Companies struggling to find workers as the US economy reopens from the worst effects of the pandemic have blamed higher unemployment benefits, limited immigration and childcare challenges. Now, some are pointing to another factor: Amazon.
The ecommerce leader recruited aggressively last year, hiring 500,000 people worldwide to meet the demands of homebound consumers at a time when millions of workers were losing their jobs. In the US, it paid at least $15 an hour before benefits, a rate it introduced in 2018 that is double the federal minimum wage.
Employers as large as Walmart and Target followed its lead during the pandemic, smaller rivals note, changing expectations in the low-wage workforce and giving a segment of the economy that traditionally had little bargaining power a rare moment of leverage over fast-food chains and manufacturers alike.
Chip Bergh, chief executive of Levi Strauss, told the Associated Press recently that the jeans maker was considering raising wages because “we have folks that are right around the corner from Amazon warehouses and Amazon is not afraid to pay $20 an hour” in some locations. Warehouse workers’ average hourly pay has risen by $2 since before the pandemic, according to the Bureau of Labor Statistics.
Dave Gitlin, chief executive of Carrier, has seen similar competitive pressure, telling the Financial Times that the air conditioning manufacturer had needed to adjust pay in factories from Tennessee to Minneapolis to respond to raises from Amazon and FedEx.
“There is absolutely an Amazon effect,” said Aaron Cheris, head of Bain & Company’s retail practice for the Americas. Jeff Bezos’s company should not be blamed for labour shortages, he argued, but “most of my retail clients would blame them for the rising wage expectations”.
Non-supervisory roles have seen strong wage gains in recent months, while New York Federal Reserve surveys show that the average lowest wage that workers with no college degree say they will accept for a new job has jumped by 19 per cent since before the pandemic hit — the sharpest such increase since at least 2014.
This could reflect that government stimulus cheques are more likely to persuade low-wage workers to stay home, Cheris said, but he added that raises by the likes of Amazon and Walmart were establishing a lasting change in workers’ thinking about what other companies should pay.
“It’s really hard for a big business to explain to its workers why they get paid less than somebody at Walmart or McDonald’s. For every big business, the floor is set by Walmart,” he said.
That argument was echoed by Chris Kempczinski, the chief executive of McDonald’s, who told analysts this month that it was raising wages in the US restaurants it owns because “that’s just what you need to be competitive when a Walmart or a Target or a CVS or whoever are also offering $15 an hour or have a pathway to it”.
After Chipotle moved the burrito chain’s average hourly wage to $15, its chief executive Brian Niccol similarly told analysts that it was simply moving “to where we think the game is going”.
The changing expectations are now visible beyond the largest chains: $15 has become the new minimum at the Vail ski resort in Colorado, at Universal’s theme park in Orlando, and at the Tyson Foods poultry plant in Pine Bluff, Arkansas.
For Holly Wade, executive director of the National Federation of Independent Business, this is just the latest way in which Amazon squeezes “mom and pop” employers.
About one in 10 small businesses competes directly with an Amazon distribution centre for employees, a recent NFIB poll found, and Amazon’s success during the pandemic had only strengthened its hand, Wade said.
“The competition is driving up compensation pressures and they can often dominate the markets in which small firms have to compete,” she said. In its latest survey, in May, the NFIB found a net 34 per cent of small businesses were raising wages, yet almost half still had unfilled job openings.
Amazon itself has touted the “spillover effect” of its wage rises in markets near its hubs, promoting an academic paper which found that a 10 per cent raise in Amazon’s hourly wages led other employers to offer an average increase of 2.6 per cent in the same commuting zone.
Mark Mathews, the National Retail Federation’s vice-president of industry analysis, cautioned against laying too much blame for staffing pressures at Amazon’s door, pointing to the “demographic crunch” the US labour market was facing even before the pandemic as baby boomers retired and fewer young Americans started work.
But he noted that Amazon was one of the large employers treated as “essential” businesses during the lockdowns of Covid-19’s early months, allowing it to continue operating while other retailers were forced to close and shed staff.
Businesses that had not been deemed essential were now racing to staff back up, “competing in a hot labour market for employees to come back to work”, he said.
The Biden administration failed in an attempt to insert a federal minimum wage increase in the last round of economic stimulus legislation, and the level has now gone unchanged for 12 years. Opponents argue that any raise would cost jobs and force price increases, but the national reach of companies such as Amazon and Walmart means that $15 is being established as an expected hourly wage regardless of federal law.
That has different implications in different parts of the US, analysts say. There are stark variations in the purchasing power of a $15 wage across the country — and stark differences in businesses’ comfort with paying it.
“There are areas of the country where $15 an hour is barely enough to survive and areas where $15 would get you a lot further,” Mathews said. “Especially for smaller mom and pop shops that operate in smaller markets where the cost of living is a lot lower, $15 an hour is a limiting factor.”