Amazon is going to $15/hr – now what?

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Next Thursday, on November 1, Amazon will raise the minimum wage for all of its US-based employees to $15/hr. This is more than double the federal minimum wage of $7.25/hr, which hasn’t moved in a decade, and a 36% increase of the company’s previous minimum bar of $11/hr.

Much has been written about the move, its motivations, and what it means for Amazon. It’s worth examining in more depth, however, what impact this decree will have on the rest of the industrial labor ecosystem, broadly defined as the 17 million other Americans who hold a career in transportation, warehousing or manufacturing, as well as their employers.

Amazon’s announcement has, and will continue to, send shockwaves throughout the industry. The newly stated minimum is about 20% above the national average earnings for a warehouse worker. On top of this, Amazon is playing with a loaded hiring deck, including a significant in-house recruiting budget and a universally recognized brand. With 75 fulfillment centers spread throughout North America, and often more than one near each major city center, this move will impact industrial labor markets nationwide.

As the co-founder & CEO of WorkStep, the leading industrial labor marketplace, I personally applaud this move. I believe that any person who works 40 hours/week in support of a company’s interests should be compensated by that company to the level where he/she can similarly support oneself and one’s dependents. In that vein, this is without question a step in the right direction.

While Amazon isn’t a customer of ours today, they’re the largest customer of labor in the industrial segment. This means that, like in retail pricing, how they compensate can move the market for everyone else. Since WorkStep facilitates more long-term industrial hires each year in our mature markets than any individual company (even Amazon), I wanted to take a moment to project the downstream impacts of this bellwether event.

Immediately, the “Amazon Effect” on labor availability is going to get worse

The new wage, in combination with aggressive advertising and streamlined hiring processes will drive a greater share of the extremely limited unemployed applicant pool into Amazon’s arms.

Amazon advertisements made up more than 25% of all jobs posted in Craigslist’s General Labor section this past weekend in Portland, Oregon, WorkStep’s first market. That’s one out of every four posts pointing to a single employer. On two other popular job sites, Indeed and Ziprecruiter, a search for ‘warehouse’ in Portland, OR showed Amazon as the top result

For a job seeking worker, the likelihood of being unaware of the opportunities available at Amazon, as well as the new pay, is virtually zero. This awareness means that it will become increasingly challenging to hire new industrial employees at less than the new $15/hr Amazon threshold.

In terms of poaching the gainfully employed, we’ve seen time and time again that $1 more per hour, and sometimes less, is enough reason to job hop. While the effect won’t be immediate, fully employed workers do shop around. As a result, I expect attrition rates for industrial roles paying under $14/hr to increase in the coming year.

In the medium term, market wages will increase (but only on the low end)

In response to the above trends, I anticipate that many low and unskilled industrial jobs will see their wages creep toward $15/hr in the coming year, in particular those within commute range of an Amazon fulfillment center.

While I would love to pretend that this wage improvement will be made out of a desire to do right by the workers who sit at the low end of the income spectrum, like most business policy changes, wages will move in response to Amazon because it will be in the businesses’ best interest. Moving a worker from $14/hr to $15/hr may cost a business ~$2,000/year in wages, however, replacing that same worker would cost substantially more (most estimate the cost of a single worker turnover for entry-level industrial roles as more than $4,000). Similarly, in recruiting, a small increase in wage substantially lifts qualified candidate volume, which decreases recruiting expense and improves the fit of each individual hire.

Unfortunately, it’s unlikely that this wage advancement at the low end will meaningfully move compensation for skilled roles. Because Amazon fulfillment centers don’t substantially draw from the labor pool for CDL Drivers, mechanics, machinists or other skilled trades, their change in wage policy is unlikely to move the market for those industrial roles already earning well north of the $15/hr line.

In the long term, smaller companies need to differentiate in ways harder for Amazon to mimic

Amazon is the most valuable company in the world. As a smaller industrial player, over time, you don’t want to compete with Amazon on wage alone. As they have proven time and time again with retail pricing, they’re okay with taking a loss if it means putting the squeeze on competitors.

Where is there an opportunity to out compete the elephant in the industrial hiring room?

1. Transparent and rewarding advancement pathing

With such a large workforce, Amazon is limited in terms of the amount of upward mobility and retention incentives they can realistically offer to each associate. At present, their plan calls for a $1,500 bonus after 3 consecutive years with the company, which equates to roughly 25 cents for each hour worked.

Smaller industrial employers can do more to help their entry level workforce unlock new opportunities within their company by providing a roadmap for meaningful wage progression, as well as access to training and skill development opportunities.

2. Personalized employee engagement

Some of the most successful retention programs we have come across at WorkStep (parties & events, appreciation boards, free food, etc) are much harder to implement at Amazon’s scale. A smaller employer in a similar space can out-compete by investing in ensuring that employees feel appreciated at a scale of 1.

3. Meaningful work

Everyone wants to earn a living, but most also want to feel like they’re a part of something that matters. It is worth ensuring that employees of all levels understand the mission of the company, and how what they’re doing on a day-to-day basis supports that end. If your employees buy into your particular mission, that can go a long way to attracting and retaining –  even if a goliath in the space is paying cents more per hour.

These differentiating value adds, if implemented, will be timely for employers in an industrial sector which is only going to get more competitive from a labor perspective over the coming years. With many large cities quickly moving their minimum wage toward $15/hr, and the momentum the “fight for $15” movement is seeing nationally, it may soon be that local warehouses aren’t just competing with Amazon’s wages, but also with those of local cashiers and baristas, who have traditionally earned less than entry-level industrial roles.

Whether competing directly with Amazon for a workforce today or attracting employees over retail and food service in the near future, industrial employers should focus on paying at least market wage while offering transparent upward mobility, ongoing employee engagement, and a mission-focused work environment.    

If you’re interested in learning more about how WorkStep can support these initiatives, request a demo.