Is Amazon’s Minimum Wage Announcement Altruistic?

Amazon Inc., i.e. one of the most valued companies in the world has announced a wage hike for its employees. According to the new rules, Amazon will pay all its employees a minimum wage of $15 per hour. This is more than double the minimum wage of $7.25 per hour which has been mandated by the United States government. This announcement has a positive connotation for workers all over the world. It is also good news for Democratic senators like Bernie Sanders who have been pressurizing Amazon to take these steps for very long.

However, many analysts also believe that the intention behind this wage hike isn’t really altruistic. Like all decisions made by Amazon, this is also well thought through business decision. In this article, let’s have a closer look at some of the business reasons that might have prompted Jeff Bezos and Amazon to hike the minimum wage.

Competitive Advantage: Jeff Bezos and Amazon know that low wages have been a bone of contention for the entire retail industry. The political establishment has been consistently targeting companies like Wal-Mart, Sears, and Target for the low wages which they pay to their workers. Amazon has also been the recipient of this backlash.

However, it is important to understand that Amazon’s operations are automated as well as online. This means that the number of people employed by Amazon is much less when compared to the number of people employed by other players in the retail industry. However, if Amazon raises the minimum wage, other companies will also be forced to follow suit.

If the competitors do raise the wages that they pay their employees, their margins will be severely impacted. This is exactly what Amazon intends to do. The wage hike will hurt their corporate profits by a small margin. However, they will make a major dent in the margins of the competitors. This will give Amazon the competitive advantage that they need to strengthen their stranglehold over the American retail market.

Human-Less Stores: Amazon is basically a technology company. The only people that work minimum wage jobs at Amazon are at their warehouses. However, companies like Wal-Mart employ a lot of people in their stores. If the labor costs of the competitors go up, so will the prices of goods being sold there. Over a period of time, online goods will become much cheaper and will be therefore be a more attractive proposition from the consumer’s point of view.

Raising of minimum wages is, therefore, a ploy to entice more people to shop online or at the human-less stores that have been unveiled by Amazon. Since Amazon is the only company that has human-less store technology as of now, they are trying to make sustenance more expensive for the others.

Temporary Workers

Many analysts believe that the timing of the announcement made by Amazon is also strategic. This is because October is the time when other retail companies like Wal-Mart start hiring temporary workers for their holiday season sale. Since the wage hike has been announced at the exact last moment, it does not give the opponents the time to woo temporary workers.

The problem is that the American labor market is at its absolute peak. Most people are working regular jobs. Hence, the supply of temporary labor is already constrained. Only a few temporary workers are actually available. These workers will prefer to work for Amazon because of the higher wages. The end result will be supply-side shortages at companies like Wal-Mart which are Amazon’s competitors.

Public Relations Act

Lastly, increasing wages proactively without any pressure from the government is likely to increase the credibility of Amazon as a company. Amazon was facing a lot of pressure because of its working conditions.

  1. Firstly, it was alleged that the company did not pay its workers a living wage. This is the reason why many people who were working full time at Amazon could not provide for their families. The end result was the excessive strain that government programs like Medicare and social security had to bear. People working full-time jobs were also dependent upon food stamps for their survival.

  2. Secondly, it was also alleged that the working conditions at Amazon were deplorable. Many executives reported burning out from stress after working a few years with Amazon.

Both the above allegations were a public relations disaster. Amazon had to spend a lot of money in order to salvage its reputation. This is the reason why this wage increase move is a public relations genius. People all over the world and on social media are talking about Amazon in a positive light. Also, since the competitors will not be able to match Amazon’s generosity, people will end up having even more positive reviews for Amazon.

To sum it up, Amazon’s decision to hike wages for the workers has been strategic. It is true that the workers will be the biggest beneficiaries of this decision. However, there are also some significant business advantages to making this move which are not obvious to the untrained person.

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