Amazon’s Push for an Increased Federal Minimum Wage has Consequences for Low-Wage Workers

This past Tuesday, Amazon CEO Jeff Bezos announced he would be increasing the minimum wage of all the company’s employees to $15 an hour. The captain of industry made this decision due to protests and outcries from activists demanding a “living wage” for employees. Bezos also added that he and Amazon encourage other companies to follow their example, and plan to persuade the government to raise the federal minimum wage. While raising the minimum wage to $15 an hour has been supported by many in mainstream politics, most vocally Senator Bernie Sanders, economists point out this change may have potentially harmful long-term consequences. The question is not whether Amazon raising their pay by $1 is enough to be considered a living wage. The more important factors to consider are the other economic concerns that will potentially undermine and harm these low-wage workers in the long-term.

I get this a lot from people when I talk about minimum wage increases: how can earning more money possibly be bad for someone? I want to begin with a distinction: if Amazon, as a private company, wishes to raise the minimum wage of its workers, I don’t have a problem with that. The problem lies with Jeff Bezos and, subsequently, Amazon trying to lobby the government to artificially mandate the federal minimum wage to nearly double what it is now. While there are obvious short-term benefits to increasing the minimum wage, economists warn that increasing the minimum wage for low-wage workers could potentially harm the very people it was intended to help. For example, when a company can’t support the number of workers it employs due to the company not being able to support pay increases for all its workers, it can lead to cuts in hours, layoffs, and more automation. This in turn harms the population of low-wage workers due to increased unemployment and less hours worked.

The Congressional Office Budget projected in 2014 that raising the federal minimum wage from $7.25 to $10 would cost 500,000 jobs as companies let go of workers because employers wouldn’t be able to pay workers more. Raising the federal minimum wage to $15 an hour could potentially be even more devastating for low-wage workers in this country. This has been true for cities who have implemented raises in their minimum wage like Seattle, who increased their minimum wage rate back in 2015 and again in 2016. Researchers at the University of Washington found the first raises in 2015 had less of an impact, since there was less of a pay increase compared to years prior. However, the results from the wage increase from 2015 to 2016 led to an individual loss of $125 per month, working out to a loss of $100 million per year for low-wage workers in the city.

If employers and companies can’t afford to stay in business, the jobs they created will cause unemployment to increase and the economy to stall. The Harvard Business School found in 2017 that each $1 artificial increase in the federal minimum wage resulted in a 4-10% increase in the likelihood of restaurants closing; doubling that number would again be devastating to companies, especially small businesses, and thus the workers who are out of a job. In September 2016, 25% of restaurant closures in the San Francisco Bay Area, where the study was conducted, cited labor costs as one of the reasons for going out of business. Additionally, the study stated that companies that have the ability to automate, like McDonald’s, are doing so just to stay in business. Within the past few years, restaurants like Applebee’s have followed their example and resorted to implementing technology in their establishments rather than retaining human waiters.

Lastly, the cost of workers and products would go up substantially, meaning the cost of labor and production would put many start-ups and small businesses at risk of not making profits, closing their doors and firing workers as a result. This would also be felt by consumers who will have to pay more for basic products and goods.

You might be wondering what this has to do with Amazon, a company worth more than one trillion dollars. Amazon raising their minimum wage is extremely important considering they are setting the rapid pace for other competitors in the market. Costco, Target and Walmart have all announced that they will gradually increase their minimum wages over the next few years as well, but now due to Amazon’s rapid pay increase they may feel the pressure to follow suit or face backlash from workers, activists and politicians. Again, if these private companies want to make the decision to pay their workers more, that’s their decision. However, Amazon’s actions to influence the government to raise the federal minimum wage are potentially more damaging to start-ups and small businesses who may not be able to compete with more established companies, since it would be too expensive to stay in business. This would have negative impacts on the economy, especially future low-wage workers and those starting out in the workforce. Even larger companies like fast food restaurants are having a hard time keeping up with the wage increases.

While Amazon trying to increase wages for its own workers can be seen as a good thing, I think the company was more motivated by aesthetics and, more cynically, the opportunity to drive out other competitors who can’t afford to pay their workers as much. Considering the evidence, the government mandating an artificial increase to the federal minimum wage would be extremely devastating to the low-wage workers who depend on those jobs to survive. A low paying job is not ideal, but it’s better than no job.

Rebecca Rinaldi is a fourth year Criminology, Law and Society major. She can be reached at rinaldir@uci.edu.