The latest Amazon effect: Wage pressure on everyone else

Local employers worried about Chicago's new minimum wage—which rises to $13 an hour next year—now have a bigger concern: Amazon's decision to pay all its workers at least $15 an hour, starting next month.

The e-commerce giant effectively has set a higher pay floor for companies that compete for talent at the low end of the wage scale. Warehouse operators, retailers, restaurants, hotels and others will have a hard time recruiting and retaining good workers if they don't match Amazon's pay. "There will be a general labor market impact, particularly in areas where Amazon is hiring," says Rob Karr, CEO of the Illinois Retail Merchants Association.

In other words, pretty much everywhere. Amazon is hiring tens of thousands of workers across the country, as it adds warehouses to provide ever-faster delivery and expands into grocery and pharmacy markets. In the Chicago area, Amazon has 7,000 hourly workers at distribution centers, Whole Foods grocery stores and other operations.

True, Amazon's new hourly minimum won't have the legal force of minimum wage legislation; employers won't face fines or other sanctions if they choose to pay less than $15 per hour. But in practical terms, Amazon's pay standard has a broader effect than any city or state minimum wage law. Employers can't escape it by moving across a governmental boundary.

Amazon's move compounds the impact of intensifying competition for labor. A booming U.S. economy has reduced unemployment to long-term lows. Businesses looking to capitalize on strong consumer demand are scrambling to fill open jobs.

These economic forces, combined with political pressure to raise pay for low-wage workers in some areas, had already started lifting labor costs. Walmart in January raised starting pay to $11 per hour. Target went to $12 an hour in March, with plans to hit $15 by 2020. Locally, McDonald's promises to pay workers at company-owned stores at least $1 per hour more than the local minimum wage, and Walgreens says it will spend $100 million on raises for hourly workers.

Amazon just trumped those moves, not to mention minimum wage laws here and elsewhere. Companies planning to raise wages gradually will face pressure to accelerate their increases, while those still holding the line will find themselves on the wrong side of an expanding pay gap. Notwithstanding recent pay hikes at some employers, the gap in current wage levels will be significant, notes retail industry consultant Neil Stern of McMillanDoolittle. "Retailers are still hiring people at $9 or $10 an hour," he says. "This ups the ante on that quickly."

The median wage for retail workers in the Chicago area is $11.21 per hour, according to data from the Illinois Department of Employment Security. Average pay for local warehouse workers ranges from $11.50 to $12.95, a survey by employment website Indeed.com shows.

A boost to $15 an hour would be a big win for many low-wage workers and their supporters in the "Fight for $15" movement. At the same time, it would drive up costs significantly for companies that employ large numbers of those workers. The bottom-line impact will vary depending on a company's ability to pass along higher costs to customers. Some may raise prices, while others with less pricing power may cut costs—including headcount.

Employers looking for a silver lining can take solace in Amazon's moves to reduce its own appetite for additional labor. The company is investing in warehouse automation and checkout-free stores, technologies that might ease labor costs for all companies someday. In the meantime, they'll have to pay up.

More:
Yet another reason for Amazon to say no to Chicago
A new mayor means new math for Chicago business
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