What Amazon’s $18 average hourly wage means for other employers

The pressure is on.
The pressure is on.
Image: REUTERS/Clodagh Kilcoyne
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Amazon is raising its average hourly US wage to $18 an hour for warehouse workers, the company said this week, putting more pressure on other employers in a tight labor market. Just four years ago, the giant retailer increased its starting wage to $15 an hour.

The pandemic has led to increased demand for online goods, fueling Amazon’s business. In the second quarter, Amazon’s net sales soared to $113 billion, up from $89 billion in the same period last year. Since the start of the pandemic, Amazon has hired more than 450,000 people in the US, and this week, announced it was hiring another 125,000 employees. To date, Amazon’s US workforce totals 950,000.

The new wage standard from the US’s second largest private employer—Amazon trails only Walmart in the size of its employee base—puts pressure on competitors to raise pay. That’s not just among national employers like Walmart and Target but also locally, as Amazon is pushing pay above local minimum wages.

The Amazon effect on wages

“Amazon is almost becoming like the negotiator for all hourly wage workers to a certain extent,” says Cecile Alper-Leroux, the vice president at UKG, a global HR and workforce management company that works with employers in retail, logistics, and healthcare. “They’re setting the bar.”

Ahead of the holiday season, wage inflation is creating a real challenge for smaller businesses who are struggling to find workers. Larger businesses are likely able to better bear the costs of raising wages compared to smaller businesses.

Alper-Leroux says she has been hearing from retailers struggling to find workers. Businesses will have to be creative to attract low-wage workers, she says, whether that’s creating employment resource groups so seasonal workers feel more connected and want to come back, or offering scheduling preferences.

Recent research from economists at University of California, Berkeley and Brandeis University found Amazon’s $15 minimum wage appears to have lifted the pay of low-wage workers at other local companies. That highlights how difficult it can be to raise these workers wages in the US until a powerful outsider, whether that’s government or a giant employer, comes in and changes the status quo, as the New York Times noted. The researchers estimated that a 10% increase in Amazon’s advertised hourly wages led to an average increase of 2.6% in wages among other employers in the same commuting zone.

Because of how high it’s lifting pay, Amazon is not just competing with retail and food services job but is moving up the chain to compete with jobs that traditionally pay a little better than manufacturing or transportation, says Daniel Zhao, an economist at Glassdoor. “Ultimately, what you’re going to see is more competition for workers at the lower-end of the income spectrum.”

As low-wage employers across the country compete for workers, Amazon has to hire more to keep up with the turnover. The company is also motivated to keep its workers happy with their pay in part to fend off labor unionization efforts.