FOR a brief, beautiful moment in time Jeff Bezos and Bernie Sanders were at peace. On October 2nd Mr Bezos, the boss of Amazon and the world’s richest man, announced that he would raise starting wages for American employees to $15 an hour. That thrilled Mr Sanders, a curmudgeonly socialist senator who just last month introduced a “Stop BEZOS Act” which would tax the company for the public benefits received by low-paid workers. “It could well be a shot heard round the world,” he gushed. The billionaire returned the kind words, thanking his gadfly and urging other companies to join him in raising wages. Amazon also announced that its phalanx of lobbyists would start calling for a higher federal minimum wage, which has not increased since 2009.
There are two possible explanations for Amazon’s move: capitulation to political pressure, which is how the firm is presenting it, or self-interest. Lefty critics, Mr Sanders chief among them, had badgered the company repeatedly about its stressful warehouse working conditions. His office circulated a financial report showing that global median annual pay for Amazon’s employees was just $28,466. The company’s retort that median wage for all its full-time American employees (including highly paid software engineers) was $34,123 attracted comparatively less attention. A detail provided by James Bloodworth, a British journalist who went undercover in an Amazon facility and says he encountered bottles of urine from employees too scared to take bathroom breaks, has proven particularly difficult for the company to shake. No matter how uncommon such episodes actually are, the Dickensian juxtaposition of modern history’s wealthiest man atop an empire of terrified workers is politically compelling.
An alternative theory is that the company is simply spinning a sound business decision. Amazon’s new minimum wage, which come into effect on November 1st, will also apply to temporary workers. Heading into the holiday season, the firm will hire 100,000 seasonal workers. Given how tight the labour market is, that might have been difficult to accomplish without a wage rise. Fatter paycheques could also forestall efforts to unionise which are under way at Whole Foods, a grocery chain purchased by Amazon in 2017. Other analysts see Amazon’s lobbying for a higher minimum wage as shrewd business practice disguised as progressive policy. Amazon, whose remarkable growth has more to do with its highly profitable cloud-computing service than its dominant position in online retailing, can probably stomach the extra labour costs better than most firms. Analysts detect a pattern. After Amazon began collecting online sales taxes, it also began a lobbying campaign to require all online retailers to collect sales tax.
Amazon’s politics are not always so flexible. In May the city council in Seattle, where Amazon is headquartered, decided to impose a head tax of $275 per employee to fund services for the homeless. Because the company has an estimated 45,000 employees, its costs would have been $12.4m—or 0.5% of last quarter’s profits. Amazon fought the proposal, pausing construction on one office building and suggesting that it would ditch another. The tax was repealed less than a month later.
Determining whether Amazon’s wage rises were the product of market forces or political ones is important. Economists have been puzzling over sluggish wage growth despite the low unemployment rate. One explanation with a growing number of adherents is monopsony, or the power firms exert over wages. That could be the result of a single, large employer dominating a town, but it could also result from “no-poach contracts”, which several fast-food chains used until recently.
Amazon’s market position may allow the firm to be more generous than other employers. Overall, though, monopsony exercises a downward pressure on wages that exacerbates income inequality, argues Kate Bahn of the Washington Centre for Equitable Growth, a think-tank. If wages are remaining stuck because of monopsony rather than competitive markets, that bolsters the argument for regulating anti-competitive behaviour, easing labour organising and bumping up minimum wages a bit. Even Mr Sanders might endorse that.