How Do Wage Increases Affect Amazon (AMZN) Stock?

Wages have been a hot topic recently in the United States. Many businesses are advertising $15-per-hour starting pay. But it doesn’t match what Amazon.com, Inc. (AMZN) is offering.

Amazon is boosting its pay for some employees to stay ahead of other businesses. In 2018, the online giant raised its starting wage to $15 per hour. Now it’s increasing wages again, this time to $18 per hour for warehouse jobs. The company employs nearly 1 million Americans, and it’s looking to grow even more.

Amazon is once again setting a benchmark for all hourly employers. It previously elevated the bar to a $15-per-hour starting wage, likely forcing other firms to compete. Now, it’s putting pressure on other companies again by paying $18 per hour to start.

It doesn’t end there. Amazon is also offering to cover a wide range of educational expenses for all frontline workers. While that isn’t a new corporate benefit (many other firms offer educational assistance), the fact that it’s happening on such a large scale at a huge employer speaks volumes.

Clearly, the fight to attract employees matters to Amazon. And in a potentially positive development, these aggressive recruiting efforts could grow more than just the company. They could also help grow the country.

The Amazon fulfillment centers popping up seemingly everywhere are like new “factories.” They could attract workers similar to how urban factories in the United States drew workers from rural areas from about 1900 to 1940. As more people live and work near Amazon hubs, communities form and grow. If this plays out in several places nationwide, it very well could lift the American working class.

Some investors might think that added labor and overhead costs could hurt the retail giant’s business. However, in the second quarter, Amazon increased net sales by 24% compared to 2020. And net income also increased to $7.8 billion versus $5.2 billion in 2020. Obviously, the company is doing well and investing in its businesses.

In general, labor costs can displease investors. But Amazon is already a big employer. Its business portfolio is so broad, it needs an array of talent. And it’s using profits to fuel a huge recruitment effort.

A logical leap is to think that the new employees will help Amazon execute strategic growth plans across multiple business segments. Now, performance has already been good. So, if the company is able to continue growing, the stock could fire to huge new heights over time. That’s been the blueprint to date, with the company evolving from an online bookstore to the multi-business behemoth it is today.

Looking at a five-year chart, the stock is up 282%. The highlighted area on the chart below corresponds with the October 2018 announcement, when wages were increased to $15 per hour. Interestingly, the stock was range bound for nearly 18 months but eventually vaulted much higher.

The Bottom Line

Amazon is aggressively recruiting across several lines of its business to gain what it hopes are lasting talent advantages. Increased wages and heightened benefits not only help attract talent, they can also put pressure on other employers (i.e., raising the stakes of the game). The last time the giant retailer raised wages, Amazon stock was range bound for a year and a half until eventually rising to new heights.