Swedish furniture giant Ikea is wading into the contentious American minimum wage debate by raising pay in its U.S. stores.
Ikea US will boost the average minimum hourly wage across its 38 retail locations to $10.76 beginning Jan. 1, 2015. That's a 17% bump from its current $9.17-an-hour starting wage, and $3.51 above the federal minimum.
"The happier the co-worker, the happier the customer and the better the overall shopping experience," said Ikea's acting U.S. president, Rob Olson. "We wanted to be less concerned about the competition and more concerned about offering our co-workers a better everyday life."
Nearly half of the company's 13,651 American employees, full and part-time, will get a raise. Executives said the policy is a departure from that of most other companies, which generally aim to pay employees at roughly the same rates as their rivals.
The federal minimum wage has not changed from $7.25 an hour since 2009. President Obama is campaigning for legislation that would boost the wage to $10.10 an hour. But critics worry that such a lift could stifle job growth by raising the cost of labor, driving companies to hire fewer workers and boost productivity through technology.
The National Retail Federation called the proposal "an anti-job tax."
A February report from the Congressional Budget Office concluded that a $10.10-an-hour minimum could scale back total employment by 0.3%, or 500,000 workers. But researchers cautioned that, given the report's margin of error, those losses could actually range from a tiny reduction to a million jobs.
The report also projected that the higher minimum wage could increase incomes for 16.5 million people and elevate 900,000 people out of poverty. The proposal could mean higher prices for consumers and crunched margins for businesses, which might also have to raise pay for higher-wage workers to retain them, researchers said.
But higher wages would also likely spur more spending by workers, potentially giving businesses more revenues to pay their staffs.
Since 2012, fast-food workers and their supporters have organized a series of wide-ranging strikes and rallies calling for a minimum wage as high at $15 an hour.
So far this year, 38 states have considered minimum wage bills, and eight states and Washington, D.C., have pushed through new wage laws, according to U.C. Berkeley's Institute for Research on Labor and Employment.
Earlier this month, the Seattle City Council voted unanimously for a gradual increase in the minimum wage to $15 an hour. The International Franchise Assn. is challenging the decision with a federal lawsuit that accuses the new rule of discriminating against franchisees and treating them as large, national companies instead of as small, local businesses.
In California, San Francisco, Richmond, Berkeley, Oakland and San Diego have all weighed citywide increases to more than $10 an hour. On July 1, the minimum wage in the state will increase to $9 an hour from $8 — where it has stayed since 2008. In 2016, the wage will rise again to $10 an hour.
But in a report this week, the U.C. Berkeley researchers questioned how far the boost will go, projecting that $10 in 2016 will be equivalent to $9.54 in today's dollars, or $8 by 2023.
"We do not believe that this minimum wage focus that's happening across the industry is going to go away," J.D. Matthews, a joint venture partner at Panera Bread Co., told investors in March.
Some companies, such as SeaWorld Entertainment, say they build regular starting wage increases into their annual plans. Others, such as Chipotle Mexican Grill, try to move entry-level employees quickly into higher-paying positions through training programs.
"We believe that the focus on minimum wage is a wrong focus," said John R. Hartung, Chipotle's chief financial officer, at an investor conference last month. "It's unfair to the people that are at that bottom rung to just move them up a half notch and not give them the skills so that they can continue their career."
In February, Gap said it would raise its hourly minimum wage to $9 this year and $10 by 2015, a move the retailer said would affect 65,000 of its 90,000 employees in the U.S.
Since the announcement, the San Francisco company said, job applications for positions at its namesake brand and its lower-priced Old Navy label saw a double-digit increase from the same period a year earlier. Interest from job seekers also swelled at Gap's Banana Republic and Athleta stores.
Ikea said it won't spend money lobbying for legislation setting higher wages at a federal or state level. Instead, the company chose to use outside consultants, research studies and extensive internal discussion before deciding to boost its workers' pay.
Ikea's hourly wage will be tied to the cost of living near its various locations. The new wage standards are based on the MIT Living Wage Calculator, which factors in the cost of housing, food, healthcare, transportation and taxes for a single person without children.
The company said its five distribution centers, two service facilities and manufacturing plant already pay more than local living wages.
Ikea's higher starting wage will also apply to workers in new stores set to open by the end of 2015 in Miami, Kansas City and St. Louis. The increase will take effect at 33 stores; the five other existing locations and the non-retail facilities already pay workers more than the new threshold.
The company said it intends to continue lowering prices for consumers, despite the "significant" cost of raising pay for workers. Shoppers buy more when products are cheaper, Olson said.
And higher wages probably will lead to a larger pool of higher-caliber job applicants, less employee turnover and improved customer service delivered by longtime, loyal workers, he said.
"Even though the margins might be lower, the bottom line ends up doing better," Olson said.