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Amazon's Pay Rise Has No Lessons for Minimum Wage Policy

October 3, 2018 in Economics

By Ryan Bourne

Ryan Bourne

“Amazon to Raise Its Minimum U.S. Wage to $15
an Hour”
is a typical headline that one has seen

The company has announced that from November 1st its lowest pay
rate will increase to $15 per hour in the U.S., £10.50 in London
and £9.50 elsewhere in the U.K. It follows criticism of
Amazon’s pay and conditions from everyone from Fox
News anchor Tucker Carlson
to left-wing firebrand Senator Bernie Sanders.

Emboldened by this perceived victory, the ‘Fight for
$15’ in the U.S. and the “real” Living Wage
campaign in the UK now have a new company-level example to call on
in support of statutory legislation. If one of the world’s
biggest companies can raise their internal “minimum
wage,” then why can’t others?

This kind of argument is logically flawed. It’s important
to remember that Amazon has made this decision considering its own
perceived interest. It might be because it figures the bad
publicity surrounding the firm had the potential to dent sales. It
might be because they figured out that they could absorb any
increased costs much more easily than other proposed policies in
both countries (such as Senator Sanders ‘Corporate Welfare
Tax’ or the UK government’s proposed digital services

It might be because they expect future minimum wage hikes, and
so are getting ahead of the curve. It might be because they can
adjust compensation in other ways such that the move doesn’t
bring a dramatic cost increase. It’s also possible that the
company plans on making labour-saving technological investments
anyway, so can couple it with efficiency improvements in the
long-term with the added bonus of good PR today.

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 …read more

Source: OP-EDS

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