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Employment Costs & the Minimum Wage War Among Big Retailers
Wednesday, Oct 31, 2018

On a day when the Employment Cost Index finally rose above 3%, it's worth recalling Amazon’s announcement that it will raise its minimum wage to $15 an hour. There was more symbolism than substance to that headline, but that doesn't mean it was not a significant development. It was canny corporate PR, but it's more than that. It's a case study in data literacy but still a bellwether of sorts for the labor market too.

The point about symbolism is not just that Amazon later announced cutbacks in bonuses and stock grants, which undermines the gain in overall compensation for its existing workers. The point is that the firms Amazon competes with for customers are often not the firms Amazon competes with for workers. Differences between Amazon and its competitors in how they run their operations imply differences in the workforces that they must pay. Once you factor that in, the impact of Amazon's announcement looks more modest.

The major points of comparison are the other major retailers, Walmart and Target. Walmart raised its minimum wage to $11 this year, and Target to $11 last year (with a promise to raise it to $15 by December 2020). The key is that Walmart and Target are still more focused on bricks-and-mortar retail sales workers, while Amazon famously relies on warehouse workers and delivery people. Warehouse workers receive higher pay on average than do retail salespersons. In fact, many warehouse-related occupations already earn more than $15/hour, which blunts the immediate macroeconomic impact of a $15 minimum wage. In contrast, retail sales workers’ average hourly wage was well below $15, at $12.29 in 2017. Moreover, even for those warehouse-related workers earning less than $15, the increase to a $15 minimum wage would add less than $2 per hour to the average wage, and in many cases it would be less than a dollar. That can still make a difference for a worker or family scraping by on less than $30,000 a year, but at the upper end of salary ranges for these workers, it’s a much smaller hike than for a retail salesperson – by a third or more, on average.

The table below presents data from 2017 (the latest available from the BLS) for retail sales workers and only those few warehouse-related occupations whose mean average and median wage are both below $15. Not pictured are the many other, higher-paid warehouse-related occupation categories with medians above $15. Note that since this data set is from 2017, wages have been growing for nearly 18 months since then, further reducing the impact of a hike to $15.

If there's that much symbolism in Amazon's announcement, how is it a bellwether at all? The immediate macroeconomic impact is indeed likely to be limited. Still, it's notable that a marquee American employer has fully embraced the $15 level that the "Fight for 15" activists have been pushing for. Activists will cite Amazon as an example to other employers -- especially to Walmart and Target -- and most people won't stop to dig through the BLS website to get all their facts straight or even read some skeptical press coverage. Amazon's $15 headline is a milestone whose impression will linger in the minds of many other workers, employers, and consumers all around the country. That could contribute to a gradual shift upward in inflation expectations, whether for wages or consumer prices as a whole. Expected inflation is a slow-moving ship, to be sure, but it's a powerful one, and its course finally seems to be turning.

about the author

As chief economist at iCIMS, an industry-leading provider of talent acquisition software, Josh Wright leads a team of data scientists in analyzing emerging trends in the U.S. labor market