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Economics

In the News

Amazon increases their US minimum wage to $15 an hour

Geoff Riley

5th October 2018

Amazon is one of the largest employers in the USA and the big news this week is that the company is raising pay for its workers domestically and in the UK. US-based workers will get a new minimum hourly rate of $15 in a move praised by US senator Bernie Sanders.

Being such a larger employer, Amazon has a significant amount of monopsony power in the labour market which - in theory - allows them to offer lower rates of pay than if the labour market was truly competitive. But the US labour market is now very tight with unemployment less than 4 percent of the labour force. Other retailers such as Walmart and Target have raised their minimum pay rates as employers scramble to find the workers they need.

There is a case for saying that Amazon’s move makes good commercial sense. Yes their labour costs will rise in the short run but given the prominence (and dominance) of Amazon in retailing, there is every likelihood that employees will spend a hefty percentage of their enlarged pay packet on products from Amazon leading to a surge in revenues.

And according to CNN who have studied the detail of the announcement, whilst the minimum hourly rate has jumped to $15 an hour, "Amazon will also phase out its bonus and stock award programs for hourly workers."

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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