TIME Wages

This Big Retailer Just Raised its Minimum Wage for U.S. Workers — Again

Richard Cadan Media Kitchen cabinet fronts made at Ikea’s factory in Älmhult.

Company is already reaping the benefits of the last pay hike

Last June, Ikea announced it would raise its hourly minimum wage in U.S. stores from $9.17 to $10.76, a 17.3% hike. Now, almost exactly one year later to the day, Ikea is doing it again.

The Swedish furniture giant says the pay will go up to $11.87, a 10% increase for Ikea and a whole $4.62 above the current U.S. federal minimum wage of $7.25. (There is a movement underway to bring that up to $12 by 2020.) The hike will take effect on the first day of 2016 and will have an impact on 30% of Ikea’s U.S. employees.

This is a smart business move by Ikea, which has been expanding globally at a rapid pace, and it is one that will inevitably reap good P.R. The last time around went well for the company: Rob Olson, Ikea’s U.S. CFO, told the Huffington Post that in the six months since the last hike, Ikea has had 5 percent less worker turnover and is already attracting better talent.

Ikea was one of Fortune’s Best Companies to Work For in 2006 and 2007, but then dropped off the list. Perhaps its continued attention to better worker wages will get it back on.

MONEY Benefits

Uber Driver Was an Employee, According to California

The fast-growing ridesharing service could be on the hook for plenty of new expenses.

A former Uber driver in a labor dispute with the company was not an independent contractor, the California Labor Commissioner has ruled. That means the fast-growing ridesharing service could be on the hook for minimum wage payments, unemployment insurance, and other job-related expenses.

The California Labor Commissioner’s ruling stated, in its analysis,

Defendants [Uber] hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation. The reality, however, is that Defendants are involved in every aspect of the operation….

Defendants control the tools the drivers use….

The passengers pay Defendants a set price for the trip, and Defendants, in turn, pay their drivers a non-negotiable service fee….Defendants alone have the discretion to negotiate [a cancellation fee] with the passenger. Defendants discourage drivers from accepting tips because it would be counterproductive to Defendants’ advertising and marketing strategy.

…Aside from her car, Plaintiff [Barbara Ann Berwick, the driver in the case] had no investment in the business….But for Defendants’ intellectual property, Plaintiff would not have been able to perform the work.

In light of the above, Plaintiff was Defendants’ employee….

Correction: A previous version of this post, including a video, stated that the California ruling applied to “Uber drivers.” In fact, it applied to a single driver, Barbara Ann Berwick.

MONEY Housing Market

Renting a Home Could Become the New Normal

Residential Real Estate As City Becomes The Least Affordable U.S. Housing Market
Bloomberg—Bloomberg via Getty Images Pedestrians walk past a "For Rent" sign that is displayed outside of an apartment building in the Mission district of San Francisco, California, U.S., on Thursday, May 7, 2015.

Homeownership rates have been falling for the last decade.

Is renting a home the new American dream? A report by the Urban Institute projects that even after the housing crash and the Great Recession are a distant memory, homeownership rates in America will continue to decline.

The report estimates that between 2010 and 2030, the majority (59%) of the 22 million new households that will form will rent, while just 41% will buy their homes.

The homeownership rate has been falling since 2006, when the housing bubble began pricing out many would-be homeowners — and the recession furthered that trend. In 2006, the homeownership rate was 67.3%; it now sits at 63.6%, even lower than it was in 1990, according the U.S. Census’ most recent American Community Survey.

But even the economic recovery won’t reverse that trend, according to the Urban Institute. It offers six reasons:

  1. Wages. Real wages have declined among adults ages 25 to 34 since 1996. “Even for young adults with good jobs, low vacancy rates and high rents make it more difficult to save,” the report says.
  2. Student loan debt. Total outstanding debt was about $300 billion in 2003; now it is over $1.3 trillion. Long-term debt makes additional long-term debt less appealing.
  3. Delayed household formation. Both women and men are waiting four years longer before marriage than in 1980. “Because of the delayed marriage and childbearing, homeownership is apt to occur later. At a result, people will spend less of their lives as homeowners, placing a drag on the homeownership rate,” according to the Urban Institute.
  4. Lingering effects of the recession. Roughly 7.5 million Americans lost their homes during the recession; most will have a hard time buying a new one, dragging down the homeownership rate.
  5. They’re not that into homebuying. More Americans are consciously choosing to rent over buy. One study looked at “prime candidates” — married couples earning at least $95,000 annually who have at least one child. “Even for this group, after controlling for race and ethnicity, the homeownership rate declined from 87.3% in 2000 to 80.6% in 2012,” the report says.
  6. Higher borrowing standards. The report says that lenders are still “historically tight,” particularly among borrowers with lower credit scores.

The report also considered changing demographics — a majority of new households formed in the U.S. during the next two decades will be non-white — and while those groups traditionally have lower homeownership rates, the Urban Institute found that will not contribute significantly to overall homeownership rates in the future. That story is a mixed bag, however.

“For at least the next 15 years, whether the economy grows slowly or quickly, the homeownership rate for African Americans will decrease while the rate for Hispanics will increase,” the report found. “More than 50 percent of the 9 million new owners between 2010 and 2030 will be Hispanic, nearly one-third will be other races or ethnicities, 11 percent will be African American, and only 7 percent will be white.”

The shift from owning to renting means that many more rental units should be built, the Urban Institute says.

“This change will create a surge in rental demand from now until 2030 that we are unprepared to meet,” it says.

It also suggests that mortgage lending standards be relaxed to nudge more would-be renters to buy their homes.

That conclusion doesn’t sit well with everyone, however.

Logan Mohtashami, a California-based loan officer, says the notion that lending standards are tight is a myth.

“There remain a number of highly respected housing ‘gurus’ who continue to profess that it is unfairly tight lending standards, not the lack of qualified buyers that are suppressing a housing recovery. The difference is not academic,” he says. “A quick review of the requirements for some of mortgage loans available may surprise you.”

VA loans require no down payment, for example, he notes. And buyers can get other mortgages with credit scores as low as 560, with 50% debt-to-income ratios, or down payments as low as 3%.

“At this point all you can do is bring back 0% down loans and stated income loans for wage earners,” said. “Look who is really pushing the tight lending thesis. People in New York, D.C., San Francisco. What I call economic bubble cities. Main Street America gets this thesis I am saying.”

Read next: Should You DIY These 5 Home Improvements?

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TIME American economy

America Is Finally Getting a Raise

Operations Inside The Mercedes Benz International Assembly Plant
Bloomberg—Bloomberg via Getty Images

The consumer could lead the U.S. economy to the next, more robust, phase of the recovery

America’s economic expansion is now entering its seventh year. Total output and jobs have surpassed their previous peaks, while the stock market has soared nearly 200% since its 2009 lows.

At the same time, too few jobs have been added in this recovery, and there remains significant slack in the labor market. This is underscored by one statistic in particular: the fact that wage growth has been historically low during this recovery compared to those of the past. As Spencer Jakab at The Wall Street Journal has pointed out: “Since the end of the recession, the average hourly earnings of production and nonsupervisory employees have grown just 2% a year, on average — a percentage point less than in the last recovery.”

Now it looks like that trend might be reversing. Friday’s job report showed that the average hourly worker earned 8 cents more per hour in May than he or she did in April, while wage growth over the past three months is close to the 3% we’ve seen in past recoveries:

This chart from the Bureau of Labor Statistics shows the U.S. economy is heading in the right direction wage-wise:

Screen Shot 2015-06-05 at 9.12.07 AM

It’s difficult to overstate how important wage growth is to promoting faster economic growth. U.S. GDP is composed of mostly consumer spending, and the recession put a huge dent in the average American’s capacity to consume. That’s one reason why the Federal Reserve has done everything it can to push the economy toward full employment. A tight labor market forces firms to compete for workers with higher wages, which can lead to a virtuous cycle of wage gains and consumer spending.

Unfortunately, the U.S. consumer hasn’t been motivated to spend his or her wage gains, or the tens of billions of dollars consumers have saved in recent months as a result of cheaper gas prices. As I wrote last month, this extra money is showing up in a higher savings rate. It appears that consumers are choosing to save or pay down debt rather than spend their extra cash.

That said, there is often a significant lag between big macroeconomic shifts — such as cheaper oil, or rising wages — and consumer behavior. A few more months of solid wage gains like we saw in Friday’s jobs report and the American consumer could be primed to lead the U.S. economy to the next, more robust, phase of the recovery.

Editor’s note: The original version of this article suggested that the reason for low-wage growth is because the U.S. economy has added relatively more part-time and low paying jobs compared with other recoveries. In fact, most jobs added since the recovery have been full-time. This article has been updated to reflect this.

TIME Careers

Why High School Athletes are Cool Even After Graduation

(c) davepeetersphoto

They're just better at everything

Nerds are supposed to get their revenge after graduation.

Sure, high school jocks are popular. But as mothers across America tell their uncoordinated children: Study hard, get good grades, and you’ll have the last laugh by making more money later in life.

However soothing as this tale may be to athletically challenged youngsters, economists say it’s a lie. Former high school athletes “display significantly more leadership, self-confidence, and self-respect than those who were active outside of sports—such as being in the band or on the yearbook staff,” according to a recent study published in the Journal of Leadership & Organizational Studies (via The Atlantic).

Not only that, but former high school athletes retain these qualities as long as 60 years after they hung up their varsity jackets. The Atlantic also points to several other studies that former athletes earn “from 5 to 15 percent” more than non-athletes.

The jury is still out on whether this statistical difference is because the act of playing sports in high school teaches kids skills like hard work and determination, or because kids with those qualities gravitate towards sports in youth. Either way, it would appear that there are more reasons than fleeting glory to go out for the football team this fall.

MONEY Unions

Snarky Journalists Have Crude, Wrenching Public Debate About Unionization

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Mart Klein—Getty Images/Ikon Images

So much for secret ballots.

Last month, some editorial members of Gawker Media, owner of various web properties including Deadspin, Jezebel, Gizmodo, and of course, Gawker.com, announced they planned to form a union.

Now, with an election scheduled for next week that will decide whether the company will unionize, Gawker writers have made their votes and opinions on the plan public in a post published Thursday. The discussion offers a rare look at how wrenching labor organization can be. Some pro-union writers have been so turned off by the process that they’ve decided to cast their ballot against unionization efforts.

“I am an avid proponent of unions, a leftist, and am perpetually distrustful of those in power—especially those that hold sway over my own employment,” writes Deadspin staff member Kevin Draper. “Yet on June 3rd, I am going to vote against Gawker Media editorial staffers unionizing. That is how f— up this entire process, from start to apparent finish, has been.”

Draper goes on to list a set of grievances that turned him against unionization, including a perceived lack of communication and transparency from union supporters and an election the writer feels was scheduled too soon.

Those issues are echoed by a number of other staffers, including Deadspin columnist Drew Magary, who added that the push toward organization had turned many staffers against one another (“This has created a GALACTIC amount of acrimony within Gawker”). Magary also voiced concerns about the everyday implications of unionization (“I f***ing hate meetings.”). Stef Schrader, an editor for Jalopnik, questioned whether a raise that would include union dues could force the company to cut into other benefits. “I don’t agree that we need to pay an outside entity to negotiate these things for us,” posted Schrader.

Most staff commenters appear to support unionization.

“I am voting yes on the union,” wrote Hamilton Nolan, Gawker’s longest-tenured writer and a major force behind the drive to organize. “This has been a truly ‘grass roots’ organizing process in the sense that we’ve been making it all up as we go along. There’s no doubt all the communication efforts have not been perfect. But I really, really hope that everyone will think about the big picture: a vote for this union is a vote for unity. It’s a vote to meld all of our interests together as one. And beyond the practical benefits for us, it’s a really important symbolic vote for our entire industry. It’s the first step of a movement that could end up helping a lot of people.”

If the pushback against organization by some writers comes as a surprise, it shouldn’t. Online media companies, despite being populated by many young city-dwellers who, as a demographic, tend to skew towards the left, have generally been reluctant to unionize. If Gawker does become a union shop, it would be the first major new media company to do so.

Why is the digital press so reluctant to band together? As the Washington Post explained in January, a combination of generational and economic forces tend to make unionization less palatable to online scribes. Younger workers are typically less familiar with unions and more apt to see themselves as personal brands instead of as part of a collective.

Another reason for web media’s union-phobia may just be that many journalists don’t feel they have it quite so hard. “They tend to think that because of their education and their talent, they don’t need [a union],” said Freddy Kunkle, the co-chair of The Washington Post’s Guild unit, in an interview with the Post. “What they’re doing is not coal mining: It’s not dangerous; it’s not dirty. What are they going to get out of it?”

MONEY Wages

Here’s One Statistic Explaining Why You Haven’t Gotten a Raise Lately

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Krakozawr—Getty Images

A big chunk of workers are yearning for more hours, raise or no raise.

More than one-third of American workers would be willing to work longer hours without a raise, according to a new Federal Reserve report.

The report, which surveyed nearly 6,000 individuals about their financial well-being, found 36% of respondents would prefer to work more hours at their currently hourly wage. Another 58% of respondents said they are happy with the number of hours they currently work, while 5% wished they could work fewer hours.

While those who took the survey were not necessarily hourly workers, a Federal Reserve spokesperson said the question is a general proxy for whether employees would be willing to work longer for higher pay.

As Bloomberg notes, the Federal Reserve’s findings may help explain why inflation-adjusted wages have remained essentially flat, even as the economy has improved.

“When [Federal Reserve Chair Janet Yellen] says that the unemployment rate probably does not fully capture the extent of slack in the labor market, this is exactly what she’s talking about,” said Thomas Simons, a money-market economist at Jefferies LLC, in an email to Bloomberg. “Until workers perceive that there are more opportunities available that offer higher wages, they will be content to work for the same rate rather than take a risk for more.”

MONEY Wages

Los Angeles Just Raised Its Minimum Wage to $15

May Day Rally Held in Los Angeles
Sandy Huffaker—Getty Images Protesters chant during a May Day rally in downtown Los Angeles, California.

The increase will kick in by 2020

The Los Angeles City Council has voted to ramp up the city’s minimum wage to $15 an hour from $9 over the next five years.

The urban center is the largest among several cities—including Seattle, San Francisco, and Oakland, California—that have moved to increase pay for their lowest-earning workers. Once signed by the mayor, the L.A. law could affect as many as 800,000 workers, reports the Los Angeles Times.

Other cities, including New York and Washington, D.C., are still considering laws that would also set the local minimum wage at $15. (See this map of places where local minimum wage increases have been enacted or proposed.)

The first pay bump would occur in July 2016, increasing wages in Los Angeles to $10.50 per hour.

Read next: These Are the 25 Best U.S. Cities for Jobs

TIME Economy

Low Wage Workers Are Storming the Barricades

Activists Hold Protest In Favor Of Raising Minimum Wage
Alex Wong—Getty Images Activists hold protest In favor of raising minimum wage on April 29, 2014 in Washington, DC.

A few weeks back, when Walmart announced plans to raise its starting pay to $9 per hour, I wrote a column saying this was just the beginning of what would be a growing movement around raising wages in America. Today marks a new high point in this struggle, with tens of thousands of workers set to join walkouts and protests in dozens of cities including New York, Chicago, LA, Oakland, Raleigh, Atlanta, Tampa and Boston, as part of the “Fight for $15” movement to raise the federal minimum wage.

This is big shakes in a country where people don’t take to the streets easily, even when they are toiling full-time for pay so low it forces them to take government subsidies to make ends meet, as is the case with many of the employees from fast food retail outlets like McDonalds and Walmart, as well as the home care aids, child caregivers, launderers, car washers and others who’ll be joining the protests.

It’s always been amazing to me that in a country where 42% of the population makes roughly $15 per hour, that more people weren’t already holding bullhorns, and I don’t mean just low-income workers. There’s something fundamentally off about the fact that corporate profits are at record highs in large part because labor’s share is so low, yet when low-income workers have to then apply for federal benefits, the true cost of those profits gets pushed back not to companies, but onto taxpayers, at a time when state debt levels are at record highs. Talk about an imbalanced economic model.

A higher federal minimum wage is inevitable, given that numerous states have already raised theirs and most economists and even many Right Wing politicos are increasingly in agreement that potential job destruction from a moderate increase in minimum wages is negligible. (See a good New York Times summary of that here.) Indeed, the pressure is now on presidential hopeful Hillary Clinton to come out in favor of a higher wage, given her pronouncement that she wants to be a “champion” for the average Joe.

But how will all this influence the inequality debate that will be front and center in the 2016 elections? And what will any of it really do for overall economic growth?

As much as wage hikes are needed to help people avoid working in poverty, the truth is that they won’t do much to move the needle on inequality, since most of the wealth divide has happened at the top end of the labor spectrum. There’s been a $9 trillion increase in household stock market wealth since 2008, most of which has accrued to the top quarter or so of the population that owns the majority of stocks. C-suite America in particular has benefitted, since executives take home the majority of their pay in stock (and thus have reason to do whatever it takes to manipulate stock price.)

Higher federal minimum wages are a good start, but it’s only one piece of the inequality puzzle. Boosting wages in a bigger way will also requiring changing the corporate model to reflect the fact that companies don’t exist only to enrich shareholders, but also workers and society at large, which is the way capitalism works in many other countries. German style worker councils would help balance things, as would a sliding capital gains tax for long versus short-term stock holdings, limits on corporate share buybacks and fiscal stimulus that boosted demand, and hopefully, wages. (For a fascinating back and forth on that topic between Larry Summers and Ben Bernanke, see Brookings’ website.)

Politicians are going to have to grapple with this in the election cycle, because as the latest round of wage protests makes clear, the issue isn’t going away anytime soon.

Read next: Target, Gap and Other Major Retailers Face Staffing Probe

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TIME Labor

Why McDonald’s Wage Hike Won’t Help Most Of Its Employees (Yet)

A sign stands outside of a McDonald's restaurant in San Francisco on Feb. 9, 2009.
Justin Sullivan—Getty Images A sign stands outside of a McDonald's restaurant in San Francisco on Feb. 9, 2009.

Just 12% of McDonald's employees could see a bigger paycheck

Facing declining sales and a growing protest movement against its labor practices, McDonald’s announced Wednesday it’s boosting hourly wages for hundreds of thousands of workers. But the change won’t actually affect most of the men and women who wear a McDonald’s uniform.

McDonald’s employees affected by the pay raise will see their hourly earnings rise to at least $1 above the local minimum wage, a rate that will work out to an average pay of at least $10 per hour by the end of 2016. However, the raise only applies to U.S. locations that are owned and operated by McDonald’s itself.

Most of the world’s Big Macs are made at franchised restaurants, properties that McDonald’s owns or leases but hands over to independent businesspeople to operate in exchange for rent and a 4% cut of the restaurant’s sales. Franchised restaurants make independent hiring choices and set their own wages. Because of this business model, just 12% of the 750,000 workers at U.S. McDonald’s locations will qualify for the wage boosts — or the paid vacation time the fast food chain is also implementing.

The announcement, which new McDonald’s CEO Steve Easterbrook called an “initial step,” drew the immediate ire of Fast Food Forward, a union-backed group that’s been organizing a series of one-day fast food worker strikes that started in 2012. The group is planning fresh protests for Thursday, decrying McDonald’s pay increase as a “PR stunt.”

“McDonald’s needs to step up to the plate,” Fast Food Forward director Kendall Fells said on a conference call with reporters Wednesday, noting that the vast majority of workers weren’t receiving raises. “We’re going to show McDonald’s that this movement won’t stop until we get what we deserve.”

That McDonald’s chose to make a public statement about its new wage policy illustrates how quickly discussions about low-paying jobs have shifted recently, says Dave Sherwyn, a law professor at Cornell University’s School of Hotel Administration. That change in the public conversation has been largely driven by those pro-union groups, who, as much as they accuse McDonald’s pay raise of being little more than a savvy public relations move, have themselves done more to raise publicity than actually threaten the daily operations of the country’s fast food chains.

“This is a pretty unique situation,” says Sherwyn. “I can’t imagine if McDonald’s, Burger King or anyone had done this five years ago, they would have made a big announcement about it. It just wasn’t in the public conversation.”

MORE Fast-Food Strike Progress Measured in Pennies, Not Dollars

The spotlight will now be thrown on the franchise owners, who will be watched closely to see if they follow the lead of McDonald’s corporate office. That’s partially because the strikes have helped more consumers learn how McDonald’s franchise structure works, something that might not have been clear to your everyday customer just looking for a Big Mac with fries.

“The franchise arrangement, not obvious to everyone, will now be more obvious,” says Jefferson Cowie, a professor of labor history at Cornell University. “Pressure will boil up from below, putting pressure on the franchises to follow suit with the corporate policy on wages.”

McDonald’s wage increase comes just as the company’s legal obligations to its franchisees are coming under intense scrutiny. The National Labor Relations Board began hearings this week to determine whether McDonald’s should be considered a “joint employer” along with franchise owners. Such a designation could make McDonald’s responsible for hiring practices, wage levels and labor violations at individual restaurants, fundamentally upsetting its lucrative franchise-based business model — a model shared by many of its rivals, too. About 60% of all U.S. fast food restaurants are franchise establishments, according to a 2007 study the U.S. Census Bureau. If the labor board rules McDonald’s is a joint employer, it could spell the end of the franchise system as we know it.

 

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