On Tuesday, Amazon (AMZN - Free Report) announced that it would be raising the minimum wage paid to its employees to $15/hour. The new minimum would apply to all of Amazon’s 250,000 U.S. employees as well as seasonal workers hired for the upcoming holiday season which could total 100,000 more.
Similar increases will apply to Amazon employees outside the U.S in their local currency and workers who are currently making more than $15/hour will receive an as yet unspecified raise as well.
Amazon’s starting wage for employees is currently $11/hour. The Federal Minimum wage has been $7.25/hour for the past 9 years.
The move is seen as a response to outside pressure to pay even entry-level workers a living wage. Senator Bernie Sanders of Vermont – who is seen as a likely Democratic challenger to President Trump in the 2020 elections – recently proposed legislation to tax corporations based on the value of public assistance paid to their employees.
Officially called the “Stop Bad Employers by Zeroing Out Subsidies” act, but also commonly referred to as the “Stop Bezos” act – in reference to Amazon founder and CEO Jeff Bezos who recently became the wealthiest individual in the world – the legislation also targeted fast-food corporations and airlines who pay so little that some employees qualify for federal assistance like food stamps, housing assistance and Medicare.
Senator Sanders publicly praised the Amazon pay hikes, congratulating Bezos for “doing exactly the right thing.”
Amazon was also facing challenges from labor unions and the “Fight for $15” movement which attempts to support collective bargaining with the aim of increasing pay and benefits in the retail and fast food industries. Reportedly, many employees at Amazon-owned Whole Foods Markets had been seeking to unionize, despite Amazon’s efforts to squash the effort.
Not Just a P.R Move
In addition to the favorable publicity for moving toward paying all employees a living wage – and alleviating political pressure – increasing wages is also a shrewd business move for Amazon that will allow the internet retailing giant to attract and retain high quality employees in a tight labor market.
Amazon has historically experienced high turnover rates, especially among its low-level warehouse workers. The savings in recruiting and training expense because of improved retention will at least partly offset the cost of increased wages.
Turning Up the Heat on Competitors
With Unemployment holding steady at historic lows under 4%, employers are finding it increasingly difficult to find qualified workers at current pay rates. Despite the low number of available employees, average hourly earnings for U.S. workers have remained stubbornly low, rising only a fraction of a percent over the past several employment reports from the Bureau of Labor Statistics.
This move by Amazon, the second largest employer in the U.S. -trailing only WalMart (WMT - Free Report) is likely to force competitors to increase their base wages as well. Target (TGT - Free Report) and Costco (COST - Free Report) , have already announced their own initiatives to raise minimum pay to $15 and $14 respectively over time. Amazon employs more workers than those two discount retailers combined.
Small businesses – who have in many cases already seen their operations decimated by Amazon and other online retailers are likely to have a difficult time matching Amazon’s new pay plans.
Though the exact effect is difficult to quantify, if retailers raise the minimum pay for entry level employees, those people will have more disposable income to spend at retail stores and online. Although a broad increase in wages would add additional employment expense to the income statement, there should theoretically also be an increase in top line revenues as well as all that extra money gets spent.
All in all, this seems to be another prescient move from the undisputed king of online retailers. Once again, Amazon has taken the lead and dared the competition to follow or be left behind. Thanks to political and social pressure that's been applied to Amazon and their innovative solution, the winner is likely to be the American worker.
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