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IKEA Case Study Solved

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Risks and challenges of basing minimum wage on living wage formula

IKEA is likely to find that the formulas used to calculate living wages are highly subjective. They are also not constant, meaning that what the company comes up with as the minimum wage may not be the situation on the ground. IN such cases, it may even be below the legal limits set by the government, risking a legal confrontation not only with its employees and their representative unions, but also with the Department of Labor. The company is also likely to find that in instances where the living wage is higher than the market rate, market conditions do not support this. Therefore, the company risks a profit drop, which may not be justifiable. 

IKEA may find that in raising the wages of its employees, it is alone. This means that the macroeconomic effect of raising employees’ salaries is not multiplied in terms of higher spending ability in the economy, and other conditions which would basically mean more profits for the company. Therefore, the company will effectively take a pay cut. In terms of its employees, the company may find it unjustifiable to pay low or unskilled employees such a high wage. The employees may then be priced out of the job market, leading to an increase in unemployment. 

Ensuring successful implementation of living wage approach

The company should ensure that it creates a strong working relationship with its employees. The major advantage of being in a strong relationship 

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