Amazon makes a virtue of being tight-fisted. Low costs mean low prices for customers. Raising the minimum wage to $15 per hour looks just as out of character as an earlier decision to lift rates for Prime members. What next? Allowing executives to stretch out their legs in first class instead of travelling economy? Replacing boss Jeff Bezos’ original wooden door desk with designer furniture?
The online retailer’s notorious frugality and focus on low consumer costs is not about to undergo a complete transformation. But the minimum wage increase is a bold move. It has always rankled that one of the world’s most valuable stocks should be built on low salaries and apparently gruelling working conditions. Pay at Amazon varies but the overall median annual salary for workers worldwide was $28,446 last year — equal to about $13 per hour. Amazon’s CEO earns 59 times the median employee wage.
If Amazon raised average hourly rates for 250,000 employees by $2 it would cost the company around $1bn a year. When Walmart made a similar decision in 2015 it blamed the increased labour costs for a profit shortfall. This will not happen at Amazon. The company’s razor thin profit margin is largely by design. Fatter profits in the second quarter of the year were partly down to growth in high-margin businesses like cloud computing, but also to a slowdown in employee growth. This year Amazon plans to hire around 100,000 people for the holiday season — 20,000 fewer than last year. As automated warehouses expand, hiring will fall further. The cost of higher hourly pay could be offset by a reduction in headcount.
Even if there is a slight increase in operating costs it will be worth it. Volunteering better terms for workers is a good idea when Washington is bent on criticising the tech industry.
But the real incentive may have nothing to do with politics. Unemployment benefits filings in the US are near a five-decade low. Employees now have more choice in where they work. Walmart, Target and Costco have lower minimum rates. Amazon has just put itself at the head of the pack in time for its busiest retail season of the year.