV signals. Aereo hit back on Thursday by launching a website designed to advance its argument that the service is legal.

In March, the Obama administration filed a friend of the court brief supporting the broadcasters and claiming that Aereo is “liable for infringement.” Several well-known public interest and technology advocacy groups have backed Aereo, including the Electronic Frontier Foundation, Public Knowledge, the Consumer Electronics Association, and Engine Advocacy. Dozens of prominent law professors and legal scholars are also supporting Aereo.

Last year, federal courts in New York and Boston agreed with Aereo’s argument that it is transmitting legally protected “private performances” to individual users over their own leased antennas, based on principles established by the important 2008 Cablevision decision, which allowed remote-storage DVR technology. But in February, a federal judge in Utah sided with the broadcasters, intensifying the legal uncertainty surrounding Aereo.

“The networks would like the court to expand copyright law far beyond what Congress intended,” says EFF Staff Attorney Mitch Stoltz. “The networks’ interpretation of the law would strip away the commercial freedom that led to the home stereo, the VCR, all manner of personal audio and video technology and to Internet services of many kinds.”

Diller’s broadside, which was published in a Wall Street Journal opinion piece, accused the TV networks of turning their back on a century-old agreement in which they were granted use of the nation’s public airwaves in exchange for delivering free, advertising-supported TV programming. In recent years, the TV networks have been able to extract billions of dollars in retransmission fees from cable and satellite companies for the right to broadcast their programming.

“Broadcasters make more money when consumers are steered away from over-the-air program delivery and toward cable and satellite systems that pay the broadcasters retransmission fees,” wrote Diller, who is on Aereo’s board of directors. “There’s nothing wrong with that. But it seems rich for them to forget the agreement they made to provide television to the consumer in return for the spectrum that enables their business.”

Diller also castigated the Obama Administration for aligning itself “against competition, choice and the consumer” by supporting the broadcasters. “In siding with the broadcasters, the administration has signaled that the preservation of legacy business models takes precedence over lawful technological innovation,” Diller wrote.

The Obama administration’s support for the broadcasters “ignores the government’s own previous legal positions and threatens to outlaw the entire cloud-computing industry,” Diller wrote, echoing a point made by Aereo CEO Chet Kanojia in a recent interview with TIME. That’s because Aereo’s cloud-based DVR service relies on the same legal principles as the entire cloud-computing industry, which enables consumers to store data on remote servers accessible by the Internet.

The broadcasters claim that Aereo’s service amounts to blatant theft, and have warned that if Aereo prevails, they could remove their primetime shows from free TV and move them to pay channels like Showtime. The National Football League and Major League Baseball have threatened to take high-profile broadcasts like the Super Bowl and World Series to cable. Such a move by the broadcasters would “disenfranchise” millions of viewers who rely on antennas to receive TV programming, “just because they want to make more money,” Kanojia says.

Meanwhile, Aereo suffered a setback this week when the Supreme Court announced that Justice Samuel Alito, who had earlier recused himself from the case, will now be able to participate. Oral arguments are set for next Tuesday. (The high court doesn’t comment on why justices do or do not recuse themselves, but it’s often because of stock ownership in one of the parties.)

Alito’s participation gives the broadcasters a boost because it removes the possibility of 4-4 tie, which would have meant that a lower court ruling in favor of Aereo would stand. “With Alito no longer recused, broadcasters now have an additional avenue for scoring that fifth vote,” according to Scott R. Flick, a D.C.-based partner at the law firm Pillsbury. “In other words, it’s easier to attract 5 votes out of 9 than it is to get 5 votes out of 8.”

Autos

Here Comes the Next Big Push to Get Drivers to Buy Electric Cars

Japan Nissan
Itsuo Inouye—AP

Everybody understands that one big upside of owning an electric car is that you’ll never have to spend a penny on gasoline. Now, you won’t have to pay for the electricity needed to charge the car either.

Thanks to a new “No Charge to Charge” initiative from Nissan, drivers who purchase or lease a new battery-powered Nissan Leaf will receive a special card that allows them to plug in at public charging stations at no cost whatsoever starting July 1. The program will be available in 25 U.S. markets, which have collectively accounted for 80% of all Leaf purchases thus far, and owners will be able to charge their vehicles for free for two years. Anyone who purchases outright or leases a new Leaf as of April 1 or later is eligible in the participating markets, which include many major cities along the West Coast, as well as Nashville, Houston, and Washington, D.C.

According to the U.S. Department of Energy’s FuelEconomy.gov site, a Nissan Leaf owner can expect to pay an average of $550 in “fuel cost” annually, based on driving 15,000 miles per year. So Nissan’s program would seem to be the equivalent of a $1,100 bonus for buyers. Whether or not an owner actually realizes such a return will depend a lot on how easy it is to use the public charging stations where plugging in is free. Most electric car owners charge their vehicles at home at night, and Nissan isn’t going to pitch in with any portion of your house’s electricity bill.

Even if “No Charge to Charge” offers less of a return that it initially seems like at first glance, the program obviously makes it more enticing—and more cost-effective—to buy a Leaf, so it could push some potential buyers off the fence. “The net effect here is it really increases the utility of the Leaf for the driver,” Normam Hajjar, research director for the electric-car app creator Recargo, said of Nissan’s new initiative, via the San Francisco Chronicle.

Nissan’s move comes at a muddled time in the electric car market, when Tesla is clearly the runaway success at the high end of the field, and when a wide range of less expensive EVs, plug-ins, and hybrids continue to vie for consumer attention. Despite the arrival of more and more plug-in models into the market, hybrids and electric cars remain a very small niche, representing around 3% of new car sales.

In a statement that’s about as definitive as you can get, Michelle Krebs, senior analyst with Edmunds.com, told the Detroit Free Press, “Plug-in vehicles aren’t going away, but how many will sell, at what price and using which technology, is yet to be determined.”

The Nissan Leaf ended 2013 on a high note, with its best sales month ever in December: 2,529 units sold, bringing the year’s total to 22,610, more than double the amount in 2012. But the disappearance of end-of-year incentives, combined with brutally cold weather that hurt all auto sales, resulted in a big electric car sale slump in early 2014. According to MarketWatch, there were 918 Chevy Volts and 1,252 Nissan Leafs sold in January 2014, compared to 2,392 Volts and 2,529 Leafs the previous month.

Leaf sales have rebounded with the onset of warmer weather, including 2,507 units sold in March, its second-best month ever, and a 12% increase over March 2013. For the first three months of 2014, meanwhile, sales of the gas-electric hybrid Volt decreased by 15% compared to the same period in 2013.

In any event, it’s clear that for any plug-in to achieve true mainstream appeal, some work needs to be done to convince the average driver of the cost-effectiveness of an electric car. Basically, the cars need to be cheaper to own and operate, or automakers need to do a better job of proving to consumers that these vehicles are indeed cheap to own and operate.

Throwing in two years’ worth of free charging, as Nissan is doing, certainly helps the equation. So does the tried-but-true practice of simply lowering the retail price. That’s what Nissan did in early 2013, which resulted in the automaker selling twice as many Leafs in 2013 that it did the previous year. And that’s what GM is planning for the next Chevy Volt, with the recent news that an entry-level Volt should hit the market for the 2016 model year with a list price starting at around $30,000—roughly $10,000 less than the base price of the original Volt.

Retirement

This Is How Detroit Found Itself a Mysterious Pot of Gold

A protestor holds a sign outside the federal courthouse in support of Detroit city workers Rebecca Cook—Reuters

Suddenly the cops and firemen and other municipal workers' retirement doesn't look so bleak in the Motor City. But don't try this at home.

To the great relief of firefighters, police and other public employees in bankrupt Detroit, city fathers recently plugged a huge hole in their pension plans. For now, anyway, something close to these employees’ retirement dreams have been restored.

But how did they do it? Just a few weeks ago, Detroit leaders pegged the pension shortfall at $3.5 billion—about 20% of the city’s total indebtedness—and they were threatening to slash benefits beyond already expected cuts of up to 14% for cops and firemen and 34% for other workers. Miraculously, workers are now being assured that benefits cuts will be comparatively tame, amounting to less than a 5% reduction for those hardest hit.

Where did the money come from? Who found the pot of gold that is enabling the city to fill such a big funding gap? The answer, of course, is that no one found so much as a single hard penny. Actuaries simply juggled a few numbers on the city ledger and, voila, a paper windfall appeared. Don’t try this at home.

The most important accounting change was the assumed rate of return on investments held in the city’s two big retirement funds. Previously, the annual rate of return was estimated at 6.25% and 6.5% on the two funds. Now the city is assuming a rate of return of 6.75% on both funds. Why the bump? In part, anyway, the city seems to be taking heart in the stock market’s big gain last year, when after lackluster returns the past decade or so the S&P 500 rebounded with a glowing 32% total return.

A sustained higher rate of return would mean more annual income for the funds, making them better able to meet benefits promises with the same amount of assets. But the question remains: Is the higher return assumption realistic? One year is not a trend. Many planners believe we have decades of slow growth and modest returns ahead. A bankruptcy judge still must rule on the rosier projections.

A pension fund manager boosting the return assumption because stocks finally had a good year is a little like you at home predicting next winter won’t be so cold and slashing your heating budget. You might be right. But it’s just a guess—and if the guess is wrong you will have to find the money elsewhere to heat the house. Your finances only looked better briefly; the picture dimmed as soon as another cold winter hit.

So how realistic is the 6.75% return assumption? In the Detroit General Retirement System, annualized returns over the past seven years have been 3.9%, according to one analysis. The past five years, public pension funds have had a median annualized return of 5.3%, according to another analysis. Not so good, right?

But let’s not throw Detroit’s leaders under the bus just yet. Because people generally work and accrue benefits over 40 years or so, pension funds can take an extremely long view. The median pension fund return over the past 25 years has been 8.6%. The typical pension fund manager today assumes long-term rates of return between 7% and 8%. So Detroit has company, and may even seem cautious.

Among others, Warren Buffett has scolded pension managers for not recognizing a fundamental shift to slower growth and lower returns. But the new assumptions in the Motor City aren’t completely unsupportable. Maybe the city’s employees will catch a much-needed break and get the higher returns that pension managers hope for.

 

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