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What Amazon's Minimum Wage Hike Means for Everyone Else

By Motley Fool Staff - Oct 5, 2018 at 9:09AM

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The new $15-an-hour floor for its huge workforce is likely to have some ripple effects.

In this segment from MarketFoolery, host Chris Hill and Motley Fool Director of Small-Cap Research Bill Mann consider the news that trillion-dollar e-commerce and cloud kingpin Amazon (AMZN 4.40%) is sharing a little more of the wealth with its workers. A quarter of a million employees will get a raise. Founder and CEO Jeff Bezos also challenged his rivals to follow suit -- a comment that the Fools see as not entirely altruistic. They discuss the difficulties of staffing up in a low-unemployment environment, the seasonal-worker hiring that's already underway, inflation, and more.

A full transcript follows the video.

This video was recorded on Oct. 2, 2018.

Chris Hill: Amazon making headlines with the announcement that Amazon is raising the minimum wage to $15 an hour.

Bill Mann: A quarter of a million employees will be getting a raise.

Hill: When you look at the reaction, with the number of employees they have... there was a point in time where Company X comes out with hundreds of thousands of employees and says, "We're giving everyone a raise," and the stock maybe doesn't tank, but certainly drops. It's down 1%. It's basically flat today.

Mann: Yeah, it's flat. OK, can I be cynical about this?

Hill: Absolutely.

Mann: Alright. One of the things Jeff Bezos said -- let me make sure I get the quote right -- is that he wanted to make sure he invited his competitors to join them. Now, these are the competitors that already, Amazon has been putting out of business, right. So now, Amazon is increasing their cost structure, making it in some ways even harder for these competitors to keep up. I don't want to be a total cynic, but I do wonder, for companies that are already having difficulty keeping up with Amazon, whether an increase in their hourly rate doesn't accelerate the inevitable.

Hill: This goes to something that we've been talking about here at The Motley Fool for about a month or so. As someone who consumes a lot of business media, I think we've been ahead of the curve on this one. It is the intersection of seasonal hiring and wages. This time of year, late August, early September, we start to --

Mann: [laughs] The Christmas rush starts?

Hill: Well, no. We start to see the announcements from major retailers -- Target, Macy's, Walmart, and others, saying, "Hey, this season, we're going to hire X number of seasonal workers." We always compare it to, well, what did they do last year? A month ago, when this started, we started to have the conversation here at The Motley Fool -- "Well, this will be interesting to watch. This is seasonal hiring in an environment where wages are going up and unemployment is under 4%. It's going to be really interesting to see how they can pull this off." Basically, seasonal hiring is going to be a lot harder for these companies than it was, say, in 2010.

Amazon coming out the way they did, I think it was smart. Certainly, good for their employees. I don't know if you saw on Twitter, the footage of the announcement in one big warehouse.

Mann: Absolutely. Yeah, I don't want to sound too cynical about this. I think it's wonderful that they made this choice.

Hill: No, it's great! But also, there was a story in the Washington Post over the weekend about the challenge that some of these businesses are starting to have. Some of them were taking the tack of, instead of saying, "Hey, let's just raise wages," they were taking the tack of, "Well, let's offer different incentives." "Hey, we're going to hire you for $10 an hour, but we'll also give you a $100 gift card at our store," or that sort of thing. And it's like, OK, that may work. But I think, largely, for people who are looking for seasonal work, the thing that they're the most interested in --

Mann: Cash!

Hill: Yeah.

Mann: Money! Yeah. I think that's true. To go all macroeconomic, I think pretty much Amazon has also solidified the next rate increase for interest rates, simply because one of the primary things that they look for in inflation is wage growth. For 250,000-300,000 people to get a very substantial raise, and I'm certain that there will be some knock-on effects to that, given the low rate employment. There will be impacts. A lot of them are awesome. Some of them bear some paying attention to. But congratulations to Amazon! I think it's wonderful!

Hill: Yeah, it's a smart move.

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