Amazon was under intense political pressure to raise pay - but there's another obvious reason it's giving workers more money

Gina HeebOct 3, 2018, 03:06 IST

AP/Scott Sady

Amazon announced it would raise its minimum wage to $15 an hour after months of political pressure.
Chief executive Jeff Bezos said the company had listened to critics in its decision and encouraged other companies to do the same.
Economists say the wage increase was just a natural symptom of a tightening labor market.

When announcing plans to raise minimum wage to $15 an hour for all of Amazon's employees in the US, chief executive Jeff Bezos portrayed the move as a sort of moral reckoning.

"We listened to our critics, thought hard about what we wanted to do, and decided we want to lead," he said Tuesday, referring to months of backlash over how Amazon treats its workers. "We're excited about this change and encourage our competitors and other large employers to join us."

But political pressure aside, economists say Amazon was probably going to have to raise its wages anyway. In order to stay competitive in a tight labor market, they say, companies across the US will have to make similar moves.

"It is a big deal in that it says a lot about the current political climate and where the labor market is headed," said Josh Wright, chief economist at iCIMS Inc., a recruiting software company. "But it is more symbolic than it is significant."

With historically low unemployment levels and a humming economy, labor shortages in the US look poised to extend past the holiday shopping season. Put simply, companies need to offer more to attract workers when labor conditions are tight.

Martha Gimbel, director of economic research for the job site Indeed, said the move is just an example of what is expected in the current labor market, and expects other companies would have made similar moves on their own.

"This is not just an Amazon phenomenon," Gimbel said. "When something is harder to find, you're going to have to pay for it."

The policy likely won't show up in national wage data anytime soon. It would increase average hourly earnings in the US by 1.2 cents, Moody's economist Adam Ozimek estimates, as affected workers make up less than a quarter percentage point of total payroll employment. For comparison, that figure tends to rise about 10 cents on average each month.

"This reflects an underlying trend in wage growth anyway so some of the wage hikes were going to happen even without this policy," Ozimek said. "I think it's more reflective of a tight labor market than it is likely to generate a tight labor market."

Still, others see the action as more than a symptom. Andrew Chamberlain, chief economist at the career site Glassdoor, predicts the company will put "immediate" pressure on wage growth. In the retail and e-commerce sectors, pillars of Amazon's workforce, he expects payrolls to rise faster than the national average.

"The writing is on the wall," he said. "If the largest retailer in the US is taking a stand like this, it puts other companies at a competitive disadvantage."

And with labor shortages across the economy, changes in retail and e-commerce could spread to the rest of the economy as it pulls workers from other sectors.

"Policies and public stances like this do matter," Chamberlain said. "Amazon is such a big fish in the pool that it can have far-reaching consequences."

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Amazon was under intense political pressure to raise pay - but there's another obvious reason it's giving workers more money

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