Amazon Wage Hike Aims to Secure Holiday Help in Tight Job Market

October 2, 2018

By Spencer Soper and Matthew Boyle | Bloomberg, Technology

Jeff Bezos scored a public-relations victory by giving his workers a raise, even drawing praise from Inc. scold Bernie Sanders. But at its root, the $15-an-hour minimum pay is an incentive for people to come work for Amazon — rather than Walmart or Target — as the retail industry gears up for the holiday shopping season amid historically low U.S. unemployment.

Amazon plans to hire 100,000 temporary warehouse workers this year to help fulfill orders during the gift-giving crush, when it needs people most and when the job market offers many other opportunities. The world’s biggest online retailer is on pace for another record year, with spending on its site projected to surge 28 percent to $394 billion in 2018, according to EMarketer Inc. To get there, Amazon has to lure a lot of people into its warehouses for 10-hour shifts plucking products from bins and packing boxes — work that may seem monotonous compared with customer-service jobs that involve interacting with people.

Target Corp., for instance, will hire a record 120,000 seasonal workers, 20 percent more than last year, and pay them the retailer’s new starting wage of $12 per hour. Boosting warehouse workers’ wages to $15 an hour — including temporary workers just doing holiday-season stints — will help ensure that Amazon can find people willing to choose these jobs, which people are still better at doing than machines, over those at brick-and-mortar retailers like Target, Gap and Macy’s.

“Especially around the holidays when people have so many other options for work, $15 an hour will help Amazon find more people,” said Jeff Burnstein, president of the Association for Advancing Automation. “Amazon needs to hire a lot of people in a short period of time, and the question is how many people want to do that kind of work? Fifteen dollars an hour will help.”

The across-the-board minimum hourly pay makes Amazon’s starting wages slightly better than the national average. Warehouse laborers had median hourly pay of $14.28 in 2017, according to the U.S. Bureau of Labor Statistics. Forklift drivers and equipment operators, who require special certifications, had median hourly pay of $16.43.

The raises also help Amazon neutralize political pressure from unions such as the United Commercial Food Workers Union, which has been pushing politicians to take a harder line with the company on pay and working conditions since its purchase of Whole Foods Market last year, said Burt Flickinger, managing director of the Strategic Resource Group. Still, the main motivation to boost wages is the competitive job market, and the raises will put pressure on every retailer except Costco Wholesale Corp., which already has the best pay and benefits in the industry, he said.

“This is the tightest labor market in history,” Flickinger said. “It was very difficult to find warehouse workers for what Amazon was paying.”

In addition to the recent pressure from Sanders, the Democratic senator from Vermont, Amazon’s move follows wage hikes announced by Walmart Inc., Target and others — raises that were funded in large part from a tax-cut windfall corporations received. These rivals won’t have that one-time benefit going forward, so matching Amazon will be tougher. Dollar General, Dollar Tree, TJX, Ross Stores, J.C. Penney, Macy’s, Kohl’s, Burlington Stores and Gap — which all have average hourly wages below $15 — will feel the financial pinch of Amazon’s raises, according to Bloomberg Intelligence analyst Poonam Goyal.

“We would expect Amazon’s minimum wage increase to $15 to add incremental pressure on companies, specifically in the retail space, to further raise wages,” Scot Ciccarelli, an analyst at RBC Capital Markets, wrote in a note.

Walmart, for its part, isn’t hiring any seasonal staff, instead planning to rely on its existing employees for the second holiday season in a row. Many Walmart workers are part-time, so it can get through the holidays by giving existing employees more hours.

While Amazon will be paying workers more, it could end up saving money if the better wages have the effect of reducing costly turnover in its workforce. The warehouse industry has a high rate of job churn, and replacing one worker typically costs about 25 percent of that person’s annual pay, according to logistics services firm Kane Is Able.

On top of raising the minimum pay for its own workers, Amazon also said on Tuesday that its lobbyists will begin advocating for an increase in the U.S. federal minimum wage, which has been $7.25 an hour since 2009. Amazon’s new U.S. wage implies an annual income of about $31,200 for a 40-hour-per-week worker. The U.S. income poverty threshold for a family of four is about $25,000, according to 2017 Census bureau figures.

Even before any national raise happens, Amazon’s boost is likely to trigger increases elsewhere if other employers hope to keep their job openings filled.

“This could have meaningful spillover effects, particularly in places where there are a lot of Amazon jobs,” said Heidi Shierholz, senior economist at the Economic Policy Institute. “When other employers know that the people they want to hire can get a better job somewhere else, it makes them more likely to pay better wages.”