A blog about business and economics.

Aug. 3 2015 6:35 PM

Millennials Aren’t Quite As Poor As You Think

Sooooooo, I need to nitpick. Over the weekend, Steven Rattner wrote a more or less reasonable op-ed in the New York Times arguing that today’s young adults have been dealt a crappy economic hand, and that aging Baby Boomers ought to do more in order them out a bit. How? By accepting higher taxes in order to fund spending that might help the economy. (Less stellar: Rattner would also like to cut Social Security benefits on our account. Please don't). Unfortunately, the piece recycles a misconception I've seen elsewhere—that millennials earn vastly less than the last couple of generations did at the same age.

“Americans between 18 and 34 are earning less today (after adjustment for inflation) than the same age group did in the past,” he writes. “A typical millennial averaged earnings of $33,883 (in 2013 dollars) between 2009 and 2013. That was down 9.3 percent (after adjustment for inflation) in just a decade and is the lowest since 1980.”


This isn't wrong so much as it’s oversimplified. Men really do make less than in 1980. But women earn far more. And in the end, young adult incomes are basically right inside the range they've been in past decades. In other words, the story isn’t about decline, but about stagnation.

One important note: In general, it's sort of useless to talk about 18-to-34-year-olds as a single group. I mean, just think about the 18-year-olds you've met. Now consider the 30-year-olds you know. What do they have in common? Hopefully, very little.

That's why I prefer to look at the 25-to-34-year-old contingent, who as a group have largely finished their educations and gotten a professional start in life. What do we find? Well, if you use 2000 as your benchmark, everybody looks like they're doing terribly. And even over a longer time frame, the median young man is indeed earning 18.5 percent less than he did in 1980, adjusted for inflation, thanks to the not-so-slow erosion of high-paying blue-collar jobs. The median young woman, however, is earning 40.5 percent more. For both sexes combined, the median income is right about where it was in 1996. If you look at young adult households—that includes couples that are married or just live together—they're in line with incomes circa 1995.


Jordan Weissmann

You see a similar pattern when you break wages down by education. For both young high school graduates and young college graduates just entering the workforce, hourly wages are roughly on parwith 1998, according to an analysis by the Economic Policy Institute.


Of course, stagnation isn't exactly something to celebrate, especially when the cost of rent and education are anything but static. Thanks largely to student debt, even middle class young adults have lower net worths than they did in 1989. Housing costs have almost certainly contributed to the historically large number of 25-to-34-year-olds living at home. And, while median incomes haven't necessarily fallen through the floor, Gen Y has had to deal with a longer period of high unemployment than anything the Boomers or Gen X encountered. The kids aren't exactly all right. But they're not quite the lost causes Rattner might have you think.

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Aug. 3 2015 3:36 PM

This Map Shows Why a National $15 Minimum Wage Is a Terrible Idea

Progressive favorite Bernie Sanders has proposed raising the federal minimum wage to $15 an hour. If you want a simple illustration of why that's such a staggeringly misplaced idea, look no further than this map from the Pew Research Center. It shows the actual purchasing power of $15 across the country's major metropolitan areas, using the Bureau of Economic Analysis' Regional Price Parities. In New York and San Francisco, $15 really translates to $12 and change, once you take cost of living into account. In Beckley, West Virginia, where cash stretches furthest, it's worth $19.64.


The point here is that most of the country is not New York or San Francisco. (There's a lot more blue and teal on the map than mustard brown.) Even in expensive coastal cities, $15 is high enough compared with typical wage levels that we should at least be concerned about the possibility of significant job losses as McDonald's and Popeyes franchises cut back on hiring. But at the very least, you can make a moral argument that the cost of paying rent and putting food on the table is so high in those metros that it's immoral to let businesses pay their workers any less. Not so in Beckley, or for that matter, Dallas or Atlanta. There are vast swaths of the United States where the cost of getting by is relatively reasonable, and where the risk of job losses posed by more than doubling the federal minimum may well outweigh the benefits of giving the remaining workers raises.


Or, to put it another way: Even if you think a $15 minimum makes sense as a way to combat the ungodly cost of life in the Bay Area, there's no reason to impose it on Appalachia.

That said, the BEA's price parities also reveal another reason why, even in the places that have or might pass it, a $15 minimum may not fix the problems it's meant to solve. Namely, their high costs of living are driven overwhelmingly by affordable housing shortages. In the San Francisco metro area, prices are about 20 percent higher overall compared with the national average. But for goods, it's just under an 8 percent premium. Rent, on the other hand, is 81 percent more expensive.

San Francisco Metro Area


You can see the same pattern in Los Angeles, Seattle, and New York, where the whole state may adopt a $15 minimum for fast-food workers.

Seattle Metro Area


Los Angeles Metro Area


New York Metro Area


The problem with using the minimum wage to address an affordable housing shortage is that it does not, in fact, address an affordable housing shortage. It puts more money in people's pockets to pay rent. But, so long as the real estate market remains constrained, it's easy to imagine pay hikes getting absorbed into rent increases, as landlords realize that the whole metro area just got a raise. 

To sum up: In most of the country, the cost of living isn't so high that the moral case for $15 an hour comes close to outweighing the economic concerns. And on our unaffordable coasts, well, the higher minimum just might leave them unaffordable.

Aug. 3 2015 11:46 AM

Greece’s Stock Market Crashed 16 Percent Today. Actually, That’s Good News.

Greece's stock market opened for business today after five weeks of suspended trading. As was to be expected, shares fell—a lot—because Greece's economy has been absolutely whomped by the recent fallout from its debt crisis, and it's still not 100 percent certain the country will strike a deal to stay in the eurozone. Initially, the Athens Stock General Index dropped 23 percent, which ... ouch.

But then it began to recover, and by the end of the day, it finished just 16 percent lower. Now, that's still an enormous decline—the Dow Jones has only fallen by that much once in its entire history, on the Black Monday crash of 1987.* But if you think about it, that might be a vote of confidence from investors. After all, that's five weeks of built-up angst released in one trading day. Given everything that transpired this past month, when the whole Greek economy was basically frozen stiff thanks to a combo of capital controls and bank shutdowns, a 16 percent drop isn't unreasonable (a major survey showed that Greek manufacturing output imploded in July, hitting its lowest level on record). At the same time, it doesn't seem like a situation where panicked investors are simply running for the doors because they're extremely worried a final deal to stay on the euro won't come through. So, weirdly, today might be a vote of confidence from the markets: Greece's economy is probably screwed, but it'll probably be screwed as a member of the euro.


*Correction August 3, 2015: This post initially misidentified Black Monday as Black Friday, because I've apparently been ruined by retail.

July 31 2015 7:07 PM

Here It Comes: Puerto Rico Is Headed for a Debt Default

So it looks like Puerto Rico has some fun weekend plans. After months of staggering under its $72 billion debt load, the island is expected to miss a bond payment due Saturday, which—despite what some government officials have claimed—means the island is probably heading for default. (We won't know for sure whether it happens until Monday, according to Reuters, since the cash isn't due until the next business day).

Think of this as a gentle warmup for a much bigger confrontation over Puerto Rico's debt that's still to come. The government is set to skip a relatively small $58 million payment on a set of bonds largely owned by Puerto Rican credit union members, who—unlike the many hedge funds among the island's creditors—aren't especially likely to sue for their money. Even if they did, not much would come of it, since the debts in question are "moral obligation" bonds—so-called because issuers only have a moral (ha), but not legal, obligation to pay them back.  


Still, as Bloomberg puts it, this is basically Puerto Rico's "warning shot to investors that officials aren’t afraid to default." The island says it simply doesn't have the cash flow to cover its obligations (which may well be true), and is working on a debt-restructuring plan it should have done by Sept. 1. But by skipping this weekend's payment, it's signaling to creditors that they should really consider making a deal or risk getting stiffed. Whether the act of defaulting on a group of credit-union members who lack much in the way of legal recourse will intimidate some steely hedge funders remains to be seen.

How'd we get to this point? To start, Puerto Rico has been in the midst of deep and painful economic slump since 2006, when Congress killed off a crucial tax break that encouraged manufacturing on the island. The problems were exacerbated by the financial crisis and global recession, which the island has never really recovered from. Unemployment currently stands at 12.4 percent, and the barren job market is helping to fuel a mass exodus of young people to the mainland, which, in turn, is further hampering Puerto Rico's economy. Despite all of its very glaring problems, however, Puerto Rico had a fairly easy time borrowing to paper over budget deficits, because its bonds were exempt from federal, state, or local taxes, which made them popular among investors.

Now Puerto Rico’s debts have become unsustainable. Probably. A report commissioned by a group of bond holders suggested the territory could meet its payments by doing a better job of collecting taxes that it's owed and cutting spending, especially on schools, since enrollment has plummeted in recent years (again, population decline is a killer). The government, obviously, feels quite differently. After all, as Greece has taught us, slashing government spending and services in order to pay off debt has a way of further beating down growth. The worse the economy gets, the more Puerto Ricans will likely leave the island, which will mean fewer tax revenues and even weaker potential for growth. Gov. García Padilla has called it a potential "death spiral."

Congress could possibly help here, but being Congress, it likely won't. Just like U.S. states, Puerto Rico itself can't file for bankruptcy. But unlike actual states, the territory's cities and public corporations can't file for it either. It would help if they could—roughly $20 billion of Puerto Rico's public debts belong to agencies such as its electric utility and highway and transportation authority. Treasury Secretary Jack Lew recently called for a bill that would let those entities file for Chapter 9 protection, just like Detroit did, but some hedge funds, which are hoping to get paid back on their bonds in full, have lobbied hard against it, and Republicans in control of the House have been opposed.

So, assuming Congress stays logjammed as usual, Puerto Rico and its debtors will have to sort out a deal on their own or take their conflict to court—where, frankly, it's hard to say exactly what would happen.  For the time being, though, Puerto Rico is showing that it won't just roll over. Or it's trying to, anyway.

July 31 2015 4:54 PM

Pinterest Just Unveiled an Ambitious Plan to Tackle Silicon Valley’s Diversity Problem

This post originally appeared on Inc.

Pinterest, the online scrapbooking site, has set some aggressive new hiring goals where diversity and inclusion are concerned. Co-founder and CEO Evan Sharp outlined Pinterest's initiative to include more women and minorities by 2016, in a blog post published Thursday. He shared details on goals to increase the company's full-time engineering hiring rate to 30 percent female and 8 percent minorities.


A "Rooney Rule"-type requirement will be implemented, where at least one person from an underrepresented background and one female candidate is interviewed for any executive position. To reach those goals, Pinterest is partnering with consulting startup Paradigm.  

The announcement is a first for any major Silicon Valley tech company, which—until last year, and only at the Rev. Jesse Jackson's urging—had remained mum on its (dismal) diversity statistics. At large, the tech industry in 2014 was 64 percent white and 72 percent male. LinkedIn was the most racially diverse tech company, with 34 percent white workers, and eBay was the most gender diverse, with 76 percent male workers.

Jackson, for his part, is pleased with what Pinterest is doing. "Pinterest is putting a huge stake in the ground by setting specific, measurable goals, targets and a 2016 timetable to achieve its diversity and inclusion goals," he said in a press release. 

Still, it's clear that the company is far from gender or ethnic parity. While it employs more women compared with most tech companies (42 percent), men still represent the majority gender when it comes to other workforce sectors. Male employees make up 79 percent of tech jobs, 81 percent of engineering, and 84 percent of leadership positions. At large, black Americans are just one percent of the workforce, with Hispanics accounting for two percent. That's a pretty disappointing snapshot.

Pinterest's new partnership will allow a closer look into more "granular" data, said Paradigm's CEO and founder, Joelle Emerson, in an interview with USA Today. In addition to launching a mentorship program for black software engineers, Pinterest will also create "Inclusion Labs," where workers will be encouraged to experiment with different diversity initiatives.

It's no question that tech has a diversity problem, but Pinterest's bold plan will certainly motivate the industry to up its ante.

July 31 2015 3:42 PM

It Took Facebook Seven Years to Be Worth $50 Billion. Uber Needed Just Five.

Though it’s still a young company, Uber has long been a powerful magnet for investors. As Slate’s Alison Griswold explained in May, the company had previously been valued at more than $40 billion. At the time, the company was still looking to raise more capital, seemingly on the principle that there was no reason not to. The results of that funding round are now coming in, and they’ve left the company more ludicrously well off than ever.

According to the Wall Street Journal, Uber Technologies Inc. is now valued at close to an astonishing $51 billion. Putting this number in perspective, the Journal’s Douglas MacMillan and Telis Demos note that it took Facebook two more years to reach a similar valuation.


This latest figure purportedly comes on the back of close to $1 billion in new investment. New investors include Microsoft and Bennett Coleman & Co., an Indian company primarily involved in media endeavors. As MacMillan and Demos observe, Uber has faced difficulties in India after one of its drivers allegedly raped a female passenger. The company has since engaged in a concerted effort to convince India that its services are safe.

The Wall Street Journal notes that Uber “hasn't publicly discussed plans for an initial public offering,” though it has taken other steps that suggest it may be preparing to do so. In the meantime, it’ll probably keep raking in money the way it knows best: sure-to-enrage surge pricing.

July 30 2015 4:08 PM

SoulCycle Is Going Public. How Did It Get So Big?

Brand-name exercise classes are all the rage these days, but SoulCycle, the indoor cycling chain, has garnered a particularly intense following—one that’s been frequently observed to border on the cultlike. Celebrities like Lena Dunham, David Beckham, and Oprah swear by it. The company is nearly a household name by now, with its reputation widely known both inside and outside fitness circles. And on Thursday, SoulCycle announced that it’s going public

The cycling chain—which describes its grueling spin class as a “party on a bike”—attracts about 50,000 people each week. The New York–based chain has almost 40 locations in the U.S., and it plans to open dozens more across the world. Its revenue went from $75 million in 2013 to $112 million in 2014. In a filing with the Securities and Exchanges Commission, the company noted that it was rated the sixth most influential brand on Twitter at the most recent Consumer Electronics Show.


But how did SoulCycle go from a tiny one-studio joint in Manhattan, as it was in 2006, to a massive chain and national fitness craze? The answer is that SoulCycle’s appeal to customers runs deeper than a high-energy workout—the company also markets itself as something of a spiritual experience. It’s even saying as much to investors, writing the following in its IPO filing:

Our mission is to bring Soul to the people. SoulCycle instructors guide riders through an inspirational, meditative fitness experience designed to benefit the body, mind and soul. Set in a dark, candlelit room to high-energy music, our riders move in unison as a pack to the beat, and follow the cues and choreography of the instructor. The experience is tribal. It is primal. And it is fun...
We believe SoulCycle is more than a business, it’s a movement.

SoulCycle’s almost devotional style of indoor cycling has brought it a massive following, which might explain why other fitness companies are latching onto the trend of spiritual branding: Lululemon, for example, launched a movement in 2012 called the “Gospel of Sweat,” in which it encouraged people to “pray through [their] pores.”

In any case, SoulCycle’s aggressive self-branding has earned it a loyal fan base—one that seems very promising for its IPO. The company’s filing included a nominal fundraising target of $100 million, though the final size of the IPO has not yet been determined. SoulCycle hasn’t released the expected price for its shares.

July 30 2015 12:56 PM

T-Mobile Is Catching Up With Verizon, AT&T, and Sprint. That’s Great for Everybody. 

America’s major wireless carriers are at war with each other. A few years ago, consumers had no choice but to grudgingly turn out their pockets for mobile service that was often expensive yet mediocre—but recent industrywide network improvements have allowed wireless service to get better, cheaper, and much more competitive. Carriers are fighting one another to offer the best deals and most discounted plans. Though Verizon and AT&T are holding steady as the country’s largest carriers by subscriber numbers, they’re feeling some heat from other competitors in the market.

On Thursday, T-Mobile announced that its revenue rose an impressive 14 percent in the second quarter of this year, thanks in part to the addition of 2 million new subscribers. The company reported revenue of $8.2 billion, well over analysts’ expectations of $7.94 billion, and it also posted a profit of $361 million. It’s now added more than 1 million net total subscribers per quarter for nine quarters in a row. Many analysts predict that T-Mobile could very well surpass Sprint as the nation’s third-largest carrier, though we won’t know that for sure until Sprint reports its earnings next week.


What is sure, though, is that T-Mobile’s earnings and growth aren’t accidental. In the last two years, the company has slashed prices and rolled out a campaign specifically targeting the weaknesses of its competitors. Earlier this summer, the company announced an enticing new program that allows customers to upgrade their smartphones multiple times a year. Then, it started letting customers use their phones in Canada and Mexico without incurring roaming fees. It introduced a family plan that gives each member 10 gigabytes of data. Just this week, it guaranteed a $15 monthly fee for iPhone 6 buyers who want to upgrade to a newer iPhone next year—and though this last announcement comes after the close of the company’s second quarter, it helps show just how much pressure T-Mobile is putting on its peers. And it might be working: Verizon’s customer growth, for example, is slowing.

But bad news for Verizon might be extremely good news for consumers. That’s because T-Mobile’s growth might spur the other three big players on the field—Verizon, AT&T, and Sprint—to offer even better plans to lure customers back. On Wednesday, T-Mobile CEO John Legere boasted that his company “continues to listen to customers and respond with moves that blow them away.” The question now is whether other carriers will seek to do the same.

July 29 2015 6:22 PM

Whole Foods Needs Some Good News After Its Pricing Scandal. It’s Still Waiting.

Whole Foods wants its grip on the organic food industry back. The grocery chain used to dominate the market, but it has steadily been losing its lead to supermarket chains and other grocery stores that offer organics at lower prices—and it’s well aware. To strike back, the company laid out ambitious plans this year to open new stores aimed specifically at millennials, and it responded to growing competition by providing more store-branded food items and launching a national rebranding campaign. But its reputation was badly damaged this summer by a New York investigation that revealed what many customers have long make grumbling jokes about: The store routinely overpriced some of its products.

“Straight up, we made some mistakes,” Whole Foods co-CEO Walter Robb confessed in early July. Though his candor was appreciated, it wasn’t enough to reverse the outrage sparked by the investigation’s findings. In the wake of the overpricing scandal, Whole Foods on Wednesday reported disappointing results for its third quarter, which ended July 5. Though its total sales for the 12-week period rose to $3.6 billion, its diluted earnings per share fell short of analysts’ expectations and growth slowed sharply in the last few weeks of the quarter. The company also issued predictions for its fourth quarter that are short of previous expectations.


Whole Foods seems to be relying on the launch of its new millennial-themed stores, called 365 by Whole Foods Market, for salvation. On Tuesday, Robb emphasized the upcoming rollout of the new stores next year, as did the new chain's president Jeff Turnas, who said Whole Foods is “really excited” for the launch. Meanwhile, Robb admitted that there is "no magic bullet for restoring whatever trust was lost" after its pricing scandal. Well, there could be one: even lower prices.

July 29 2015 5:51 PM

The Economy Keeps Getting Better, but Young Adults Keep Living With Mom and Dad

Earlier this spring, there seemed to be signs that young adults were finally shaking off the effects of our long-ago recession and moving out from their parents' basements. Namely, the pace of U.S. household formation was speeding up, which is generally a sign that twentysomethings are setting off on their own.

But maybe not so much. Today, the Pew Research Center is out with a new analysis of census data suggesting that young adults haven't really changed their ways. The job market might be getting better by the month, but millennials are still very much living at home.


First, the very big picture. Since 2010, unemployment among 18-to-34-year-olds has fallen significantly. And yet the fraction of that group living independently, meaning not with a parent or relative, has also declined. 

Now let's drill down a little more. Pew was kind enough to send me its numbers broken down into smaller age groups—18-to-24-year-olds (with full-time college students excluded) and 25-to-34-year-olds. In the first three months of 2015, it seems, the percentage of younger millennials living at home shrank a bit. For older millennials, it rose. Pew cautions that, because of seasonal issues, numbers from this past winter might not be 100 percent comparable with full-year data from 2014. But still, there's no real sign that the 25-to-34 group is leaving the nest.


Jordan Weissmann*

And honestly, nobody is entirely sure why they haven't yet. There are theories, of course. Some studies have blamed student debt, though that doesn't really explain why non-college-goers are also living at home at higher rates. Others suggest the fact that young people now get married later than they used to may be responsible. To me, it seems blindingly obvious that the fact that rents are rising faster than wages in much of the country has something to do with it, though I haven't seen a rigorous analysis testing that theory. (But, seriously, 46 percent of 25-to-34-year-olds were rent-burdened in 2013, up from 40 percent in 2003. If it is less affordable to get an apartment, it seems unsurprising that fewer people will do it.)

Really, though, it's kind of silly to try and single out a single overriding reason why millennials are still fulfilling our stereotype as the boomerang generation. The labor market might not be a raging dumpster fire anymore. But over the past 15 years, the economy (and culture) has evolved in ways that make living solo less appealing. The rent is high. We have education loans to pay off. We're not in a rush to get hitched. So long as all that stays true, America's basements are probably going to stay pretty full.

Correction, July 29, 2015: About a minute after publishing, I noticed a spreadsheet error that inflated the percentage of 25-to-34-year-olds living at home. Thankfully, it did not change the underlying trend or analysis at all, but I deeply regret my Reinhart-Rogoff moment. I've swapped in a corrected graph.