Amazon.com (NASDAQ:AMZN) chief Jeff Bezos likes to make bold moves. Granted, sometimes they can flop. But for the most part, he has been spot on. And of course, it has meant significant gains for shareholders. For the year so far, the AMZN stock prize is up more than 60% and the market cap is at $931 billion.
Of course, we got another bold move this week — that is, a $15 an hour minimum wage. It will go into effect on Nov, 1 and apply to full-time, part-time, temporary and seasonal workers across the U.S. For those employees already paid above the $15 level, there will also be pay raises (although, the levels have not been disclosed).
So what might be the impact on the AMZN stock price? Well, it’s tough to gauge. Now it’s true there will be some pressure on margins. The new wage policy will affect more than 250,000 employees.
Yet over the long-haul, Amazon stock should benefit from the higher minimum wage. Let’s consider some of the takeaways:
Impact On AMZN Stock #1: Offsets
It’s a mistake to just multiply the increase in the minimum wage by the number of employees. The reason is that compensation includes more elements that a person’s salary.
Note that Amazon.com plans to eliminate various incentive pay mechanisms as well as stock grants. For now, it’s not clear how much this will reduce the impact of the higher minimum wage (after all, these elements are variable). But it should help to offset some of the increase.
Impact On AMZN Stock #2: Economic Reality
Amazon really had little choice but to increase its wages. With unemployment below 4%, the labor market is tight.
But isn’t $15 kind of on the high side? Perhaps. But it does get people’s attention. I wouldn’t be surprised that there will be a notable increase in resumes sent to Amazon because of this. What’s more, the higher wage should also mean less turnover.
Something else: The $15 rate is likely to put quite a bit of pressure on rivals like Walmart (NYSE:WMT), Target (NYSE:TGT) and Kohl’s (NYSE:KSS). It seems like a good bet that they will be more aggressive in increasing their own wages.
Consider that AMZN is now advocating for an increase in the federal minimum wage. The company’s senior vice president of Global Corporate Affairs, Jay Carney, noted in a press release: “We will be working to gain Congressional support for an increase in the federal minimum wage. The current rate of $7.25 was set nearly a decade ago. We intend to advocate for a minimum wage increase that will have a profound impact on the lives of tens of millions of people and families across this country.”
Impact On AMZN Stock #3: Politics
When Walmart became a powerhouse in the 1990s, the company was a target of politicians. A big reason was the relatively low wages. As a result, Walmart took a reputation hit.
No doubt, Amazon.com has been in a similar situation lately. Senator Bernie Sanders even proposed legislation called the BEZOS Act, which would impose taxes on companies that are not paying more to their employees.
But the $15 minimum wage from Amazon has seemed to put a damper on the controversy. Sanders has already praised the effort and has encouraged other companies to follow Seattle company’s lead.
Impact On AMZN Stock #4: Automation
Whenever wages rise, companies will look at alternatives. This usually means investing in new technologies. A prime example of this is the auto industry during the 1960s to 1970s, when the unions held substantial power. To deal with this, there were heavy investments in robotics — which was transformative.
Regarding Amazon.com, it has already been forward-looking. Back in 2012, the company purchased Kiva, a top provider of robots for warehouses. The deal has certainly been a game changer.
But in the coming years, Amazon.com will certainly leverage its cutting-edge systems, such as AWS, AI (artificial intelligence) and machine learning. All of these technologies should — over the long-term — mean less of a need for low skilled labor.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.