Ikea's Minimum Wage Hike Was So Successful, It's Raising Wages Again

06/24/2015 12:01 am ET | Updated Jun 24, 2015
ASSOCIATED PRESS

WASHINGTON -- A year after it first announced a major minimum wage hike in its U.S. stores, Ikea said Wednesday that it plans to implement another nationwide raise to its wage floor next year, bringing the average store's starting pay to nearly $12 per hour.

Under the system that the ready-to-assemble furniture maker first established in January, the starting wage for any given store in the U.S. reflects the cost of living in that particular area as determined by the MIT Living Wage Calculator, which takes into account the local cost of rent, food, transportation and the like. After the second round of raises, which is slated for this coming January, all of the company's U.S. stores will be paying at least $10 per hour, and the average minimum wage across all locations will be $11.87 -- a 10.3 percent increase over the previous year, according to the company.

Rob Olson, chief financial officer for Ikea U.S., told The Huffington Post that the company is already reaping dividends from its decision to hike the wage floor and to factor in the local cost of living in doing so.

"We're very pleased so far," Olson said.

So what types of benefits has Ikea seen?

For one, less turnover. Although it's only been six months since the raises went into effect, Olson said Ikea is on pace to reduce turnover by 5 percent or better this fiscal year. Holding onto employees longer means the company is spending less on recruiting and training new replacements.

Ikea is also attracting more qualified job seekers to work at its stores, according to Olson. Pay for retail sales workers in the U.S. is generally very low, with an average industry wage of just $12.38 per hour, according to the Bureau of Labor Statistics. But Ikea's average store wage is heading north of $15. After its living wage announcement last year, the company opened two new locations -- one in Merriam, Kansas, and another in Miami -- and the higher wages (and attendant publicity) likely helped the company lure more candidates.

"At both of those stores, the applicant pool was fantastic," Olson said.

Ikea is just one of a number of major retailers, including Gap and Walmart, that have moved to boost their minimum wages in the past two years. But Ikea may have implemented its raises in the most unique manner, thanks to its reliance on the MIT Living Wage Calculator. For comparison, at the College Park, Maryland, store, in the Washington, D.C., suburbs, the minimum wage will be $14.54 next year, while at the store in Pittsburgh, it will be $10.

The recent raises implemented by retailers aren't all about benevolence. Although these decisions are partly a response to calls for higher wages for the working poor -- particularly due to the success of the Fight for $15 labor movement -- they're also calculated business decisions made in an improving labor market. As the economy recovers and unemployment falls, retailers have to compete to attract talent in a way they didn't need to during the recession and sluggish recovery.

Quoting the company's stated vision, Olson said the wage raises are meant to "create a better everyday life for the many people" -- the many people, in this case, being Ikea's employees.

But at the same time, he noted, "it makes strong business sense."

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