The Swedish furniture giant Ikea is raising the minimum wage in all of its U.S. stores, and it’s doing so in a way that may raise the bar for American retailers.
The famous seller of ready-to-assemble home goods will base the wage floor for each of its stores on the MIT Living Wage Calculator, which estimates what salary a worker would need in order to get by in a particular geographic area.
According to Ikea, the move will boost the average store minimum wage to $10.76, a 17 percent increase, and bring raises to approximately half of the company’s 13,650 U.S. employees. The new rates will go into effect on Jan. 1, according to Rob Olson, chief financial officer and acting president of Ikea U.S.
“It’s all centered around the Ikea vision, which is to create a better everyday life for the many people,” Olson told The Huffington Post. “The many people is, of course, our customers and consumers, but it’s also our co-workers.”
The company’s move will likely become a talking point in the national debate over increasing the federal minimum wage, currently $7.25 per hour, which hasn’t been raised since 2009. Democrats in Congress want to gradually raise it to $10.10per hour and tie it to an inflation index. Republicans have opposed that plan, saying businesses can’t afford it.
Ikea said it does not plan to raise prices for customers in order to pay for the wage increases.
Using a living wage calculator to determine area salaries appears to be without precedence among major retailers. The new minimum wage will vary at each of Ikea’s 38 stores — as well as its five distribution centers, two service centers and one manufacturing plant in the U.S. — depending on the cost of living in each location. Olson said none of the minimum wages will be set below $9 per hour, and those in the priciest markets will top $13.
The company will use MIT’s living wage rate for a single adult without children. It’s the lowest category in the calculator, but almost invariably higher than the federal or state minimum wage rates. In many cases, it also would be higher than the starting wages workers could expect at other retailers.
For instance, according to the calculator, the minimum wage at the Ikea store in College Park, Maryland — in the pricey Washington metro area — would be at least $13.20 per hour. That’s more than a dollar above what the U.S. Bureau of Labor Statistics lists as the average wage for a Washington-area retail salesperson as of May, and more than $2 above the average wage for a cashier. (The minimum wage at the company’s store in Merriam, Kansas, by contrast, would be at least $9.36 per hour, though the cost of living is significantly lower there.)
According to Olson, the new minimum wage structure is part of a broader Ikea effort to make its pay and benefits package more attractive. In the past year, the company increased the employer match on its 401(k) and began auto-enrollment to incorporate more workers, he said. It also launched a separate retirement account for employees who are with the company for at least five years.
The move to the living wage calculator required a new way of thinking, Olson said. Instead of setting wages according to what other retailers pay in particular markets, the company decided to evaluate what workers would reasonably need in order to support themselves. Setting a single baseline minimum wage for all its U.S. stores didn’t make sense, he added.
“What we decided to do was stop looking at the competition and focus solely on the co-worker,” Olson said. “A co-worker in one market isn’t concerned with what it costs to live in another market. That’s the way we’ve looked at it.”
The MIT Living Wage Calculator is a popular online tool developed in the early-2000s by Amy Glasmeier, currently a professor of economic geography and regional planning at the school. The calculator uses geographic data on the costs of food, housing, transportation and health care to project the minimum a worker needs to live.
Glasmeier said the calculator is used about 50,000 times a month on average. She’s heard from labor unions, local office holders and even business owners about how it might be used to set baseline wages. Not surprisingly, she also hears often from people who are struggling to get by.
“I get emails from people all over, asking for help or asking where [the calculator] came from,” Glasmeier said.
As evidenced by Glasmeier’s inbox, plenty of people believe the calculator’s projected living wages are too low. (“I get a ration of hot air from people every day,” she said.) In turn, some will argue that the new minimum wages offered by Ikea are unrealistic living wages. But Glasmeier said the calculator’s projections are for the very bare minimum that someone would need in order to eke by, not to save or get ahead.
“I feel we’re looking at the minimum living wage,” she said.
As Ikea noted, the new average minimum wage for its U.S. locations will be $3.51 above the current federal minimum wage. Olson said the company will periodically reevaluate its wage structure and adjust it for the rising cost of living.
Though it’s long enjoyed a reputation as a good employer, Ikea has taken heatover the years from workers and unions in the U.S., who say the company isn’t as generous here as in Europe. Workers at the company’s plant in Virginia voted overwhelmingly to join the International Association of Machinists and Aerospace Workers union in 2011, citing low wages and unpredictable work schedules.
Ikea isn’t the first company to institute an across-the-board minimum wage hike in recent months. Earlier this year, Gap Inc. announced that it would raise its wage floor throughout the U.S. to $9 per hour this year and $10 next year. The company said the raise would benefit more than two-thirds of its 90,000 workers. President Barack Obama, among others, praised the retailer for the move.
Although it may become part of the political discussion, Olson said Ikea’s decision should not be read as an endorsement of any legislative proposals on the minimum wage, in Congress or elsewhere.
“We’re not advocating for a federal or state movement,” Olson said. “We’re more focused on our co-workers and doing the right thing for them.”
Source: Huffington Post