Flat pay raises are a sign o' the times
In this uncertain economy, employers want to save where they can. That’s likely why Starbucks just joined a growing list of companies to shift from merit-based raises to a flat percentage raise. In this episode, why a flat raise structure tends to be cheaper and less time consuming than merit increases — even though everyone gets ‘em. Plus: China leans into trade with developing nations, President Trump wants to cut funding for flights to rural airports, and homebuilder sentiment stays low.
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In no particular order, tariffs, airplanes, education, and then
sorry, tariffs again.
From American Public Media, this is Market Class.
I'm Kai Rizdahl.
It is Tuesday, today, 19 August.
Good as always to have you along, everybody.
Nature, as we know, abhors a vacuum.
So too does the global economy.
We're at a point in President Trump's tariff regime.
Most of the chaos is behind us.
His import taxes seem to be set.
Emphasis there on seem.
The American economy is adjusting to life less welcoming to the outside world.
We're at a point where there's a vacuum to be filled, and China is doing it.
Beijing is lowering some of its trade barriers for developing countries in particular, and it's ramping up its overseas investments.
Marketplace Sabri Benishore gets us going today.
China's growing trade with developing countries did not start this year.
This has been going on for more than 20 years.
John Alterman is with the Center for Strategic and International Studies.
And as poorer countries get wealthier, they're interested in importing more manufactured goods.
The cheapest place for a lot of countries to get manufactured goods is China.
But U.S.
tariffs and unpredictable trade policy have lit a fire under developing countries to deepen their ties with China and do it quickly.
Just as a business proposition, if your trade with the United States is going to be heavily taxed, then countries want an alternative to trading with the United States.
China's imports from developing countries and exports to them have doubled since 2015, according to a report from S ⁇ P Global.
By comparison, trade with the U.S.
has risen only 28%.
Chinese investment in developing countries has quadrupled in a decade.
This is not just one single company going overseas.
It's the entire supply chain.
Shong Yuan Zhou Eiliu is with the Council on Foreign Relations.
Chinese companies facing cutthroat competition and rising labor costs at home have been looking for markets and labor elsewhere.
The government has helped their customers with financing and without strings attached around labor or human rights.
But Liu doesn't view Chinese commercial expansion as a threat to U.S.
business.
Especially when it comes to technology competition, Chinese companies and American companies are simply operating at two different levels.
She says the U.S.
tends to produce high-end products at the cutting edge of innovation.
China produces more affordable stuff with more incremental innovations.
But John John Alterman with CSIS does see an indirect impact from China deepening ties with developing countries.
That gives China an inn, and China uses that in to try to block the United States from using economic tools that it's used around the world to fight terrorism, drug trafficking, corruption, all kinds of things.
In the global economy, trade and investment are the ties that bind.
The U.S.
may find itself binding a little less.
In New York, I'm Sabri Beneshore for Marketplace.
Wall Street, on this Tuesday, tech was the big loser.
The magnificent seven, as they're called.
That would be Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
Not so very magnificent today.
We will have the details when we do the numbers.
Our corporate story of the day comes to us courtesy of ticker symbol SBUX.
Shares down about a percent and three-quarters today, as it happens.
Starbucks, as you perhaps heard, has been trying to overhaul things, simplify its menu, bringing back ceramic cups, all in an effort to stop a recent slide.
It's been overhauling its corporate workforce, too.
It laid off more than a thousand white-collar workers earlier this year, and now the company says it's switching up its raise structure for salaried employees, moving from a merit-based system to an across-the-board 2% raise.
Marketplaces Kristen Schwab has more on that one.
Usually, the kind of raise a company dishes out depends on its workforce.
Merit raises tend to go to white-collar employees.
Across-the-board raises go to blue-collar ones.
Diane Burton directs the Institute for Compensation Studies at Cornell.
This is strategic HR.
What kind of a place are we trying to create?
How much competition versus how much cooperation do we need or want?
Different raise models incentivize different behavior.
You may not necessarily want to give a police officer a merit raise for handing out more tickets, but you may want to reward a salesperson for making more sales.
Burton says in corporate America, the dynamic has been changing, in part because companies are more sensitive to gender and racial pay disparities.
You saw a lot of companies abandoning their performance evaluation system.
Also, merit raises are tedious.
Michael Sturman, a professor of HR management at Rutgers, says they require managers to measure employee performance and write lots of reviews.
It's taken up a lot of time, caused a lot of headaches.
Performance appraisals are a pain.
Doing away with them saves time, which is money.
It can also save actual money.
According According to Bureau of Labor Statistics data, as of June, wages for private industry workers increased 3.5% for the year, on average.
Compare that to a flat 2%, and for Starbucks, it does make it actually a little bit easier to allocate less money and therefore perhaps keep your costs down.
Limiting raises and slashing benefits is a common tactic when companies are underperforming.
It's also common when the economy at large looks shaky.
Barry Gerhardt is a professor of management at the University of Wisconsin-Madison.
The labor market has cooled, and so companies now are starting to feel they have more leeway, more leverage with their employees.
In other words, companies know it's getting harder for workers to find other jobs, which means it's getting easier for companies to compete.
I'm Kristen Schwab for Marketplace.
We're going to do a little history to set up this next story.
We're going to take you from the Carter years to the Trump II years, and we're going to do it with commercial aviation.
It used to be that the federal government, in the form of the Civil Aeronautics Board, dictated where airlines could fly and how much they could charge to do it.
In 1978, though, Congress and President Carter deregulated the airline industry, which explains a lot of what's happening today, both good and bad.
But to stick to the point, lawmakers back then worried that airlines would abandon rural communities for lack of profit, so they created the Essential Air Service, which subsidizes flights to more than 170 small airports.
It's still around today at a total cost this fiscal year of close to $600 million.
In his proposed budget, though, President Trump wants to cut that in half.
Marketplace's Henry Epp went to Plattsburgh, New York to see what that's going to mean in real life.
When Ray Torres was growing up in Plattsburgh, catching a flight usually meant driving about an hour and a half away to the airport in Burlington, Vermont.
That drive includes a ferry ride across Lake Champlain.
So you'd have to leave at like three in the morning.
And try to get on the ferry.
And get on the ferry.
And if you missed the ferry, then you had to wait longer.
It just created so much more of a nightmare because of the extra cost and time.
A year ago, Torres moved to Miami.
When she came back to visit her family for the first time this summer, she instead flew right into Plattsburgh.
I spoke with her as she waited for her return flight.
No, this was nice.
I got picked up like as my brother went home from work.
The flight she took is subsidized by the Essential Air Service or EAS program.
Plattsburgh did have an EAS route when Torres lived here, but for years it wasn't the most comfortable experience for many flyers, says Chris Craig, the airport's director.
We've had everything from a nine-passenger Cessna 402.
We had a 19-passenger Beach 1900.
Pretty small planes, not your typical commercial flight.
But for the last few years, the small Plattsburgh Airport has had a federally funded contract with a company that flies 30-seat jets, a more traditional flying experience.
They fly every day to Dulles International in Washington, D.C., giving residents access to connections all over the world.
And the route brings travelers into the Plattsburgh area too, says Molly Ryan, the region's economic development director.
She watched as passengers got off a fairly full flight from Dulles.
That is tax dollars, that is sales tax revenue, that is people coming into the area spending money in our restaurants, our stores, supporting local businesses.
And so having that funding has a significant impact on our local economy.
But that funding from the federal government is potentially at risk, though not for the first time.
When it was created in the late 70s, the Essential Air Service program was going to be temporary.
So it was only supposed to last 10 years, from 78 to 88?
Austin Drucker is an economist at the Federal Trade Commission.
He's speaking here in his personal capacity.
He wrote his dissertation in 2023 on the Essential Air Service program.
The program was made permanent in the 90s, but about a dozen years ago, Congress tightened its requirements to reduce the number of airports in the program.
An airport could not be within 70 miles from a medium or large hub airport.
Now, the Department of Transportation, which did not respond to an interview request, wants to tighten that eligibility even more.
Under its proposal, if an EAS airport is within 75 miles of a small hub, like Burlington, Vermont, for example, it would no longer be eligible for the program.
Drucker says there's an argument for this change.
He studied flight booking data and found that over half of EAS airports in the continental U.S.
are within 90 minutes' drive of another airport, including small hubs.
And the vast majority of flyers in those EAS communities, he found, chose to make those drives.
It kind of undermines the whole purpose of the program.
But supporters of EAS say even if residents can drive to other airports, it doesn't mean they should have to.
It's also a critical humanitarian service.
Dan Bubb is a professor at the University of Nevada, Las Vegas.
He says EAS flights are a way for people in rural areas to access medical specialists in larger cities.
When you're dealing with people who have critical medical needs who don't have access to the physician whom they need to see, the hospital they need to go to, that's where the Essential Air Service provides a critical fulfillment.
But it's also useful for less life or death situations, like for Ray Torres coming back home to Plattsburgh from Miami.
My brother was able to just leave the house and pretend he was going to the store, and my mom had no idea because I flew right into Plattsburgh.
She had no idea it was going, but no one had to like fake going to Vermont.
Which, she says, made the surprise all the better.
In Plattsburgh, New York, I'm Henry App for Marketplace.
There is a certain, yeah, I'm not really sure what's going on quality to some of the economic data we have been getting here in mid-2025.
We had consumer inflation and wholesale prices being really different last week.
The consumer mood and consumer spending disconnect, Mitchell Hartman talked about for us yesterday.
Today, it's monthly residential construction data from the Census Bureau.
And again, it's kind of a head scratcher.
The headline is that there's been a real gain in housing starts.
That is, housing actually starting to be built.
But at the same time, building permits for new construction were down year on year.
Marketplace's Elizabeth Troval makes sense of what the heck is happening here.
July's housing starts data may look rosy, but it's just one month and one indicator.
And a lot of that new construction was actually for apartments and condos.
Robert Dietz is an economist with the National Association of Home Builders.
I think this is just a natural consequence of the ongoing ongoing challenges for housing affordability in the for sale space.
Higher mortgage rates continue to keep people from buying, and these priced-out would-be homebuyers have to live somewhere.
Housing affordability is challenged.
Some of those prospective homebuyers are remaining in the rental market longer than expected.
But while this looks like a good month for multifamily builders, McCrina Wilkins, an analyst with the Associated General Contractors of America, says when you look at permits for new construction, that paints a different picture.
The data suggests that we're in for a softer patch because permits are trending down.
What that really means is builders are cautious about any future demand or the financial conditions that would impact consumers and their inclination to buy.
And overall builder sentiment for all residential construction is low.
Oh, gosh, so many, so many headwinds.
Economist Allie Wolf with the real estate data firm Zonda says, for one, there's the higher cost of borrowing.
Also, construction costs are higher this year than where they were last year, and they were already high last year.
And there's just a lot of questions of, well, what's going to happen to my construction costs?
Do we already have the tariffs baked in?
Are we going to see costs go higher?
Throw in some additional uncertainty around the supply of construction labor because of current immigration policy.
And she says pulling the trigger on new projects can be tricky.
I'm Elizabeth Troval for Marketplace.
Coming up.
I feel like I'm an outlier for employment and hiring right now.
Please remember: labor markets are very regional.
But first, let's do the numbers.
Dow Industrial is basically flat today, 44,922.
The NASDAQ off 314 points, 1.5%, 21,314.
Magnificent seven indeed.
Yes, 500 down, 37 points, about 6 tenths percent, 64, and 11.
Home Depot improved 3 and 2 tenths percent today.
That's even after reporting earnings that fell short of expectations.
The retailer says homeowners are still, and this is a quote, in a deferral mindset when it comes to big projects because of, say it with me now, economic uncertainty.
Intel up 7% today.
Let's after news.
The U.S.
chip makers are going to get a $2 billion capital investment from SoftBank.
It is a bit of optimism for the tech company, which has struggled to compete in the AI world.
Bonds up yield on the tenure Tino down 4.31%.
You're listening to Marketplace.
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This is Marketplace.
I'm Kai Rizdahl.
There's a lot deep inside the Republican tax cut and spending package that President Trump signed into law last month that we haven't gotten to yet, including the first national school voucher plan.
It doesn't kick into gear until next year, but in the meanwhile, A lot of Republican-led states either have or are now rolling out school voucher programs of their own.
There are huge economic implications to more parents moving their kids out of public schools, and it's also, obviously, a business opportunity.
Dana Goldstein covers education for the New York Times.
Dana, it's good to have you on.
Thanks for having me, Kai.
So we talk about demographics a lot on this program, mostly though, as a labor market issue.
Give me the education industry insights here.
Sure.
Well, because fertility rates are down,
school populations are also down.
And that means that enrollment is decreasing at about two-thirds of schools nationwide, according to analysis that we've done here at the New York Times.
What's really interesting, though, is that at this exact moment of demographic change, policymakers in about half the states have decided to vastly increase school choice policies by rolling out private school vouchers.
So, this is presenting an even bigger challenge to traditional public schools that now have to compete for students.
It is also, though, as I said in the the introduction, a business opportunity.
Tell me about this company, and I'm not pronouncing this right, I'm sure.
Kaisa K-12, tell me about this company.
Yeah, Kesa K-12 is founded by this really interesting guy, Brian Stevens, who I had the opportunity to interview.
His roots are in political consulting, so going door-to-door on behalf of specific candidates.
However, he saw an opportunity with this increasing competitive marketplace in education.
What he is doing now is selling a service to schools of student recruitment.
So he fans out, you know, dozens of recruiters across a city or a county to look for parents and try to convince them to enroll their kids in public schools.
Alongside this, he's offering other services to these districts.
He's helping them survey parents to find out what they can provide that would make traditional public schools more attractive to parents who have more choices than ever before in terms of how to educate their kids.
I want to make sure people are clear here.
We're talking about public schools having to recruit students.
This guy has a, honestly, it's a great line.
He says, the monopoly in parentheses here of public education is over, he says.
Yeah, that's right.
And this is really true in states like Florida, where almost half a million students are now using some form of a private school voucher.
And I was able to go out with these QASA K-12 recruiters in Orange County, which is home to Orlando, Florida, and really see them sort of hit the ground trying to convince parents to enroll their kids in public school.
What do the school districts say about
taking part of their hard-earned money, right?
Because students are funded per pupil, and obviously as enrollment goes down, they lose money, and money is tight in all school districts.
What do they say about paying this guy to get them more students?
Is it simply you got to spend money to make money?
Yeah, that's exactly right.
The superintendents I spoke to said this was a pretty easy pitch for them to accept from the company because they pay about 10% of the per-pupil funding that they will get for that enrolled child back to the consulting firm.
So, in other words, if your student brings in $10,000 of state funding, the company gets $1,000 for recruiting them.
And so that's $9,000 that you didn't have before.
Give me the market forces part of this because the argument, of course,
for students going to charter schools or voucher-funded schools is that it will force public education to get better.
You've been an education reporter for a while.
Do you see that happening?
You know, I've always looked at research that is a little bit skeptical of that claim.
You know, there isn't a really big or compelling argument that say test scores go up when students use vouchers.
There are some studies that show that, some studies that show other results.
And so it's hard to draw a blanket conclusion.
However, However, I will say that the Orange County Public Schools in Florida where I based a lot of this reporting, They are really responding to the market pressure.
So for example, the superintendent, Maria Vasquez, told me that they are considering having more K through eight or six through 12 schools because their surveys of parents showed that parents really don't like middle school.
So for advocates of the private school vouchers, they are not looking at the competition and saying, oh my goodness, the district is spending money on consultants.
What a waste of taxpayer funds.
Instead, they're saying, look, they're learning their marketplace and they are serving the consumer better because of this.
Right.
It's about knowing your customers.
Dana Goldstein at the New York Times.
Really interesting piece.
Dana, thanks a lot.
Thank you.
Retail right now, the whole industry, the big boxes and the chains and the moms and pops, they're all a little bit betwixt and between.
Retail sales are doing all right, but tariffs are starting to bite and hiring is always a challenge, no matter what size your shop.
Annie Lang Hartman is one of our retail regulars.
She owns Wild Letty, that's a stationery store in northern Michigan.
Right now, for Wild Letty,
we aren't in need of hiring.
Typically, we hire in early spring and then we schedule throughout the rest of the year.
And we haven't had any staff changes or unexpected things come up.
So we aren't feeling the crunch of needing to hire people this fall or for this winter.
And honestly, that feels incredibly great.
Talking Talking with my employees, I am feeling pretty confident that we're going to have pretty much everyone come back this next season.
And I do have a lineup of people that are interested in working for us next year.
So I'm feeling really, really lucky with that as well.
I have quite a few friends that are also small business owners.
Hearing them go through trying to hire someone right now is just so incredibly stressful for them.
So I'm happy to have a really great retention rate for employees.
I feel like I'm an outlier for employment and hiring right now that we're doing all right.
We are based in Leelanau County, Michigan, and it's very much a summer tourist town.
A lot of the workforce for the busy summer season is college kids, high school kids, and they're starting to go back to school.
So, for other small businesses in our area, they're definitely having a hard time finding people to get them through the winter.
And
I just feel very, very lucky that we aren't in that situation.
Annie Lang Hartman of Wild Letty up in Leelana County, Michigan.
Unemployment rate there, by the way, 5.2% as of June.
This final note on the way out today.
Remember, I said up at the top of the program that most of the tariff chaos seemed to be behind us?
Yeah, I should have known better.
To very little fanfare today, the Department of Commerce added 407 items to the listed keeps of items to be taxed at an extra 50% when they arrive in this economy.
Specifically, 407 items even vaguely related to steel and aluminum.
It'll affect everything from fire extinguishers to chemicals and wind turbines to furniture.
Shame on me indeed for thinking things were calming down.
Jordan Manji, Zonio Maharaj, Janet Wynne, Oga Oxman, Virginia K.
Smith, and Tony Wagner are the digital team.
I'm Kai Rizdo.
We will see you tomorrow, everybody.
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