Will Amazon’s Minimum Wage Hike Shake up the Labor Market?

Will Amazon’s Minimum Wage Hike Shake up the Labor Market?

On Tuesday, October 2, Amazon announced that it would raise its internal minimum hourly wage for US employees, including part-time workers and those hired through temporary agencies, to $15 an hour. This includes workers at the company’s warehouses or “fulfillment centers,” as it calls them, in addition to store employees at Whole Foods, which Amazon acquired last year. The e-commerce giant also said it planned to lobby the US government to raise the federal minimum wage from its current hourly rate of $7.25, last updated in 2009, the New York Times reported:

The new wages will apply to more than 250,000 Amazon employees, including those at the grocery chain Whole Foods, as well as the more than 100,000 seasonal employees it plans to hire for the holiday season. The change will not apply to contract workers. It goes into effect on Nov. 1. “We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” Amazon’s chief executive, Jeff Bezos, said in a statement. “We’re excited about this change and encourage our competitors and other large employers to join us.”

The move came amid growing pressure on Amazon from the media and politicians regarding its pay practices and the work conditions of its lowest-paid employees, particularly those at its warehouses or “fulfillment centers.” Vermont Senator and former presidential candidate Bernie Sanders has been an outspoken critic of Amazon’s CEO Jeff Bezos, who is currently estimated to be the wealthiest individual in the world, citing news reports that large numbers of Amazon’s low-wage employees were dependent on public assistance. Sanders and California congressman Ro Khanna have been pushing legislation that would require companies to compensate the federal government for the cost of public assistance benefits received by their employees, including food stamps, Medicaid, and public housing.

The next day, however, Bloomberg reported that Amazon was cutting monthly bonuses and stock awards for hourly employees to help offset the costs of the minimum wage hike. Still, the company insists that these workers’ total compensation is rising:

Warehouse workers for the e-commerce giant in the U.S. were eligible in the past for monthly bonuses that could total hundreds of dollars per month as well as stock awards, said two people familiar with Amazon’s pay policies. The company informed those employees Wednesday that it’s eliminating both of those compensation categories to help pay for the raises, the people said. …

Even after the elimination of bonuses and stock awards, hourly operations and customer-service workers will see their total compensation increase, the company said in a statement. “In addition, because it’s no longer incentive-based, the compensation will be more immediate and predictable,” Amazon said.

Amazon is also raising wages in some places outside the US. In the UK, the company is increasing its minimum wage beyond the level recommended by the Living Wage Foundation, affecting almost 40,000 workers, Personnel Today reported at the time—though the GMB trade union is still pushing the company to do more:

Workers will see their pay rise to £10.50 in London and £9.50 across the rest of the UK from 1 November. This is higher than the voluntary Living Wage required meet minimum living costs of £10.20 in London and £8.75 across the rest of the country, as recommended by the Living Wage Foundation. Amazon staff currently earn a minimum of £8 an hour and £8.20 in London.

For his part, Sanders painted Amazon’s move as a victory for his efforts in remarks to the Times, and the senator has already moved on to another target, sending a letter to McDonald’s CEO Steve Easterbrook in which he challenged the executive to raise the fast food chain’s minimum wage to $15 an hour as well and not resist efforts by its employees to form a union, a request potentially complicated by the fact that most McDonald’s restaurants are franchises, not directly owned or controlled by the company. Particularly with the Labor Department’s recent decision to restrict the definition of “joint employer,” McDonald’s may not have the power to determine the wages its franchisees pay their employees.

Amazon’s decision is also a response to labor market conditions, as the Wall Street Journal noted, coming at a time when hourly retail and logistics workers are in short supply and employers are scrambling to fill hundreds of thousands of seasonal positions for the upcoming holidays. Raising minimum pay to $15 will make Amazon one of the most generous employers in the US when it comes to starting wages for warehouse jobs. Other major retailers like Walmart and Target have also been raising entry-level wages to compete for hourly talent in this tight labor market, and Amazon’s move will put more pressure on its competitors to keep pace.

In this way, large companies like Amazon can effectively push up the minimum wage even for workers they do not employ, through the mechanism of labor market competition. This has led some proponents of higher wages to hope that the market will force wages up at the bottom of the pay scale, even as the federal government remains unlikely to substantially increase the statutory minimum. Writing at the Conversation, St. Joseph’s University finance professor Carolin Schellhorn pours cold water on that idea, arguing that smaller US companies can’t compete with the likes of Amazon and Walmart:

Amazon, Google, Uber, Federal Express and a few other exceptional companies have gobbled up an increasing share of their industry’s markets to a point where small companies just can’t compete. In retail, for example, the top four companies controlled 30 percent of sales in 2012, up from 15 percent in 1982. In finance, the share rose to 35 percent from 24 percent. And in the service sector, it climbed to 15 percent from about 10 percent. …

[T]he problem is that more than half of American workers in the private sector are employed by companies with fewer than 500 employees. These small businesses have suffered as a result of the superstars’ growing dominance and also can’t take advantage of the record-low borrowing costs because they do not have access to the stock and bond markets.

Because small- and mid-size employers do most of the hiring in the U.S., it is their wages that dominate the industry standards. And they are having a hard time increasing pay for their workers. … It is a good thing that the likes of Amazon are setting a much higher floor under their workers’ wages, but the slimmer profit margins at their smaller rivals make it virtually impossible for them to do the same. This will cement the superstars’ market power even further.

There could be other reasons for Amazon to raise its minimum wage beyond the competition to attract workers. Amazon could use some good press to bolster its public image in the face of political attacks from both left and right and antitrust probes in the EU and potentially also in the US, Makena Kelly points out at the Verge. This is a classic example of “HR as PR,” or an organization using its employment policies as a means of burnishing not only its employer brand, but also its consumer brand and general reputation. Quartz writer Lila MacLellan offers another theory, that “Bezos is protecting Amazon’s future by finally paying heed to the power of a strong workplace culture”:

When management gurus espouse the virtues of improving workplace culture, they don’t linger long on the givens, like competitive wages and a safe environment. At a certain point, once basic needs have been met, money is actually not the strongest motivator, research has shown.

So where does that leave Amazon, where warehouse employees were arguably not only grossly underpaid, but have also complained of injuries and grueling conditions[,] … In that light, rather than good corporate citizenship, lifting wages to an acceptable level looks more like a no-brainer step toward ensuring the longevity of a nearly trillion-dollar brand. It’s also necessary if Amazon wants to compare itself to Walmart or the country’s tech companies, which are also now signaling corporate compassion for not only their direct employees, but in some cases even their contractor’s employees.

“It seems pretty clear now that, going forward, the fight over the minimum wage is no longer just going to pit corporations versus labor,”Slate’s business correspondent Jordan Weissmann concludes:

In many cases, the battle lines are probably going to be between larger businesses like Amazon and Target that have already embraced a higher pay floor and their smaller competitors that might not be as capable of absorbing the higher costs. We’ve reached a point where Jeff Bezos, of all people, might actually become an ally in the Fight for $15.

Not all Amazon employees are as happy with this news as might be expected, however. Some are still worried that their total compensation will actually decrease once the cuts to bonuses are factored in, as Wired’s Louise Matsakis discovered. At Whole Foods, other employees who were already earning close to $15 an hour are upset that they are getting only small raises while their pay is being roughly equalized with that of their more junior colleagues, Gizmodo reporter Bryan Menegus reported.