Forcing other companies to pay like Amazon will be good only for Amazon. Ryan Bourne explores the problem with using Amazon’s wage floor of $15 per hour as a guide to minimum wage policy:
Whatever the thinking, Amazon thinks its business model can cope. But this tells us nothing about the feasibility of pay hikes for the low paid across the whole economy through raising minimum wage rates. Remember, the most robust evidence from Seattle still suggests that statutory pay hikes reduce job opportunities and maybe even lower overall incomes for the low paid as a cohort.
Sadly, lots of proponents of hiking minimum wages are prone to motivated reasoning here. They imply minimum wage increases bring no trade-offs. They want to claim that wage hikes benefit both workers and businesses—that firms will see big increases in productivity and greater attachment from workers such that firms’ bottom lines don’t suffer. So when a major company decides to voluntarily increase pay, it is just further evidence for their assertion. It just makes sense.
But this is wishful thinking. While some firms, such as Amazon, might feel that raising pay is right for the business, it seems unlikely that campaigners know what is best for all companies, and that employers are simply being irrational in missing out on productivity gains. Some companies do indeed choose to become “high pay” employers, taking on larger fixed costs in the hope they can recruit and retrain better talent.
But these benefits cannot possibly apply to the economy as a whole. If you keep raising the regulated pay floor, eventually opportunities will diminish, in particular for younger and less skilled workers, who are more risky for employers to take on. What is more, some businesses face such tight margins that they could not possibly do what Amazon has announced.
Indeed, Amazon’s positioning today implicitly admits this. Within the press release announcing their own pay hikes, the company says that it is going to also lobby for the federal minimum wage to be raised for everyone else too. In other words, now that it has raised its own per hour labour costs, it wants its competitors’ labour costs raised too.
[Ryan Bourne, “Amazon’s Pay Rise Has No Lessons for Minimum Wage Policy,” Cato Institute, October 3]