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Sun. July 14, 2024
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How Would a 20% Salary Increase Affect Amazon?
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Almost every time I head to the Student Union for lunch, I can see the Amazon truck stopping by the mail room. For those of us who are boarding high school students, our greatest dependency is to Amazon. We're not allowed out of school during the week, so Amazon becomes our easiest and only way to buy things. Thus, we, the boarding students, are some of Amazon’s biggest customers.

Amazon is an American multinational technology company that focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. Amazon has an enormous labor force. According to GeekWire: “Globally, Amazon topped 1.6 million employees as of the end of 2021, up 24% year-over-year, according to the company’s fourth quarter earnings report.”[1] Through the efforts of more than a million employees, Amazon has reached $438.118 billion total worth with more than 185 fulfillment centers globally.[2] Should Amazon decide to raise employee salaries 20%, it would have a positive impact on its workers, its customers, and the e-commerce sector’s reputation.

The first thing that should be considered is the direct impact it would have on the company’s financial system. According to ZipRecruiter, “As of June 13, 2022, the average annual pay for an Amazon Employee in the United States is $49,552 a year.”[3] If Amazon does not want its total enterprise assets to achieve a negative growth in a year, they must earn back $16 billion (20% estimated salary of Amazon’s annual financial outlay on salaries). Thus, $16 billion would be the immediate financial impact for Amazon of its pay raise.

With today’s inflation rates, a 20% salary raise is very reasonable. A raise of less than 20%, on the other hand, is too low and would hardly be noticed by employees. For example, if the previous salary was $100, and Amazon only increased it by 10% or 15%, the increased salary would only be $110-115, which wouldn’t be particularly enticing for the workers. If the salary becomes $120, a 20% increase would be notable and motivating. However, a salary increase exceeding 20%, while certainly making employees happier still, may be too costly for the company. As a result, 20% is the most cost-effective salary rise because workers would be happier and more motivated and Amazon would not suffer a great loss.

Secondly, for Amazon workers, the salary increase would make the jobs more competitive. This is an improvement of efficiency and productivity. As Ray Fisman and Michael Luca said, “First, higher wages allow firms to attract and retain better employees (assuming competitors don’t follow suit and raise their wages as well). But there is an important — and often overlooked — second effect. Paying wages that are above the market rate (known within economics as “efficiency wages”) can also be an important motivating force for an existing employee base. The intuition is straightforward: higher wages make a job more desirable.”[4] An above-average salary makes employees value their job more, and lazy people become more diligent or get fired. Everyone works harder and more effectively because they fear job losses more if their wages are higher than the market average. Meanwhile, there will be more competitors competing for positions at Amazon because of higher salaries, so the company won't worry about running low on staff. Therefore, from the perspective of the company, it is indeed a beneficial decision to increase the salary for employees.

However, as efficiency increases, Amazon doesn’t seem to care enough about its employees. “Warehouse and delivery workers have routinely spoken out against the company, arguing its “customer obsession” and focus on speedy delivery have created an unsafe working environment. They’ve claimed the pace of work doesn’t allow for adequate breaks and bathroom time.” Annie Palmer from CNBC reports, “There were 6.8 serious injuries for every 100 Amazon warehouse workers. That’s more than twice the rate of all other employers in the warehouse industry, which had 3.3 serious injuries per 100 workers.”[5] Those concerns have come into greater focus as unionization efforts have ramped up at Amazon warehouses. Such a working environment has caused the employees to form Amazon worker organizations: “Some warehouse workers of Amazon, the largest American e-commerce retailer with 750,000 employees, have organized for workplace improvements in light of the company's questionable labor practices and anti-union stance. Worker actions have included work stoppages. As a result, Amazon workers have won concessions including increased pay, improvements in workplace safety, and more time off.”[6] Amazon's blind pursuit of efficiency has been costly in terms of corporate reputation, employee attrition, and public trust. Thus, if Amazon wants to attract and retain employees, it must provide safer working conditions and better worker pay.

The third impact of Amazon’s salary raise would be on its customers. As  workers would be motivated to prove their worth of a higher salary, customers’ praise and reviews would be more valued. For instance, delivery workers might not throw customers’ packages in front of their door without first noticing them. Instead, they may place the packages neatly and knock on the door to notify the customer. Also, it is important to the customer that the delivery time is shorter because of the increased efficiency. Nevertheless, there is a high chance that higher worker salaries at Amazon will lead to higher delivery fees.

If Amazon decided to raise the salaries of its employees, it would likely have several self-reinforcing effects: the raise will motivate employees, improve customer satisfaction, and boost the company’s reputation. Amazon captures the hearts and minds of customers and will continue to have a reputation as a leader in the industry.

In conclusion, improving employee efficiency, increasing customer satisfaction, setting an example, and becoming a leader in the industry would be the outstanding results of Amazon's 20% salary increase. However, employee safety and the outlay on the 20% salary could also present a burden that Amazon should consider.

David Yao is a senior at Lake Forest Academy who enjoys studying Business and Entertainment Industry. David is a music producer and instrument player who has his own music record label and electronic music band. He has studied at the Berklee College of Music and Columbia University in their summer school programs, specializing in Pre-MBA and Music Business. He is also a member of the International Computer Music Association.


[1] Amazon Tops 1M US Employees, GeekWire

[2] Amazon, Wikipedia

[3] Amazon Employee Salary, ZipRecruiter

[4] “How Amazon’s Higher Wages Could Increase Productivity,” Harvard Business Review

[5] Annie Palmer, CNBC

[6] Amazon Worker Organization, Wikipedia

 

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