Ikea lifting minimum wage to nearly $11 an hour ($8.69 / $13.22)

Ikea and Gap beat feds to wage hikes

By Katherine Poythress 2:20 P.M.JUNE 26, 2014 Updated3:39 P.M.

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http://media.utsandiego.com/img/phot...053cbc530c46a8Ikea on Wednesday became the second major U.S. retailer to voluntarily lift its hourly minimum wage, following Gap's decision to do so. — K.C. Alfred

Call it a preemptive strike, but two big retailers are opting to raise their minimum pay for workers before the federal government can come to a consensus about mandating wage hikes.

Swedish furniture maker Ikea is the second to adopt a new minimum-wage structure. It announced Thursday it would be raising its minimum wage — already higher than the federal minimum — to an average $10.76 per hour starting Jan. 1, 2015.

The move will benefit about half of its 11,000 hourly employees.
It will also burnish the company's public reputation, said Point Loma Nazarene University Chief Economist Lynn Reaser, and improve its ability to get a higher-quality, more productive work force.

The new wage will vary based on the cost of living in each U.S. Ikea location as determined by the MIT Living Wage Calculator.

The calculator has determined that $11.38 per hour is the minimum a single person must earn to support themselves in San Diego.

Nationally, the new wage structure is an average increase of $1.59 per hour, or 17 percent, and it's $3.51 above the current federal minimum wage of $7.25.

With the announcement, Ikea joined the Gap Inc. family of stores in beating the feds and even local governments to a minimum-wage increase that some economists argue is long overdue.

Gap Inc., which operates Gap, Old Navy, Banana Republic and Athleta stores this month began paying workers at its 3,000 U.S. stores at least $9 per hour, and plans to increase the minimum to $10 in June 2015. The raise affected about 65,000 employees.

Both Gap and Ikea say the pay increases will not affect prices.
Rob Olson, Ikea's U.S. acting president and CFO, said that the move in fact will help reduce costly employee turnover. The National Retail Federation estimates that 19 percent of retail workers leave their jobs each year. After announcing its decision to lift the lowest wages, Gap's retail chains have seen a 10 percent spike in job applications from the same time last year.

University of San Diego economist Alan Gin said reducing turnover could improve these companies' bottom lines significantly, because hiring and training can cost as much as 20 percent of a new employee's annual wages.

"The transition to the new minimum hourly wage structure is not only the right thing to do, it makes good business sense," said Ikea's Olson, in a statement. "We are basing our wages on our co-workers and their needs, rather than what the local employment market dictates."

Despite widespread criticism that a minimum-wage hike would have negative consequences for the economy, Gin said Gap and Ikea are smart to realize that paying their workers more could translate into more sales. Those sales, he predicts, will come from employees with more expendable income, and socially conscious consumers who care about the plight of lower-income retail workers.

Reaser said that being the first to raise pay gives Ikea an edge over the competition when it comes to adding value to its reputation and retaining the best employees.

"Building your brand name builds value, and by getting out in front of a general mandated move, this gives it some edge in that respect," she explained. "Also by getting out in front, it is enabled, as Gap has found, to attract a much larger pool of potential employees. That gives it the ability to pick the highest quality candidates out of the marketplace."

Reaser added that while Ikea and Gap have no plans to raise product prices in the short term, the companies' reputations for being socially responsible could give them more flexibility to raise prices in the future.

Most retailers, including Wal-Mart, have remained neutral on the minimum-wage issue, but the largest trade group representing them has made no secret about its opposition to a federal wage increase.

The National Retail Federation in April called this "the least opportune moment" to mandate yet another challenge for retail employers to navigate while they deal with dramatic shifts in both shopper habits and work force.

While the debate continues to play out nationally, the San Diego City Council is considering a proposal to increase the minimum wage locally to $11.50 an hour over the next three years.

Related

Is minimum wage hike right for San Diego?
Minimum wage: Q&A
A look at minimum wage laws in the U.S.

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