Amazon is establishing a new minimum wage in America

Amazon warehouse
An Amazon fulfillment center in Robbinsville, New Jersey, on December 2, 2019. REUTERS/Lucas Jackson/File Photo
  • Amazon introduced a $15 minimum wage in 2018, and more large firms are starting to follow suit.
  • It now plans to bring in 75,000 new workers at a higher wage, making hiring harder for others.
  • The company has benchmarked a new minimum wage.
  • See more stories on Insider’s business page.

In early May, as business was ramping back up after a year of pandemic disruption, the Miami-area chef Phil Bryant said his efforts to find enough workers to expand had run in to a problem: Amazon.

Bryant told The Washington Post that many of his colleagues had left the industry in the past year to take jobs with the e-commerce giant. They said things like, “If I can make $17 per hour at an Amazon warehouse but only $14 per hour as a line cook, a notoriously hot, stressful, intense job, why would I do that?”

A few weeks later, Under Armour announced it would raise its minimum pay rate to $15 an hour. It also hinted at growing competition for workers from Amazon.

“The reality is from a competitive standpoint of hiring, we know that we compete not just within our industry for talent but also outside of the industry to places like Amazon,” Stephanie Pugliese, the president of the Americas region at Under Armour, told Bloomberg.

More than 10 major employers, from Target and Walmart to Under Armour, have raised their hourly rate in the past year alone. The federal minimum wage, meanwhile, remains at $7.25.

Call it the Amazon effect come to wages.

Amazon CEO Jeff Bezos raised the company’s minimum wage to $15 an hour in 2018. “We listened to our critics, thought hard about what we wanted to do, and decided we wanted to lead,” he said at the time.

It hired 175,000 workers for warehouses across the country in 2020, a time when many other employers were cutting jobs and the unemployment rate spiked as high as 14.8%. The company topped 1 million employees in October.

Amazon is ramping things up in 2021 with a public lobbying effort for a higher federal minimum wage and, more recently, a new $17 wage for another 75,000 new hires in warehousing and logistics this year.

The 75,000 new employees represent just 1.5% of the hires expected to be made by US employers in 2021, according to projections from the Congressional Budget Office. Yet the elevated hourly rate has established a benchmark that’s spreading.

Amazon’s wage hikes are expensive investments, with the company spending more than $1 billion in April on raises for 500,000 hourly employees. But studies have already showed Amazon is lifting other companies to its level. Economists at the University of California, Berkeley, and Brandeis University found that Amazon’s 2018 wage hike drove average hourly wages 4.7% higher at other employers in the same area.

Throughout the past three years, as Amazon navigated first a low-wage environment and then the uncertainty of the coronavirus recession, the tech giant has led on raising wages. Along the way, it set a new de facto minimum wage for America.

Jeff Bezos
Amazon CEO Jeff Bezos. Alex Wong/Getty Images

American workers are learning their worth

Salaries and wages have been shrinking relative to economic output for more than five decades. In that time, American workers have acclimated to weaker and weaker compensation, while companies have increasingly diverted profits to dividends and stock buybacks.

Now, the pandemic and unprecedented stimulus are flipping the script. Businesses have reported difficulties in finding lower-wage workers as the economy reopens, even as roughly 10 million Americans are still unemployed.

That’s in part because American workers are realizing their worth. The average lowest level of pay at which an unemployed person would take a job – known as a reservation wage – rose 26% year over year in March for Americans without college degrees, obliterating the 2% average rate of the prior six years. Converted to hourly pay, the reservation wage for such Americans rose to $29.56 from $23.45 in March 2020.

The jump signals that low-income Americans are holding out for better pay before returning to the workforce. Amazon helped set the pace.

“We have to remember that decision-making within companies is not rational,” Katie Bach, who has spent many years consulting with executives through her roles at McKinsey and the Good Jobs Institute, told Insider in an interview. “Companies are not profit-optimization machines. They are collections of individuals, and these individuals are susceptible to social pressure and scared of falling behind the zeitgeist.”

“I would say that for many, if not most, executives, it has become unimaginable to offer good jobs for today’s low-wage roles,” she added.

Government hasn’t moved the needle on a wage hike like Amazon has

President Joe Biden, who campaigned on raising the federal minimum wage to $15 an hour, is on board with wage hikes for the average American worker.

“You see some very large employers already starting to do that, and that’s good for the country,” Anita Dunn, a senior advisor to Biden, said in an interview with The New York Times. “And that is certainly in line with what President Biden believes, which is that working Americans, middle-class Americans who haven’t been the beneficiaries of trickle-down economics for the last 40 years, deserve a raise.”

To be sure, a handful of factors aside from Amazon are likely driving reservation wages higher. Some of them have to do with Biden’s policies. Expanded unemployment benefits are now competitive with low-wage jobs across the country and even exceed the average wages in Montana, North Dakota, and Wyoming, Insider calculated. Virus fears could also still be countering the return to work, as half of the population is not yet vaccinated against COVID-19. And childcare expenses could be forcing parents to stay home instead of taking in-person jobs.

And while $15 an hour compares favorably with hourly wages in retail and the service industry, it’s less than the historical compensation in logistics.

In New Jersey, warehouse workers were making an average of $24 an hour before Amazon opened a fulfillment center six years ago in Robbinsville, according to Bloomberg. Over the following years, the wage slipped to $17.50, according to Bureau of Labor Statistics data.

And despite the pay hikes, many employees still see room for progress. Amazon drivers recently raised concerns around surveillance cameras and “inhumane” burnout.

A vote to unionize a warehouse in Bessemer, Alabama, failed earlier this year, with workers voting more than two to one against the effort. The decision is now being appealed. Workers at a warehouse in Staten Island, New York announced their own union drive in April, saying employees “have had enough of the company’s abusive and exploitative behavior.”

As important as compensation is, Bach said it was only part of what makes a good job. With Bezos’ new goal of making Amazon “Earth’s Best Employer and Earth’s Safest Place to Work,” the company appears headed in the right direction. If others continue to follow, it could yield real change throughout the US economy.

“If Amazon can focus on creating good jobs in the way that they have focused on creating the world’s best customer experience, that would be revolutionary,” she added.