Bigger paychecks await Amazon’s 250,000 employees as well as 100,000 seasonal workers.
Just in time for the holidays, Amazon’s new $15/hour wage kicks off November 1. Competition for seasonal workers is high among retailers, with the nation’s unemployment at 3.9%, and Amazon hopes higher wages will entice more and better quality workers. Amazon hopes to set a trend in the retail industry and plans to lobby the federal government to raise the minimum wage for all workers. Waging war on Walmart’s $11/hour pay boost that took place last February, Amazon raised the bar significantly.
Other competitors like Target have also responded to public pressure to raise its minimum wage, which moved to $12/hour in September and is set to hit $15/hour by 2020. It remains to be seen what impact this will have longer term on the prices customers pay, but as one of America’s largest employers, Amazon’s actions will put a few more presents under the tree this holiday season.
Video Spotlight: Amazon hikes minimum wage to $15 an hour for US employees
This post is based on the CNN Money article, Amazon announces $15 minimum wage for all US employees, by Danielle Wiener-Bronner and Chris Isidore, October 2, 2018; the Business Insider article, Amazon just intensified the war against Walmart, by Kate Taylor, October 2, 2018; and the YouTube video, Amazon hikes minimum wage to $15 an hour for US employees, by CBS News, October 2, 2018. Image source: Shutterstock / Alexander Kalina.
1. How will higher wages impact productivity, prices, and profitability?
Guidance: Productivity is a ratio of outputs/inputs. Any time the cost of inputs are increased (such as when the price of labor, materials, or fuel go up), without a corresponding increase in output, productivity will decrease. Real wage increases come from real improvements in productivity, which then justify paying workers more. Otherwise, the extra costs must be offset elsewhere, such as reducing costs in others areas, accepting lower profit margins, or pushing price increases along to consumers.
If Amazon increases its prices across the board to make up for paying its employees more, this will erode some of their newly realized purchasing power. It may also anger customers who do not want to pay higher prices.
2. How will Amazon’s new $15/hr wage help it to compete?
Guidance: Amazon hopes that by offering higher wages, they’ll entice higher quality, more productive employees away from other employers. If this does happen, and if it increases employee loyalty to the company, the company may realize savings in recruitment and hiring activities in the future. No doubt Amazon is hoping it will be able to obtain better seasonal employees from the available pool of workers that has shrunk this holiday season due to low rates of unemployment.
Certainly Amazon hopes to obtain favorable publicity as compared to rival Walmart. Furthermore, Amazon’s push for an increase in the federal minimum wage (if it rises to a level higher than what retailers like Walmart or smaller businesses currently pay) will make it harder for rivals to compete with Amazon or to stay in business at all.
Most employers cannot afford to increase pay when it’s not backed up with real improvements in productivity, especially if they would have to pay their employees significantly more than they have in the past. Walmart’s low price strategy cannot support wage levels that are significantly higher than what employees have earned in the past. If prices are hiked to pass along wage hikes to consumers, long-time patrons may balk and not want to shop there.