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Why did Amazon raise its minimum wage to $15?

This week, Amazon announced that, as of next month, all its U.S. employees will be paid a wage of at least $15 an hour. As CNBC reported,

“We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” Bezos said in a statement. “We’re excited about this change and encourage our competitors and other large employers to join us.”

Do Amazon’s workers really owe this raise to the munificence of Jeff Bezos? As long ago as 1776, the economist Adam Smith advised that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” What goes for the butcher, brewer, and baker goes for the tech magnate.

There are, after all, good reasons for Bezos to find this move in his interest. This week also brought news from the Bureau of Labor Statistics that the unemployment rate declined to 3.7% in September, the lowest level since 1969. As the economy grows, we can expect labor demand to keep rising relative to labor supply. This should raise the price of labor, wages. Indeed, as CNBC also noted,

In August, national wage growth posted its biggest increase of the economic recovery, according to the Bureau of Labor Statistics. Payroll gains beat expectations and the unemployment rate held near a generational low of 3.9 percent — making holiday hiring tougher for many retailers.

Other retailers have recently reacted in the same way as Amazon.

Retail rival Target announced in its holiday hiring release it would raise minimum hourly wage to $15 by 2020. Walmart announced plans in January to raise its minimum wage to $11.

The announcement comes ahead of Amazon’s annual holiday hiring push. Last year the e-commerce giant said it would hire 120,000 temporary employees for the holiday season.

So, which story is more plausible? That the bosses of Target, Wal Mart, and now Amazon, have all suddenly been struck with a bout of generosity? Or that they are reacting as you would expect when they find a resource they need – labor – to be increasingly scarce?

John Phelan is an economist at the Center of the American Experiment. 




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