IKEA to raise its minimum wage

IKEA, the iconic home furnishings chain, plans to announce Thursday that it will raise its minimum wage by 17%, joining a growing national movement to boost the pay of low-wage workers.

The Gap, whose stores include Gap and Old Navy, also has announced plans to increase its pay floor this year.

​The privately held Ikea plans to raise its average minimum wage from $9.17 an hour to $10.76 starting January 1. The increase will affect about half of the 11,000 employees at its 38 U.S. stores

"It's driven from our vision of wanting to create a better everyday life for our coworkers," acting IKEA President Rob Olson said in an interview.

Olson says the chain's entry-level pay is already above the average of its competitors. It's also well above the $7.25 per hour federal minimum wage. But IKEA, he says, wanted to ensure that its workers receive an adequate income based on the MIT living wage calculator, which estimates what a single adult should earn to afford basic expenses in each U.S. county.

The raise, he says, also will reduce employee turnover and bolster recruitment.

Critics say proposals to raise state and federal minimum wages often force employers to lay off workers or hire fewer people, and lead to price hikes that can hurt low-income Americans in particular.

But Olson says IKEA has no plans to raise prices, cut staff or reduce hiring. He says the company can absorb the pay increase partly because it has cut costs in recent years. The wage hike will narrow profit margins, Olson says, but it ultimately should benefit the bottom line.

Other retailers are also realizing benefits. The Gap told Bloomberg News this week that job applications to the Gap and Old Navy chains have surged by at least 10% since February when the company announced plans to boost hourly wages to $10 by 2015.

Don Thompson, CEO of McDonald's -- the biggest target of a wave of fast food worker strikes for better pay -- said this month the company backs legislation to raise the federal minimum wage to $10.10 an hour. That proposal has been blocked by Republicans in Congress. But more than 20 states have set their pay floors above the federal minimum and about 30 are considering increases.

Jack Temple, policy analyst for the National Employment Law Project, says company wage increases "make a massive difference" for employees. But he says they can't make up for a lack of federal action.

"The country as a whole is facing a crisis around low-wage jobs and we need a national response," he says.