Minimum Wage: Ikea Raises Hourly Pay, Pressures Other Big Brands

Ikea says it will raise the minimum hourly wage of its workers, putting pressure on other big name chains.

Ikea says it will raise the minimum hourly wage of its workers, putting pressure on other big name chains. AXEL HEIMKEN / EPA

Now that home retailer Ikea has announced plans to raise the average, hourly minimum wage at its U.S. stores to $10.76, the pressure is mounting for other big brand businesses to follow suit.

Large companies, from retail to food—as well as many states—have hiked their hourly rate, or are considering such a move.

Gap in February said it would set $9 as the minimum hourly rate for U.S. workers, and raise the minimum to $10 next year. Chipotle Mexican Grill has said an increase to $10 an hour could be absorbed. Starbucks says it would support efforts to lift wages, but hasn't taken a stance on any specific proposal.

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Ikea's announcement is "a significant step nationally in moving the wage from where it is now," said Greta Bergstrom of TakeAction Minnesota, which has lobbied to raise wages in the state. Minnesota lawmakers in April approved lifting the state minimum wage to $9.50 an hour over three years.

Ikea's decision "will put pressure on other big box retailers to raise their wages," Bergstrom said.

Minneapolis-based Target had no additional comment on Thursday beyond those shared with in May.

"As a leading employer, Target recognizes the importance of considering how best to balance the needs of working Americans while maintaining a healthy business environment conducive to job creation," said Target spokeswoman Molly Snyder in an email. "The vitality of our business, team members, guests and communities remains our focus, and we are continuing to thoughtfully engage in and contribute to these important policy discussions.

"However, we don't disclose the specific details of our competitive pay and benefits programs," Snyder said.

Wal-Mart, America's largest private employer, also told last month that less than 1 percent of the retailer's staff excluding managers—or about 5,000 workers—makes minimum wage.

Wal-Mart's average hourly pay for part-time and full-time associates combined is around $11.81 an hour, and around $12.83 hourly for full-time associates. "We're not a minimum wage payer," spokeswoman Brooke Buchanan said in May.

Ikea's 38 existing U.S. stores and three additional locations will adopt the new hourly minimum wage beginning Jan. 1. The 17 percent increase will impact about half of Ikea's U.S.-based retail workers.

"At IKEA, we are guided by our mission 'to create a better everyday life for the many people,' a vision that includes our co-workers, customers and the communities impacted by our business," Rob Olson, Ikea U.S. acting president and chief financial officer, said in a prepared statement.

Ikea's wage hike was based on the MIT Living Wage Calculator, which takes into consideration housing, food, medical and transportation costs plus annual taxes. The hourly wage will vary based on the cost of living in each U.S. location.

The Swedish company added that higher wages will translate to higher prices, and that Ikea "is committed to continuing to lower prices," according to a statement.

Minimum wage increases, however, are opposed by large industry lobbying groups, including the National Retail Federation and the National Restaurant Association.

Opponents argue forced wage rates would only destroy jobs, and hurt the very group of Americans higher wages are intended to help.

Ikea's planned pay hike to $10.76 an hour is about 48.4 percent higher than the current hourly, federal minimum wage of $7.25. Recent efforts to raise the federal minimum to $10.10 an hour have been stymied.

But some big companies that employ thousands of Americans—and may serve as leaders in the wage debate—have extended socially conscious messaging to include living wages.

Some consumers, particularly millennials, are matching their values with pocketbook decisions. And it's a growing trend not lost on businesses savvy to protecting and growing their brands.

Ikea says higher wages are part of a broader investment in its workers. The company recently introduced new retirement benefits and a bonus program for its staff.