Amazon, the single reason many of us don’t put on pants to buy things we need, decided recently that they will be increasing their minimum wage to $15 per hour. This process was met with fanfare from Progressives who have put pressure on Amazon after discovering some of their employees are living on food stamps.
However, the rules of economics are not bent or broken so simply. Amazon wasn’t interested in raising labor costs by just raising their minimum paid wage. Amazon has reorganized their pay structure to phase out incentive base pay in the form of bonuses or stock known as Residual Stock Units. This incentive pay was based on the performance of their warehouse workers and their level of efficiency.
As Bloomberg points out, the $15 an hour sits above what the market would charge for this particular type of work. This puts Amazon in a unique position of being able to attract the best talent for a respective job. The consequence is lower performing workers, who likely would benefit the most from this increase, may find themselves out of a job.
How much should this worry us? Let’s think about Amazon’s workers who were previously making just minimum wage, and not getting any performance bonuses. If those workers were already performing at a level worth $15 an hour, then the new policy is a boon — the workers just get paid more for the work they were already doing. This could easily be the case if Amazon were keeping wages low because its workers didn’t have many other options.
But suppose instead that those minimum-wage employees were really doing work worth less than $15 an hour. If they can’t increase their output to the $15 an hour level, then they may well be on the way out.
Thus, we see the nature of the minimum wage play out in yet another example of the laws of economics at work. We also have an issue on the other end of the productivity spectrum and that is the elimination of incentive based bonuses and pay. With bonuses and RSU’s being eliminated, there is no longer incentive for some workers to go above and beyond as they have previously.
So what is the result of this? First, you remove incentives for workers to increase their productivity beyond what is necessary to keep their jobs. Second, you raise the minimum pay scale for entry into the Amazon workforce, which increases the options Amazon has for workers and thus puts lower performing workers at risk of losing their jobs.
Perhaps Amazon will see increases in productivity as a result of attracting a better talent pool, but it is unknown if it will be offset by the loss of productivity of incentive based workers who no longer push themselves. In the end, it removes the ability for Amazon to take risks on lower skilled workers, thus giving them experience. It also removes any incentive to do more than the bare minimum.
In the end, the minimum wage only results in less jobs. The higher cost means companies must hire fewer people, and of the people they hire, those people won’t include lower skilled workers who desperately need jobs to gain experience. The minimum wage harms the very people it is claimed to protect.