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IKEA gets flexible with minimum worker pay

IKEA will raise its average minimum wage to $10.76, but rates will vary based on the cost of living in each of IKEA鈥檚 38 store locations.

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Mark Lennihan/AP/File
Ikea employees cheer during the grand opening of New York City's first Ikea store, in Brooklyn. Ikea on Thursday, June 26, 2014, announced its US division is raising the minimum wage for thousands of its retail workers, pegging it to the cost of living in each location.

Sweden has no federal minimum wage. Instead, its wages are negotiated with unions from year to year. So it should be no surprise, then, that IKEA would be similarly flexible in changing its minimum pay for its US employees.

The Swedish furniture giant announced Thursday that it will be raising its minimum pay for workers in its 38 US store locations. The pay raises will affect about half the company鈥檚 workers and raise the average minimum pay rate to $10.75 per hour 鈥 an average increase of about 17 percent, according to the company's press announcement.

But the raise isn鈥檛 a fixed amount nationwide. Instead, minimum pay for each store will be set based on the cost of living in that location鈥檚 area. That means the $8.69 minimum for workers in the company鈥檚 two least expensive locations, Pittsburgh and West Chester, Ohio, is nearly $6 less than for workers in Woodbridge, Va., near Washington (who will get $13.22 per hour minimum).

The new wages will go into effect in January 2015.

鈥淭he transition to the new minimum hourly wage structure is not only the right thing to do, it makes good business sense,鈥 Rob Olson, IKEA US acting president and chief financial officer, said in the announcement. 鈥淲e are basing our wages on our co-workers and their needs, rather than what the local employment market dictates.鈥

Mr. Olson called the new wage structure a 鈥渟ignificant investment,鈥 but said that IKEA would not be raising its prices to pay for it.

The wage increases for each location are based on the Massachusetts Institute of Technology's Cost of Living calculator, which takes the area鈥檚 cost of housing, food, medical care, transportation, and taxes into consideration. (IKEA鈥檚 wages are based on the totals for a single person without any children.)

IKEA鈥檚 announcement comes on a wave of support for the idea of increased worker wages, both public and private. In February, clothing retailer Gap Inc. announced that it would raise its minimum pay to $9 per hour, then again to $10 per hour sometime next year. Massachusetts is looking to increase its state minimum wage to $11 an hour. Earlier this month, Seattle鈥檚 city council approved the adoption of a $15 per hour minimum wage in that city, though a group of local businesses has sued to block the measure. Minnesota, Maryland, Connecticut, and California have all passed laws to raise their minimum wages in the coming years.

By getting out in front of such measures, companies like IKEA and Gap earn a bit of good PR for a move they may have had to make eventually anyway. They also lure better workers: Gap, based in San Francisco, says it has seen a double-digit increase in job applications at Gap and Old Navy stores since last year,.

IKEA, too, is positioning itself as a desirable long-term option for potential employees with its benefits as well as its wages. The company鈥檚 401(k) plan offers a 100 percent match for the first 4 percent of contributed employee pay and 50 percent for another 2 percent.

But even companies not exactly known for high-quality worker treatment are trying to get in on IKEA鈥檚 wage-hike goodwill. 鈥淕reat news from today,鈥 the Twitter account for Walmart鈥檚 newsroom tweeted. 鈥淸Did you know] Walmart's average hourly wage for full and part time associates is $11.81?鈥

For readers keeping score: "average wage" is quite different from "hourly minimum wage." IKEA is still ahead.聽

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