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Amazon’s Maximal Minimum

eye on the news

Amazon’s Maximal Minimum

The Internet giant’s firm-wide $15 minimum wage is good news for its workers, but a federal $15 minimum will hurt smaller retailers—and their customers and employees. October 4, 2018
Economy, finance, and budgets

Just in time for the holidays, Amazon announced Tuesday that it would pay all its U.S. employees at least a $15 minimum wage, effective November 1. “We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” said CEO Jeff Bezos. The move won guarded praise even from the firm’s biggest critics: Vermont senator Bernie Sanders, who has long accused the company of offering subsistence pay, said that “smart people are willing to change course.”

Amazon didn’t make this move in pursuit of social justice, though. The company said that it would lobby Congress to make the $15 minimum wage mandatory for all companies—a universally higher wage that would give the would-be retail monopolist an even bigger advantage than it already has over struggling retailers, who lack its tens of billions of dollars in investor capital and who can’t afford to give their workers a government-mandated raise.

Amazon’s move is undoubtedly good for its own workforce. The pay hike will affect 350,000 people, including about 100,000 temporary holiday-season workers. Some newly hired warehouse workers will see as much as a 36 percent raise, from $11. Hourly workers who already earn above $15 will get a $1 raise, as well. Amazon is the nation’s second-biggest employer, behind Walmart. Thus, the move will likely boost the U.S. economy over the holidays, too, at least modestly, giving people more discretionary income with which to buy gifts for family and friends.

Amazon has other self-interested reasons to increase its wages. As the company speeds up product delivery in affluent areas of the country, it must staff new warehouses and logistics centers in these areas. That means that it’s competing with other retailers in metropolitan Boston, New York, northern New Jersey, and San Francisco, places where state and local legal minimum wages are already creeping close to $15. And Amazon doesn’t want predominantly to hire people at the bottom of the wage-ladder—ex-felons, the inexperienced, people who won’t show up for work, or people who will quit without notice—at the same time that it’s looking to reduce turnover, shrinkage, and errors.

Thanks to its move, then, Amazon has now improved its competitive position in the labor market. Walmart’s pay scale starts at $11 an hour; Target won’t raise its minimum wage to $15 until 2020. For workers, this competition will be healthy. Look for the other big retailers to face pressure to increase pay, or, at least, to offer perks like more paid time off to attract and keep experienced workers. Indeed, Bezos said, somewhat mischievously, that “we . . . encourage our competitors . . . to join us.”

But while wage competition is a force for good, a federal wage decree would not be. Amazon said in its announcement that its lobbying team, headed by former Obama White House spokesman Jay Carney, will ask Congress to push up wages for everyone. “We intend to advocate for a minimum-wage increase that will have a profound impact on the lives of tens of millions of people,” Carney said. A sharp, sudden increase in the minimum wage would help Amazon against much smaller retail competitors, who can’t afford to increase pay for entry- and mid-level workers. An entry-level worker at a grocery store or mass-market retailer earns $7.25 to $12. But companies from Kroger to Best Buy are already struggling against Amazon; others, like Toys R Us, have already lost the battle. Forcing them to lift their pay scales by double-digit percentages across the board would, for many companies, turn stress into distress.

And companies are already holding back on hiring: in December 2017, the retail industry employed 15.9 million people, about the same number as the prior year’s Christmas season. In Louisiana, according to the federal Bureau of Labor Statistics, 5.3 percent of hourly workers earn at or below the legal minimum wage; in wealthier Massachusetts, only 1.8 percent do. A big wage hike, then, would put more pressure on retailers—and eventually workers—in poorer areas, where customers’ ability to absorb higher prices is already weak.

As retail wages rise, the result may be that workers individually earn more money, but there will be fewer workers in aggregate as companies implement automated supplements to human workers. Computerized kiosks enabling customers to order food in fast-food restaurants, and “click and collect” infrastructure, through which customers order online and then pick up in-store, are becoming commonplace, and Amazon itself is advancing robots and drones for its warehouses and fulfillment centers. Higher wages are good news for the workers who get and keep these well-paid jobs, but government still hasn’t figured out how to help the people left behind. It would be wise, then, not to accelerate this trend without some solutions in hand.

Photo by Scott Olson/Getty Images

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