Amazon’s announcement this week that the company will be increasing its minimum wage to $15 a hour—and lobbying Congress to change the federal minimum wage to the same—was largely met with cheers. While $15 a hour might not be enough to survive in a city like Seattle, for hundreds of thousands of low-paid Amazon workers (many of whom, in this state, depend on Medicaid), this seemed like a positive step forward, and soon after the news broke, everyone from Bernie Sanders to Hillary Clinton was congratulating Jeff Bezos, newly minted American hero.
But what will the increase mean, really?
As Krystal Hu reported for Yahoo Finance, the good news was tempered for some employees when they were informed that while their hourly wages were going up, Amazon’s other incentive programs, including stock payments and monthly bonuses, will be eliminated as of November 1. Hu writes:
An employee earning $15.25 an hour who has worked for Amazon for more than three years in Arizona crunched the numbers. Although he is getting a $1 an hour raise, which would equate to as much as $2,080 in additional pay a year, he said he could have earned a few thousands of dollars more from the incentive programs. “Amazon isn’t giving its employees a raise, they’re taking money from us,” he told Yahoo Finance. “It only looks good if folks don’t know the truth.”
In response, Amazon told Hu that although they are eliminating incentive pay, the net effect of this policy change will result in more employees making more money—and that is definitely a good thing for those employees. But there could be other consequences of this move.
“This will likely be a mixed bag,” said Matt Stoller, a fellow at the Open Markets Institute. “It may be good for Amazon’s warehouse workers, but Amazon is growing quickly and destroying income streams all over the country, so it’s not obvious that this will be good for income more broadly.” To Stoller, this is a distraction that may increase Amazon’s reputation with its customers (and assuage some guilty consciences), but it doesn’t address the biggest problem with Amazon.
“The problem with Amazon isn’t that they don’t pay their workers enough; the problem is that they are monopolizing huge swaths of the economy and exploiting that,” Stoller said. “Throwing a few pennies at low-wage workers is good for those workers, and I don’t want to minimize that, but it’s not the problem. If people say, ‘Oh, Amazon is fine now,’ that’s really bad.” Instead, Stoller said, the Federal Trade Commission should start investigating, and what they will find are chokeholds and bottlenecks and strong cases for anti-trust suits. “That’s really what Amazon is afraid of,” he said, “a shift in what they are allowed to do as a business. That has nothing to do with the minimum wage.”
By lobbying the federal government to increase the minimum wage, Amazon is also, in essence, pushing its competitors to pay higher wages too. And this could be devastating to some small businesses: While Wal-Mart can probably afford $15 an hour, that mom and pop general store in rural America might not. And when those businesses close down or increase their prices, this increases Amazon’s power in the marketplace even more.
UW economist Jacob Vigdor, however, doesn’t think Amazon will be successful in pushing for a federal minimum wage increase, at least not any time soon. Vigdor studied the effects of Seattle’s $15 minimum wage and found that the results were mixed: While some hourly employees saw increases in wages, some businesses cut hours to make up for it or were less likely to hire new employees. (This study, I should note, had plenty of critics, including my colleague Charles Mudede, who wrote that UW economics department “has no real economists.” Vigdor and his colleagues, who stand by their work, will be publishing a follow-up soon, but you can read more about the minimum wage debate here.)
There are, undoubtedly, problems with the hourly minimum wage as we know it: You can make plenty of money per hour, but if you can’t get enough hours per week, you’re still going to have a hard time paying the bills. The first minimum wage in the county, Vigdor told me, was in Oregon, but that was a weekly, not hourly, minimum and was calculated according to the cost of living. (Today, Oregon, unlike Washington, doesn’t allow municipalities to increase the local minimum wage. They do, however, have a three-tier system, so that the minimum wage in high cost-of-living areas like Portland is higher than it is in low-cost, mostly rural areas.)
Vigdor said that one way to deal with the wage problem in the U.S. would be for the government to create jobs that pay a living wage. There are no lack of problems that need addressing in the U.S.—from infrastructure to education to clean energy—but we don’t exactly have the political willpower required to create a 21st century New Deal. “The challenge with these policies is asking the government to step in and provide a lot of the funding,” Vigdor says. “You’re not going to get that kind of policy through Congress. Not this year. Maybe 2020, at the earliest.”
Dan Price, a local job-creator and the founder and CEO of Gravity Payments, praised Bezos’ move. Price made news several years ago when he raised the minimum wage at his own company to $70,000, and, he told me in an email, the raise has proved to be beneficial both for employees and for business. His employees are better able to start families and buy homes. For those who got raises, commute times dropped by a total of six hours a day. Employees also began contributing more to their own retirement plans, attrition halved in the year following the announcement, and, according to Price, the number of independent businesses Gravity serves increased by over 80 percent.
“As a Seattle business owner myself, and an outspoken proponent of raising employee pay, I had long urged Jeff Bezos to redirect some of his company’s profits back to the people who have made Amazon so financially successful,” Price wrote. “Eighty-two percent of all wealth created in 2017 went to the top 1 percent of earners. In 1965, America’s top executives earned 20 times the amount of the average worker; Today, they earn 271 times more. Meanwhile, when adjusted for inflation, the average American income has barely increased over that same period. Although not a perfect solution, increasing the minimum wage will help reverse this trend and create a better world—a world in which workers can afford to frequent small businesses, instead of just Wal-Marts or Amazons. When more people participate in the middle class, the small business economy generally gets stronger.”
Will it actually help small businesses and American workers or will this be the stake in their neck? It’s too soon to tell now, but either way, raising Amazon’s minimum wage was certainly a savvy PR move for Jeff Bezos. Even Bernie and Hillary can agree on that.
