Flat pay raises are a sign o' the times

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Speaker 3 In no particular order, tariffs, airplanes, education, and then,

Speaker 3 sorry, tariffs again. From American public media.
This is Market Class.

Speaker 3 I'm Kyle 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.

Speaker 3 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.

Speaker 3 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.

Speaker 3 Beijing is lowering some of its trade barriers for developing countries in particular, and it's ramping up its overseas investments. Marketplace to Sabri Benishore gets us going today.

Speaker 5 China's growing trade with developing countries did not start this year.

Speaker 6 This has been going on for more than 20 years.

Speaker 5 John Alterman is with the Center for Strategic and International Studies.

Speaker 6 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.

Speaker 5 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.

Speaker 6 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.

Speaker 5 China's imports from developing countries and exports to them have doubled since 2015, according to a report from SP Global. By comparison, trade with the U.S.
has risen only 28%.

Speaker 5 Chinese investment in developing countries has quadrupled in a decade.

Speaker 7 This is not just one single company going overseas, it's the entire supply chain.

Speaker 5 Tsong Yuan Zoe Liu 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.

Speaker 5 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.

Speaker 7 Especially when it comes to technology competition, Chinese companies and American companies are simply operating at two different levels.

Speaker 5 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.

Speaker 5 But John Alterman with CSIS does see an indirect impact from China deepening ties with developing countries.

Speaker 6 That gives China an in.

Speaker 6 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.

Speaker 5 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.

Speaker 3 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.

Speaker 3 Not so very magnificent today. We will have the details when we do the numbers.

Speaker 3 Our corporate story of the day comes to us courtesy of ticker symbol SBUX. Shares down about a percent and three three-quarters today, as it happens.

Speaker 3 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.

Speaker 3 It's been overhauling its corporate workforce, too.

Speaker 3 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.

Speaker 3 Marketplaces Kristen Schwab has more on that one.

Speaker 11 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.

Speaker 11 Diane Burton directs the Institute for Compensation Studies at Cornell.

Speaker 12 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?

Speaker 11 Different raise models incentivize different behavior.

Speaker 11 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.

Speaker 11 Burton says in corporate America, the dynamic has been changing, in part because companies are more sensitive to gender and racial pay disparities.

Speaker 12 You saw a lot of companies abandoning their performance evaluation system.

Speaker 11 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.

Speaker 14 It's taken up a lot of time, caused a lot of headaches. Performance appraisals are a pain.

Speaker 11 Doing away with them saves time, which is money. It can also save actual money.

Speaker 11 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.

Speaker 14 It does make it actually a little bit easier to allocate less money and therefore perhaps keep your costs down.

Speaker 11 Limiting raises and slashing benefits is a common tactic when companies are underperforming. It's also common when the economy at large looks shaky.

Speaker 11 Barry Gerhardt is a professor of management at the University of Wisconsin-Madison.

Speaker 15 The labor market has cooled and so companies now are starting to feel they have more leeway, more leverage with their employees.

Speaker 11 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.

Speaker 3 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.

Speaker 3 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.

Speaker 3 In 1978, though, Congress and President Carter deregulated the airline industry, which explains a lot of what's happening today, both good and bad.

Speaker 3 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.

Speaker 3 It's still around today at a total cost this fiscal year of close to $600 million.

Speaker 3 In his proposed budget, though, President Trump wants to cut that in half. Marketplaces Henry Epp went to Plattsburgh, New York to see what that's going to mean in real life.

Speaker 9 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.

Speaker 9 That drive includes a ferry ride across Lake Champlain.

Speaker 16 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.

Speaker 16 It just created so much more of a nightmare because of the extra cost and time.

Speaker 9 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.

Speaker 16 No, this was nice. I got picked up like as my brother went home from work.

Speaker 9 The flight she took is subsidized by the Essential Air Service or EAS program.

Speaker 9 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.

Speaker 17 We've had everything from a nine-passenger Cessna 402. We had a 19-passenger Beach 1900.

Speaker 9 Pretty small planes, not your typical commercial flight.

Speaker 9 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.

Speaker 9 They fly every day to Dulles International in Washington, D.C., giving residents access to connections all over the world.

Speaker 9 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.

Speaker 18 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.

Speaker 18 And so having that funding has a significant impact on our local economy.

Speaker 9 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.

Speaker 9 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.

Speaker 9 He wrote his dissertation in 2023 on the Essential Air Service Program.

Speaker 9 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.

Speaker 9 An airport could not be within 70 miles from a medium or large hub airport.

Speaker 9 Now the Department of Transportation, which did not respond to an interview request, wants to tighten that eligibility even more.

Speaker 9 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.

Speaker 9 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.

Speaker 9 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.

Speaker 9 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.

Speaker 13 It's also a critical humanitarian service.

Speaker 9 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.

Speaker 13 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.

Speaker 9 But it's also useful for less life or death situations, like for Ray Torres coming back home to Plattsburgh from Miami.

Speaker 16 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 in to Plattsburgh.

Speaker 18 She had no idea it was coming.

Speaker 16 But no one had to like fake going to Vermont.

Speaker 9 Which, she says, made the surprise all the better. In Plattsburgh, New York, I'm Henry App for Marketplace.

Speaker 3 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.

Speaker 3 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.

Speaker 3 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.

Speaker 3 That is, housing actually starting to be built. But at the same time, building permits for new construction were down year on year.

Speaker 3 Marketplace's Elizabeth Troval makes sense of what the heck is happening here.

Speaker 20 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.

Speaker 20 Robert Dietz is an economist with the National Association of Home Builders.

Speaker 21 I think this is just a natural consequence of the ongoing challenges for housing affordability in the for sale space.

Speaker 20 Higher mortgage rates continue to keep people from buying. And these priced out would-be homebuyers have to live somewhere.

Speaker 21 Housing affordability is challenged. Some of those prospective homebuyers are remaining in the rental market longer than expected.

Speaker 20 But while this looks like a good month for multifamily builders, McRina Wilkins, an analyst with the Associated General Contractors of America, says when you look at permits for new construction, that paints a different picture.

Speaker 22 The data suggests that we're in for a softer patch.

Speaker 20 Because permits are trending down.

Speaker 22 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.

Speaker 20 And overall builder sentiment for all residential construction is low.

Speaker 23 Oh, gosh, so many, so many headwinds.

Speaker 20 Economist Allie Wolf with the real estate data firm Zonda says, for one, there's the higher cost of borrowing.

Speaker 23 Also, construction costs are higher this year than where they were last year, and they were already high last year.

Speaker 23 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?

Speaker 20 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.

Speaker 20 I'm Elizabeth Troval from Marketplace.

Speaker 4 Coming up.

Speaker 24 I feel like I'm an outlier for employment and hiring right now.

Speaker 3 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.

Speaker 3 ESP 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.

Speaker 3 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.

Speaker 3 Intel up seven percent today that's after news the u.s chip makers are going to get a two billion dollar 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 tinot down 4.31 percent you're listening to marketplace

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Speaker 3 This is Marketplace. I'm Kai Rizdahl.

Speaker 3 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.

Speaker 3 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.

Speaker 3 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.

Speaker 3 Dana, it's good to have you on.

Speaker 25 Thanks for having me, Kyle.

Speaker 3 So we talk about demographics a lot on this program, mostly though, as a labor market issue. Give me the education industry insights here.

Speaker 25 Sure. Well, because fertility rates are down, school populations are also down.

Speaker 25 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.

Speaker 25 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.

Speaker 25 So this is presenting an even bigger challenge to traditional public schools that now have to compete for students.

Speaker 3 It is also, though, as I said in the introduction, a business opportunity. Tell me about this company, and I'm not pronouncing this right, I'm sure.
KASA K-12, tell me about this company.

Speaker 25 Yeah, KASA K-12 is founded by this really interesting guy, Brian Stevens, who I had the opportunity to interview.

Speaker 25 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.

Speaker 25 What he is doing now is selling a service to schools of student recruitment.

Speaker 25 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.

Speaker 25 Alongside this, he's offering other services to these districts.

Speaker 25 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.

Speaker 3 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.

Speaker 3 He says the monopoly in parentheses here of public education is over, he says.

Speaker 25 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.

Speaker 25 And I was able to go out with these CASA 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.

Speaker 3 What do the school districts say about

Speaker 3 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.

Speaker 3 What do they say about paying this guy to get them more students? Is it simply you got to spend money to make money?

Speaker 25 Yeah, that's exactly right.

Speaker 25 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.

Speaker 25 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.

Speaker 3 Give me the market forces part of this because the argument, of course,

Speaker 3 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?

Speaker 25 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 i will say that the orange county public schools in florida where i based a lot of this reporting

Speaker 25 They are really responding to the market pressure.

Speaker 25 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.

Speaker 25 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.

Speaker 25 Instead, they're saying, look, they're learning their marketplace and they are serving the consumer better because of this. Right.

Speaker 3 It's about knowing your customers. Dana Goldstein at the New York Times.
Really interesting piece. Dana, thanks a lot.

Speaker 25 Thank you.

Speaker 3 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.

Speaker 3 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.

Speaker 3 She owns a Wild Letty that's a stationery store in northern Michigan.

Speaker 24 Right now for Wild Letty, we aren't in need of hiring.

Speaker 24 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.

Speaker 24 So we aren't feeling the crunch of needing to hire people this fall or for this winter. And honestly, that feels incredibly great.

Speaker 24 Talking with my employees, I am feeling pretty confident that we're going to have pretty much everyone come back this next season.

Speaker 24 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.

Speaker 24 I have quite a few friends that are also small business owners and

Speaker 24 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.

Speaker 24 I feel like I'm an outlier for employment and hiring right now that we're doing all right. We are based in Leelana County, Michigan, and it's very much a summer tourist town.

Speaker 24 A lot of the workforce for the busy summer season is

Speaker 24 college kids, high school kids, and they're starting to go back to school.

Speaker 24 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 that situation.

Speaker 3 Annie Lang Hartman of Wild Letty up in Leelana County, Michigan. Unemployment rate there, by the way, 5.2% as of June.

Speaker 3 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?

Speaker 3 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.

Speaker 3 Specifically, 407 items even vaguely related to steel and aluminum. It'll affect everything from fire extinguishers to chemicals and wind turbines to furniture.

Speaker 3 Shame on me indeed for thinking things were calming down.

Speaker 3 Jordan Manji, Zonio Maharaj, Janet Wynne, Oga Oxman, Virginia K. Smith, and Tony Wagner are the digital team.
I'm Kyle Rizdo. We will see you tomorrow, everybody.

Speaker 3 This is APM.

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