Best columns: Business
What happened to pay raises?
U.S. companies “have literally forgotten” how to compete for employees, said Daniel Gross. The demand for workers is so high right now that airlines have canceled flights, homebuilders have slowed down construction, and farmers fret that crops will go unharvested—all for lack of qualified hands. There are currently 5.7 million job openings in the U.S., twice the level of eight years ago, and the unemployment rate is a very low 4.4 percent. “Given these conditions, wages should be rising sharply.” Yet pay has barely budged for most Americans. Employers don’t appear willing to increase wages to attract candidates, and employees “either won’t or can’t demand more.” The reason for this puzzling state of affairs “may be psychological”—the pain of the financial crisis is still fresh in our minds. Just as the Great Depression left scars that “influenced consumer and investor behavior for decades,” the financial crisis and subsequent recession “inflicted similarly deep wounds.” Businesses went into “survival mode,” laying off workers and cutting back benefits for those they kept. Years later, that mentality has “hardened into something like a permanent mindset” and is baked into business models and projections. Meanwhile, workers traumatized by layoffs, foreclosures, and pulverized savings learned to take any job they could get and “hold on to it for dear life.” The result is a “mutually reinforcing feedback loop” that leaves both sides dissatisfied.
Overfunding kills startups
Meet the new tech bubble, same as the old tech bubble, said Rana Foroohar. The death of Jawbone, the fitness-tracker startup once valued at $3.2 billion, “has become yet another sign” that Silicon Valley still hasn’t learned the lessons of the late-’90s dot-com frenzy. Back then, startups like Pets.com went public at sky-high valuations “even as they were losing hundreds of millions of dollars.” The tech market has matured since then, but even now companies still don’t need profits to lure deep-pocketed investors, especially if they specialize in a buzzy market niche. Jawbone raised an incredible $900 million from top venture capital firms to support its fitness trackers and take on rival Fitbit. But along the way, it became “too rich and fat for its own good.” The company burned through all its cash and failed to anticipate that features like sleep monitoring and step tracking would simply become smartphone apps. Eager private equity investors, happy to ignore the writing on the wall, “kept the bubble going” by pouring in money at higher and higher valuations. A company with less of an artificially bloated value “might have made a good acquisition target or might have done a successful initial public offering.” Jawbone had no such luck. Across Silicon Valley, overfunding is having the same perverse effect—keeping unpromising startups alive instead of innovative. So they limp along, until, like Jawbone, they sell themselves off “piece by piece.” ■