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IKEA gives its US employees a raise

The furniture retailer will provide a 17% increase to its average minimum hourly wage and tie compensation to the cost of living.
An employee is at work at a warehouse of world's largest furniture retailer Ikea, on March 18, 2014.
An employee is at work at a warehouse of world's largest furniture retailer Ikea, on March 18, 2014.

Another major retailer in the United States is giving a boost to its base salary, although the size of the increase will vary from state to state. On Thursday morning, the Swedish furniture retailer IKEA announced that it would be adopting a new wage structure which is expected to increase pay for about 50% of its American employees. The change in company policy will take effect on January 1, 2015.

The new policy will base entry-level compensation on the MIT Living Wage Calculator, which estimates the wages required "to meet minimum standards of living" in each county of each state. IKEA's new compensation system will offer different base wages at different store locations, depending on the cost of living in the surrounding area. The average minimum hourly wage across all store locations will become $10.59, a 17% increase from what it is now.

Rob Olson, the acting president and CFO for IKEA US, told msnbc that the policy change "goes back to the IKEA vision, which is to create a better everyday life for the many people."

"We had always focused on making sure we were above average with our compensation rates, so whatever the average of our competitive set was, we wanted to be higher than that," he said. "Now we've said, let's not worry about where the competition is, let's worry about where the co-worker is."

Another major retailer, Gap Inc., unveiled a major wage hike of its own in February, when it announced that it would be increasing its nationwide base pay from $9 to $10. But the decision to peg a wage increase to the cost living is "a big step forward," Demos senior policy analyst Amy Traub said over email.

"I predict that we'll see more companies stepping forward to raise wages, as well as pressure continuing to mount for cities, states and federal government to raise the minimum wage across the board," she said.

Olson denied that IKEA was raising wages in order to get ahead of state and local minimum wage increases.

"For us, it was less about that and more about doing the right thing for the co-worker," he said. Yet he added the IKEA is prepared to comply with proposed minimum wage hikes across the country, including the suggested $15 minimum wage that will soon be implemented in Seattle and is currently being debated in San Francisco and Chicago.

"If movement is driven within local communities, we will definitely support that and be secure that we are above that level as well," said Olson.

The MIT Living Wage Calculator bases its estimates on family size as well as region, but IKEA said its minimum hourly wage at all locations would be pegged to the cost living for a single, childless adult. According to Traub, that means working parents are likely to find their new compensation structure "to be very welcome, but it won't be a living wage."