Amazon's $15 Minimum Wage Is a Brilliant Business Strategy

Amazon announced on Tuesday that, starting November 1, it will increase minimum pay for all full-time, part-time, temporary, and seasonal workers to $15 an hour. The company says this will raise wages for more than 250,000 employees, including those at Whole Foods, and perhaps another 100,000 seasonal workers the firm expects to hire during the holiday season. The company said it will also lobby the federal government to raise the national minimum wage to $15, a longtime target for retail and fast-food workers.

The move offers a kind of Rorschach test for analysts and partisans. There are at least three different theories for why Amazon would make this announcement now.

First, there is the “Advocacy works!” theory. That is, Amazon is bending to pressure from left-leaning critics, who have called the company’s labor policies unacceptable for a trillion-dollar enterprise presided over by the world’s richest human, Chief Executive Jeff Bezos. Most recently, Senator Bernie Sanders proposed the Stop BEZOS Act to tax any company with more than 500 employees whose workers accept welfare benefits, such as food stamps. This clearly applies to Amazon, a Goliath with more than 500,000 employees that pays a median salary of about $30,000 a year. Some economists immediately slammed Sanders’s proposal as a bonanza of perverse incentives. But the proposal seems to have worked—if not as policy, then as prodding. “We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” Bezos said in a statement on Tuesday.

Second, there is the economic-fundamentals theory. That is, Amazon is raising wages not because of political pressure, but because of wage pressure. In a tightening labor market, with unemployment at less than 4 percent, it’s becoming more difficult for companies to hire and retain low-income workers. This is particularly true in warehousing, where work can be grueling and wages are rising twice as fast as the national average. A strong piece of evidence for the economic-fundamentals theory is that Amazon isn’t the only company to raise its minimum wage since the unemployment rate has been hovering around 4 percent. Reached for comment, an Amazon spokesperson said simply: “We wanted to be leaders on this issue.” Fair enough. But in the past few years, Walmart, Target, and Gap have also raised wages, although none has gone as far as Amazon in announcing an immediate $15-an-hour floor for even part-time and temporary workers.

Some conservative analysts, particularly within shouting distance of the Capitol, might claim that the Republican corporate tax cut is equally responsible for giving Amazon extra cash to pay its workers. This is a harder case to make. National wage growth has actually declined slightly since President Donald Trump signed the tax cut into law.

Third, there is the Bezos-galaxy-brain theory. Besieged by both liberal senators and the president, Amazon’s chief executive wants to burnish his populist bona fides as the company nears the long-awaited announcement of its second headquarters location. The most popular prediction for HQ2 remains the Washington, D.C., area, which would place Amazon among its loudest critics, many of whom are calling for stronger antitrust regulation or even the tripartite division of the company. Perhaps Bezos is staging a positive news cycle as a prelude to his company’s inevitable move to the capital.

There might be yet another layer to this final theory. Amazon’s announcement that the company will lobby the federal government for a $15 minimum wage sounds like a pure concession to the Sanders-Warren flank of the Democratic Party. But what if it’s also a clever corporate strategy to price out competitors that can’t afford to pay their cheapest workers $15 an hour? As the industry leader in robotic technology, Amazon could also “afford” a higher labor price by shifting more warehousing and retail labor from humans to machines.

So what is this move all about: profits, pressure, or master plan? Probably a bit of all three. But that’s not unusual. Historically, labor’s gains have often required both profits and political pressure. The modern minimum-wage movement, which swept Europe and the British Commonwealth at the turn of the 20th century, was a compromise between manufacturers, who had been made obscenely rich by the industrial revolution, and trade unions in Great Britain and Australia that revolted against sweatshop conditions. In other words, the original minimum wage was a co-production of profits and pressure.

Either way, the outcome of Amazon’s move to $15 is more important than the motivation. This isn’t just about higher wages for tens of thousands of workers at the retailer; it’s about what higher wages at Amazon mean for the U.S. economy. For example, other large employers in warehousing and retail, such as Walmart and Target, might have to immediately raise their wages to compete with Amazon. That would mean smaller companies competing with the biggest retailers will have to raise their wages, too. This could have a range of side effects, including the accelerated demise of mom-and-pop stores in poor parts of the country that can’t afford to pay their cashiers the Amazon wage.

Furthermore, if Amazon attracts support from other corporations in its fight for a $15 minimum wage, the U.S. government might actually do the previously unthinkable and raise its official minimum wage by more than 100 percent. Will such a move actually empower large companies that can afford higher wages? Will it hurt humans, by accelerating the transition from low-income workers to machines? Or help, by emboldening poorer workers to quit their jobs and move cities, reversing a decades-long trend of declining mobility in the U.S.?

Perhaps the most interesting, and most immediately answerable, question will be this: Now that Amazon has responded to its critics on the matter of wages, how will its critics respond to Amazon?

For the past few years, liberals have revived a Brandeisian fervor for regulating large companies, with many calling for breaking up behemoths like Amazon to prevent them from warping the political system with their market power. But in an era when Republicans control just about every lever of government, what should antitrust progressives do when their industrial nemeses become the most powerful advocates for progressive economics?