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Silicon Tally: #Scrabble

Fri, 2014-08-08 02:00

It's time for Silicon Tally. How well have you kept up with the week in tech news? This week, we're joined by Megan Garber, staff writer at The Atlantic. var _polldaddy = [] || _polldaddy; _polldaddy.push( { type: "iframe", auto: "1", domain: "marketplaceapm.polldaddy.com/s/", id: "silicon-tally-hashtag-scrabble", placeholder: "pd_1407500322" } ); (function(d,c,j){if(!document.getElementById(j)){var pd=d.createElement(c),s;pd.id=j;pd.src=('https:'==document.location.protocol)?'https://polldaddy.com/survey.js':'http://i0.poll.fm/survey.js';s=document.getElementsByTagName(c)[0];s.parentNode.insertBefore(pd,s);}}(document,'script','pd-embed'));

Corporate earnings: up. Hiring: not so much.

Fri, 2014-08-08 02:00

Corporate earnings reports for the spring quarter are mostly in by the first week in August. Overall, they paint a pretty rosy picture for America, Inc., as Bloomberg predicts profits at S&P 500 companies rose nearly 9.5 percent; sales rose more than 4 percent. So far, 75 percent of companies that have reported earned more than equity analysts predicted.

“The results have been really solid,” said chief economic strategist John Canally at LPL Financial in Boston. He said the results bode well for the second half of 2014, especially since GDP growth has picked up since the winter reversal.

Canally said companies are mostly plowing their profits back into the company; not adding to their payrolls, or investing in new plant and equipment.

“It’s mergers and acquisitions, increasing dividends, share buybacks,” Canally said. “Companies are doing what companies normally do: trying to boost share price for their shareholders. They’re just not doing a lot of hiring right now.”

Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, said U.S. companies have increasing worries overseas — where a lot of their profits are earned — due to geopolitical and economic crises in Russia-Ukraine, Iraq-Syria, Israel-Palestine, Argentina, and Europe.

“Some of those geopolitical events have made people rethink how optimistic they are about the world economy over the next 12 months,” said Ashworth — Which, he said, explains some of the stock market's recent slump.

Tesla teases Reno with a Gigafactory

Wed, 2014-08-06 13:41

Electric car manufacturer Tesla has started work on a huge new battery factory in Reno, Nevada, but don’t let that fool you. Reno may not end up with the factory and the 6,500 jobs it is expected to create.  

Tesla started building in Reno, even though its new “Gigafactory” may not actually be completed there.

On a recent earnings call, CEO Elon Musk said he might start similar construction on one or two other sites. The company is also looking at locations in Arizona, California, New Mexico and Texas.

“Before we actually go to the next stage of pouring a lot of concrete though, we want to make sure we have things sorted out at the sort of state level, that the incentives are there that makes sense,” Musk said, adding “on the Nevada side, at this point the ball is on the court of the governor and the state legislature.”

Tesla wants the eventual host state to chip in 10 percent of the factory’s $4-to-$5 billion price tag. While it negotiates, the car maker says it’s worth construction costs to get the factory up and running as soon as possible.

"Any potentially duplicative investments are minor compared to the revenue that could be lost if the launch of Model 3 were affected by any delays at our primary Gigafactory site," the company wrote in its recent investor letter.

“It’s pretty unusual for them to be actually starting construction on a site,” says Tim Bartik, an economist for the W.E. Upjohn Institute for Employment Research, though he says shopping around for a good deal from states is common.

Still, states should approach these types of deals with caution.

“People should realize that incentives are not a free lunch,” says Bartik. “They do involve costly resources.”

Local officials need to analyze what kind of wages the company will pay or the types of suppliers it might work with.

“Until recently, most states weren’t doing this kind of analysis,” says Josh Goodman, with the Pew Charitable Trusts Economic Development Tax Incentives Project. “Sometimes, they might do the analysis on a program that was getting attention because there was a lot of problems there.”

But many of states are wising up, Goodman says, passing laws and requiring periodic reviews of their incentives to be sure they are actually good deals for the state.

Graphic by Shea Huffman/Marketplace

Why Walgreens stepped back from the inversion brink

Wed, 2014-08-06 13:40

Pharmacy company Walgreens announced it is not going to invert after all. 

Corporate inversion is the practice of one company merging with another that's based abroad to avoid taxes or gain access to assets held abroad. At least 47 U.S. corporations have reincorporated overseas in the past decade, more than during the past 20 years combined, according to the Congressional Research Service.

Walgreens first began to buy up British firm Alliance Boots two years ago, purchasing a 45 percent stake in the company and laying out plans to purchase the remaining 55 percent in 2015. At some point, Walgreens considered the possibility of converting the deal to buy Alliance Boots into a deal to invert via Alliance Boots.

“We had to look at whether the structure of the deal would allow for an inversion,” says spokesman Michael Polzin, and that structure proved unworkable. “We’d have to rip up that deal and come up with a new deal.”

There’s a special provision in U.S. tax law that says the inversion doesn’t count – that is, the newly formed company won’t be considered a foreign company, and won’t get tax benefits – if the shareholders from the U.S. side of the inversion own 80 percent or more of the newly formed company’s shares going forward.

“Walgreens would’ve had to renegotiate the deal with Boots in order to make sure that Boots’s shareholders ended up with at least 20 percent of the combined merged entity’s stock and that would’ve been difficult to accomplish,” says Dick Harvey, distinguished professor of practice at Villanova School of Law and Graduate Tax Program.

Walgreens is also different from many other companies in that people know it well, and its brand has accumulated significant consumer good will.

“This is a 100-year-old pharmacy in the United States, with a very long and storied legacy and it’s something the consumer is familiar with,” says Ross Muken, senior managing director and partner at ISI Group. “If [pharmaceutical and medical device companies] AbbVie or Covidien leave the United States, no one knows those brands as a consumer. But most people will know Walgreens.”

Consumers could be turned off if the Walgreens they knew skipped town for tax reasons. If consumers didn’t make the connection, an aggressive ad campaign by a competitor could easily help convince them.

There are about eight corporate inversions pending, Harvey says, but he estimates there could be 50 to 100 more in the next year or two. Politicians and government officials are already taking aim at corporate inverters.

“My attitude is, I don’t care if it’s legal, it’s wrong,” President Barack Obama told an audience at Los Angeles Trade-Technical College in a speech July 24. “I propose closing this unpatriotic tax loophole for good."

Uncle Sam is a customer Walgreens would rather not antagonize — it gets between a quarter and a third of its business from the government through Medicare and Medicaid, says Muken. But most companies considering an inversion don’t have these concerns.

While many businesses wait for comprehensive tax reform, which may or may not materialize, the treasury department announced it would try to close some inversion loop holes on its own. Harvey says this is unlikely to deter many firms.

“There are two or three main benefits from an inversion – and treasury might be able to address one or two of them but there will be other benefits, that could result in businesses inverting even if treasury takes action," Harvey says.

Those benefits include gaining access to assets held abroad, and stripping out earnings from the United States. 

For most firms considering an inversion, he says, those temptations are too good to resist.

Can a rebuilt Gaza build an economy?

Wed, 2014-08-06 13:37

Wednesday is Day Two of a three-day ceasefire between the Israeli Army and Palestinian fighters in Gaza. In Egypt, indirect talks have proceeded between Israeli and Palestinian officials, aimed at extending the ceasefire and opening up Gaza's borders to trade and people.

Israel has largely sealed the borders it shares with Gaza since 2007, when Hamas took over. Recently, the military-led government in Egypt severely restricted its border with Gaza, shutting down the smuggling of goods, people and weapons through a large network of tunnels there.

As the ceasefire began on Tuesday, Palestinian deputy economy minister Taysir Amro estimated the direct damage from Israeli bombing and ground incursions at $4 billion to $6 billion. At least 10,000 homes and 140 schools are believed to be destroyed or damaged; Gaza’s power plant is heavily damaged, as is water treatment and other public infrastructure. Norway is reportedly organizing an international donor’s conference in September to begin the process of raising funds to restore services and rebuild.

“Even if you bring in $5 billion, $6 billion, $8 billion or $9 billion, all that will do is replace what they had, put them where they were,” said Shibley Telhami, a political scientist at the University of Maryland and author of “The World Through Arab Eyes.”

“We know that where they were was an awful place," he says. "Some people were calling it an ‘open prison.’”

"There's no economy in Gaza"

Since 2007, when Hamas seized power from the Palestinian Authority in Gaza after winning an election there, Israel has kept all but a trickle of humanitarian supplies and people from crossing the border. Except for what has been smuggled through tunnels from Egypt, virtually no building supplies are allowed in by Israel for Gazans to use — Israel says these could be used for military purposes. And virtually no produce or furniture or other goods go out to sell in the West Bank, Israel, or farther afield.

“There’s no economy in Gaza — you can’t export from the Gaza strip,” said Khaled Elgindy, senior fellow at the Center for Middle East Policy at the Brookings Institution, who has served as an adviser to Palestinian negotiators in Ramallah.

Elgindy says there is little in the way of industry, agriculture or services in Gaza that could bring capital into the economy. So most development — in fact most consumption — comes from international aid, which 70 percent of residents receive. The unemployment rate is at least 40 percent, according to the World Bank. GDP has been falling in recent years.

Gaza’s "real" GDP growth, according to World Bank. (Source: World Bank)

What would have to happen to get economic development going in Gaza? The experts interviewed for this story said the first prerequisite is more open borders — for supplies coming in, goods for export going out and people (foreign visitors, expatriate family members and workers) going in both directions.

Second, they said Palestinians need more control of key infrastructure and economic relationships with immediate neighbors and potential trading partners.

“It would make a huge difference, in terms of normalizing Gaza, to have a seaport,” said Elgindy. The airport should also be rebuilt and opened to international flights, he said.

Telhami said if Palestinians controlled their own seacoast and airspace, and could clean up the beaches: “Gaza does have a waterfront. In good times, if they ever come, it could be turned into a relatively inexpensive vacation spot.”

Fishing has been severely limited by Israel, which controls the waters off the coast; Telhami said that industry could expand as well, supplying fish to the West Bank.

Leila Hilal, senior fellow at the New America Foundation, said Gaza has human capital that could drive economic development.

“Gazans are very enterprising, they’ve been surviving under total isolation,” said Hilal, adding that the population of Gaza is young, educated and urban. She said the Palestinian diaspora could potentially help — providing expertise, export markets and investment dollars.

But, she said, a political opening in the peace process with Israel, and significant progress in opening borders and normalizing the ability of Gazans to travel and trade freely, would have to come first.

It's all monkey business for Wikimedia

Wed, 2014-08-06 13:35

Remember that picture that was floating around the internet a while ago?

The one a monkey had taken of herself using a camera it had liberated from a British wildlife photographer. It was basically a monkey-selfie.

Anyway, The Telegraph reported today that Wikipedia has declined the photographer's requests to stop distributing the picture without his permission because the site says the monkey pushed the shutter button and so it owns the copyright.

The NCAA's top conferences break out

Wed, 2014-08-06 10:13

A new proposal that grants the country’s top college athletics programs more money for their athletes and loosens NCAA restrictions is expected to be approved Thursday.

"The move comes amid vigorous public debate about the proper role of sports in higher education, and whether college athletes should be compensated for the billions of dollars they help generate," says Marc Tracy, college sports reporter for The New York Times.

This proposal will make the Big 5 conferences' first-class status official, but it might not be good news for the smaller programs. Non-Big 5 athletic programs could possibly lose their funding or be shut down.

"If you’re a non-Big 5 school that nonetheless feels it needs to compete with Big 5 schools and offer more to students, say in football, then you might need to cut costs elsewhere," says Tracy. "Will that actually be something that happens? I don’t know, but it’s certainly possible."

Yelp's CEO on the end of the professional critic

Wed, 2014-08-06 09:43

Ten years ago PayPal alums Jeremy Stoppelman and Russel Simmons had an idea for a website that would allow users to review restaurants and other local businesses. The pair took $1 million in seed capital and turned it into Yelp.

“If you think about the world prior to Yelp, it was the world of the professional critic,” says Stoppelman. “And so that meant lots of businesses didn’t get any exposure at all and the ones that did had kind of a one-shot deal.”

Simmons has since left the company but Stoppelman remains CEO 10 years on. This year is significant for another reason too – in the last quarter, Yelp posted a profit for the first time.

Though it’s free for users to post reviews, Yelp makes money by selling advertisements to small businesses. That concept brought Google knocking in 2009 with an offer to buy the company. Stoppelman remembers the day Steve Jobs called, urging him not to sell. "Fortunately, we chose the independent path"  Stoppelman says, "and I think the company is much more successful as a result."

As for how he and Simmons came up with the name for their now-ubiquitous company, they credit their early days at a business incubator.

“There was a guy we were working with, David, and he just came up with the name. He said it was like Help/Yelp or Yelp/Yellow Pages,"  Stoppelman says. "And both my and Russ’s initial response was 'Oh, that’s kind of a negative word.' But we slept on it and the next day, it was kind of history."

 

CORRECTION: An earlier version of this story misstated that the call from Steve Jobs to Jeremy Stoppelman was about selling. It was urging him not to sell. The text has been corrected.

Meet the woman behind Ikea's living wage calculator

Wed, 2014-08-06 06:48

Scandinavian furniture store Ikea recently announced it will adopt a new, higher wage structure at its U.S. stores in 2015. The company says its average hourly minimum wage in will go up to $10.76, an increase of 17 percent. That's big news, but there was a footnote to that announcement that's worth pausing on.

In this new wage structure, Ikea's lowest wages will be based on something called the MIT Living Wage Calculator. How did one MIT professor's research project become a tool that will affect the wages of thousands of American workers?

The story begins with Amy Glasmeier, a professor of economic geography and regional planning at MIT. Glasmeier is the kind of person who, when she goes on a trip somewhere, is less likely to head to the tourist attractions and more likely to drive to a grocery store where she can squint at price tags to figure out what it costs to live there. Checking out local listings for apartments is also a favorite pastime.

These travel hobbies of hers have to do with one question: Why do certain places have such high poverty rates when others do not?

In her travels and her research, Glasmeier has found that places with higher poverty are often ones where lots of the available jobs pay minimum wage, a wage that she says "absolutely was not paying people enough to live on."

How the Living Wage Calculator works

So what would be enough to live on? That would of course depend on where someone lived, and how much that place costs. And so Glasmeier rounded up some of her best graduate students to create, basically, a giant spreadsheet. They loaded it up with the best regional data available, from government and industry surveys, on costs for housing, food, child care, medical expenses, and transportation. (Plus a category called "other," which includes a modest budget for things like clothes, cleaning supplies and toiletries.)

The spreadsheet adds all these costs up, divides by the number of hours a person typically works in a year, and spits out the hourly rate that, according to all these calculations, an individual must earn to support him or herself (and a family—the wages are adjusted by household size), working full-time.

The "living wages" the calculator produces are not "middle class" wages, cautions Glasmeier. They wouldn't cover a trip to Hawaii once a year or saving for retirement. The living wage is, as she defines it, just enough to pay bills for the necessities of life and not fall behind.

No longer an obscure tool

Since Glasmeier created her calculator, it has had its fans, from policy wonks to unions to the occasional small-business owner. But it was still a relatively obscure tool until one day a few weeks ago, when Glasmeier got a phone call from a reporter, informing her that Ikea was planning to use it to set its own internal minimum wage.

"We truly do see this as the right thing to do for taking care of our co-workers," says Rob Olson, the acting president for Ikea U.S. "An opportunity to increase coworker loyalty, decrease turnover, as well as being able to attract more and more qualified applicants."

Olson says it would be too complicated to pay people different wages based on household size, so Ikea's going to stick with what the Living Wage Calculator comes up with for a single person with no children. (In other words, the lowest wage the calculator offers). Still, starting in January, the minimum hourly pay for an Ikea worker in an expensive suburb of Washington, D.C. will be $13.22 an hour. Over in Pittsburgh, where cost of living is much lower, Ikea's minimum hourly rate will be lower too — $8.29 an hour. But even that is still a dollar more than the federal minimum wage.

Olson says Ikea found out about the MIT Living Wage Calculator through consultants and he didn't know much about who was behind the actual tool.

That's just fine with Glasmeier. With all the political debates over where to set the minimum wage right now, she thinks the anonymity of the tool in some funny way actually makes people feel better.

"As if it was just an MIT robot, somewhere in a closet, crunching the numbers on a daily basis," she says.

Of course, The MIT Living Wage Calculator is not a number-crunching robot in a closet. But you can see why the objectivity the name suggests could make it more attractive to businesses large and small.

Not long ago the calculator caught the attention of Artillery Riewaldt, who owns two Jimmy John's sandwich shops in rural Illinois. Riewaldt says he used to pay all his employees minimum wage. Then, one day, a few years ago, a worker mentioned he was looking for a second job because he couldn't make ends meet.

"It's very difficult knowing that you have a good living for yourself, working right next to someone every day who's trying very hard and helping you grow that business, and knowing that they can't survive the bumps that come up in life," he says. "An employer always needs to make the decision: how much is too much for me at the expense of them?"

Riewaldt says when he found the Living Wage Calculator one night doing research on Google, it felt like a relief. "It's as far as I can tell political-free — it is actual data trying to decide what is that line that has to be met in order to live and be OK."

As politics-free and data-driven as the calculator may be, it is still made by humans, who have to choose the data and update it. On a professor's research budget that can only happen so often, says Glasmeier. Her calculator is currently based on data from 2010, inflated to 2012. Meaning it doesn't reflect more recent rises in cost of living.

In fact, after Ikea announced it was going to be using the MIT Living Wage Calculator, Professor Glasmeier emailed the company.

First, she thanked Ikea for raising wages. "But then I also told them that we were going to have an update," she says. "And the update was going to have a wage that was going to be higher than the one they were using."

She says the update will be published in September.

For now, Ikea says it will stick with the older, lower calculations, but that it will reevaluate annually.

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