A Blog by Jonathan Low


Oct 4, 2018

Why Amazon's Decision To Raise Wages Was About Competitive Advantage

Amazon can absorb a wage hike more easily than its retail or ecommerce competitors, especially with the crucial holiday season and its demand for part-time labor beginning.

This also recasts Amazon's position in the tech backlash narrative. Since the company has many more low wage workers than Apple, Google or Facebook, it provides some insulation in that regard, as well. JL

Maya Kosoff reports in Vanity Fair:

If Bezos’s endgame is to trade short-term profitability for long-term market share, this makes sense. Amazon has the resources to weather a wage hike, and the trade-off is familiar: when it was conquering e-commerce, Amazon survived off little to no margin. Now it has dominant market position, a trillion-dollar valuation, and the world’s richest man. Amazon (can) push its competitors by bidding up the price of labor with unemployment below 4%. (But) squeezed from both sides of the political spectrum, (this also) suggests prudent calculation of political risk.
It is perhaps too simple to attribute Amazon’s new $15 minimum wage to Bernie Sanders, although the democratic-socialist senator has not shied away from taking some credit. For months, Sanders has engaged in a fiery, populist campaign against the e-commerce giant and its billionaire founder, Jeff Bezos, for what he has described as an “insane” failure to pay workers a living wage. “It is completely unacceptable that ordinary Americans should be subsidizing the wealthiest people in the world like Jeff Bezos when they pay their employees such inadequate wages,” he tweeted in August. “Count to ten,” he wrote in another tweet. “In those ten seconds, Jeff Bezos, the owner and founder of Amazon, just made more money than the median employee of Amazon makes in an entire year.”
Amazon’s swift capitulation suggests a prudent calculation of political risk. Although Amazon at first fired back at Sanders directly—breaking with its tradition of issuing boilerplate rebuttals to reports of poor working conditions at its 100-plus fulfillment centers across the country—on Tuesday the company appeared to have a change of heart, confirming that it would be raising its minimum wage by November 1. The change affects more than 250,000 full- and part-time employees in the U.S. and U.K., Whole Foods workers, and more than 100,000 seasonal staffers brought on board during the holiday season. “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.”Sanders took a victory lap—and gave a shout-out to Bezos, whom he had previously derided as a man who earns $260 million a day while his underlings sleep in their cars. “What Mr. Bezos has done today is not only enormously important for Amazon’s hundreds of thousands of employees, it could well be a shot heard around the world,” he wrote on Twitter. “I urge corporate leaders around the country to follow Mr. Bezos’ lead.” Bezos responded in kind: “Thank you @SenSanders. We’re excited about this, and also hope others will join in.” Looking past the spectacle of the love fest, market analysts quickly turned to the real motivations behind Amazon’s come-to-Jesus moment. For one, Bezos presumably wanted to ward off the incipient “techlash” that has weighed on the FAANGs—Facebook, Apple, Amazon, Netflix, and Google. Bezos has been particularly cognizant of the political dangers percolating in Donald Trump’s Washington. In recent years, he has bought a home in Kalorama, near Jared Kushner and Ivanka Trump, and has increased Amazon’s lobbying spend by more than 400 percent. Still, his purchase of The Washington Post in 2013 made him an irresistible target for Trump, who has gone to war with Bezos, tweeting out baseless theories about how Amazon gets special treatment from the U.S. Postal Service (“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon,” he wrote in one tweet) and deriding the Post as “nothing more than an expensive (the paper loses a fortune) lobbyist for Amazon.”
With Amazon squeezed from both sides of the political spectrum—Bernie on the left and Trump on the right—Bezos would have been foolish not to make peace with one of the two barbarian tribes at his gate. Last month, Senator Elizabeth Warren warned that she was concerned about Amazon’s anti-competitive practices, and called on lawmakers to address the company’s issues with aggregation and monetization of user data “right now.” Over the summer, Rohit Chopra, the new Democratic head of the Federal Trade Commission, retained as a temporary adviser Lina Khan, a 29-year-old who, as a relatively unknown law student, published a viral piece called “Amazon’s Antitrust Paradox.” (Anti-trust issues have recently become a bugbear on the right, too, though mostly tied to anger over alleged First Amendment violations at Twitter and Facebook.) Now, those forces on the left appear to be pacified—or at least quieted for the time being.
Bezos may have had more prosaic business imperatives on his mind as well. This summer, Amazon workers abroad went on a series of highly publicized strikes. Whole Foods workers have been trying to unionize in the wake of consolidation and layoffs. Meanwhile, Amazon’s retail competitors like Target have given their employees pay bumps, raising minimum wages to $11 or $12 per hour. And as Amazon rounds the corner into the holiday season, with the national unemployment rate below 4 percent and employers vying for seasonal employees, a $15 minimum wage gives it a leg up as it seeks to hire its usual 100,000 seasonal employees, making it a more attractive place to work for a few months than another, lower-paying employer.
If Amazon and Bezos’s endgame is to trade short-term profitability for long-term market share, then this move makes perfect sense. Amazon has the resources to weather a wage hike, and the trade-off is a familiar one for the company: in the 90s and the 2000s, when it was conquering the e-commerce world, Amazon survived off of little to no margin. Now that it has a dominant market position, a near-trillion-dollar valuation, and the world’s richest man at the helm, Amazon is well poised to push around its competitors by bidding up the price of labor, and in the process, perhaps inadvertently doing some much-needed good for its workers.


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