Cities Scrambling to Attract Amazon Because It “Creates Jobs” Are Being Sold a Lie

David Dayen February 1, 2018

The lawsuit charges Amazon and Amazon Logistics Inc. with violating the minimum wage law in Seattle, state labor law in Washington and the federal Fair Labor Standards Act. (soumit/ Flickr)

Ama­zon has been astound­ing­ly suc­cess­ful in get­ting state and local gov­ern­ments to pay for its work­sites. The online retail giant has staff ded­i­cat­ed to secur­ing local tax incen­tives, abate­ments and sub­si­dies for plac­ing its ware­hous­es (dubbed ful­fill­ment cen­ters”), total­ing more than $1.1 bil­lion since 2000. And for months, cities have engaged in an even more unseem­ly spec­ta­cle: promis­ing bil­lions to attract Amazon’s sec­ond head­quar­ters. The los­ing bids will like­ly set the ran­som rate Ama­zon can demand to locate its ful­fill­ment cen­ters in the future.

Until now, nobody has looked specif­i­cal­ly at whether these give­aways are real­ly worth the cost. A report from the Eco­nom­ic Pol­i­cy Insti­tute released on Thurs­day says emphat­i­cal­ly that they’re not.

Using Bureau of Labor Sta­tis­tics data, EPI researchers Ben Zip­per­er and Janelle Jones ana­lyzed what hap­pens to employ­ment in a coun­ty once Ama­zon builds a ful­fill­ment cen­ter. Though ware­hous­ing and stor­age jobs do increase, the net effect is close to nil, as new jobs are off­set by loss­es else­where in the coun­ty. The find­ings mean that all the mon­ey poured into Ama­zon on the promise of job cre­ation is essen­tial­ly a waste. It doesn’t increase over­all pri­vate sec­tor employ­ment,” Jones, an eco­nom­ic ana­lyst with EPI, tells In These Times. No mat­ter how much you slice this data, it’s just not there.”

The very idea of giv­ing Ama­zon, one of the world’s rich­est com­pa­nies, sub­si­dies to attract a ware­house is dis­taste­ful to begin with. That’s espe­cial­ly true because Ama­zon Prime’s busi­ness mod­el of deliv­er­ing prod­ucts to cus­tomers with­in 24 to 48 hours demands that the com­pa­ny place ware­hous­es all over the coun­try. Ful­fill­ment by Ama­zon, a sep­a­rate ini­tia­tive where the com­pa­ny stores and ships prod­ucts on behalf of third par­ties, also requires Ama­zon to build lots more ware­hous­es to con­tain all those goods. Indeed, the EPI report shows that Amazon’s rise in ful­fill­ment cen­ters cor­re­sponds with its key announce­ments estab­lish­ing Ama­zon Prime, and Ful­fill­ment by Ama­zon. Pri­or to the launch of Ama­zon Prime in 2005, the com­pa­ny had three ful­fill­ment cen­ters; today it has 95.

If your busi­ness mod­el is get­ting things to peo­ple with­in 24 hours, you have to be every­where,” Jones said. In oth­er words, pay­ing a com­pa­ny to locate a facil­i­ty they have to build any­way makes no sense. 

Nev­er­the­less, politi­cians des­per­ate to cut a rib­bon and point to tan­gi­ble job cre­ation con­tin­u­al­ly fight with their neigh­bors over how much cash to slather on Ama­zon and oth­er com­pa­nies. Such incen­tives con­sti­tute a long­time eco­nom­ic devel­op­ment strat­e­gy. That’s what makes the EPI report so use­ful, because it breaks down how the alleged job gains from such sub­si­dies don’t pan out.

Researchers looked at 54 Ama­zon ful­fill­ment cen­ters in 34 coun­ties. They mea­sured back two years before the ful­fill­ment cen­ter opened and two years after­ward, con­trol­ling for pop­u­la­tion, local and nation­al eco­nom­ic changes and job growth in sur­round­ing areas.

The results showed that ware­house employ­ment in a coun­ty with an Ama­zon ful­fill­ment cen­ter goes up by around 30 per­cent with­in two years of the open­ing. That is expect­ed con­sid­er­ing how mas­sive these ful­fill­ment cen­ters are. But over­all net employ­ment in that coun­ty bare­ly budges when Ama­zon comes in. 

The cumu­la­tive per­cent change two years after the open­ing, based on dif­fer­ent sam­ples of the data, ranges from ‑0.014 to 0.003 per­cent — num­bers that might as well be zero. The find­ing rein­forces just how com­plete­ly inef­fec­tive Ama­zon ful­fill­ment cen­ter open­ings have been to pro­vid­ing any boost to over­all local employ­ment,” the report states.

Jones offered a cou­ple hypothe­ses to explain the data. First, there may be dis­place­ment: When an Ama­zon ful­fill­ment cen­ter comes in, com­pet­ing busi­ness­es leave the area, com­peti­tors fold up shop or local com­pa­nies lose work­ers to the ware­house. The oth­er point is that ware­house employ­ment rep­re­sents an infin­i­tes­i­mal part of the over­all labor force in the Unit­ed States, and there­fore can­not be a key dri­ver of over­all employ­ment gains. Even in coun­ties with an Ama­zon ful­fill­ment cen­ter, ware­house jobs com­prise 1.4 per­cent of total work­ers. So even a large increase in those ware­house jobs fails to move the nee­dle on employ­ment with­in a com­mu­ni­ty, and can eas­i­ly be snuffed out by displacement.

This is the oppo­site of the sto­ry Ama­zon tells: that bring­ing in a new ful­fill­ment cen­ter will have knock-on effects across the coun­try, increas­ing eco­nom­ic activ­i­ty and cre­at­ing new jobs. That just doesn’t hap­pen accord­ing to the EPI data. You would think it would be a stim­u­lus, but that does not pick up in over­all net new jobs,” Jones says.

Open­ing a ful­fill­ment cen­ter also had lit­tle to no impact on aver­age wages of ware­house work­ers, EPI found. A 2016 study from the Insti­tute for Local Self-Reliance found that hourly wages at Ama­zon ful­fill­ment cen­ters are far below the typ­i­cal ware­house work­er, and employ­ees work more hours to compensate.

The report sug­gests a bet­ter approach than effec­tive­ly brib­ing com­pa­nies to cre­ate local jobs: invest­ing in peo­ple and pub­lic works . Hand­outs for eco­nom­ic devel­op­ment deprive cities and states resources for pub­lic invest­ment. Not only are you not get­ting new jobs, but you’re sac­ri­fic­ing long-term eco­nom­ic devel­op­ment from uni­ver­sal pre-kinder­garten, or improv­ing infra­struc­ture,” Jones says. Cut­ting the rib­bon on a new pre‑K school or rail line or pub­lic broad­band facil­i­ty, in oth­er words, makes a far big­ger con­tri­bu­tion to jobs now and in the future.

Indeed, it’s far more like­ly that busi­ness­es make deci­sions on where to locate based on a tal­ent­ed work­force and top-qual­i­ty infra­struc­ture than their tax rate. The Insti­tute on Tax­a­tion and Eco­nom­ic Pol­i­cy report­ed in 2013 that state and local tax­es are only about 1.8 per­cent of a company’s cost of doing busi­ness. You can­not pos­si­bly low­er the tax rate enough to super­sede all the oth­er fac­tors. The give­aways are as unnec­es­sary as they are ineffective.

The EPI report shows that the cur­rent mod­el of eco­nom­ic devel­op­ment rests on a failed premise. Sub­si­diz­ing com­pa­nies to relo­cate does next to noth­ing to cre­ate jobs. Com­pa­nies like Ama­zon don’t need the incen­tive, and don’t do much for the com­mu­ni­ty – cer­tain­ly noth­ing that would jus­ti­fy the expen­di­ture of hun­dreds of mil­lions of dol­lars. So when Ama­zon comes around seek­ing cash for jobs, cities and states should just tell them to stuff it.

Update:

Fol­low­ing pub­li­ca­tion, In These Times received the fol­low­ing com­ment from Amazon:

In addi­tion to the 200,000 Ama­zon employ­ees in the US, we know from 2016 data, which is more cur­rent than the EPI data, Amazon’s invest­ments led to the cre­ation of 200,000 addi­tion­al non-Ama­zon jobs, rang­ing from con­struc­tion jobs to health­care indus­try posi­tions. In fact, over the last five years, coun­ties that have received Ama­zon invest­ment have seen the unem­ploy­ment rate drop by 4.8 per­cent­age points on aver­age, and in some areas, the rate has been low­er than the state average.

In regions, such as California’s Inland Empire, the effects of Amazon’s $2 bil­lion invest­ment between 2012 and 2016 have result­ed in cre­at­ing an esti­mat­ed 34,600 addi­tion­al jobs. In sim­i­lar regions across the US, such as Lehigh Val­ley, Fall Riv­er, Mass. and the Rust Belt, Ama­zon has cre­at­ed employ­ment oppor­tu­ni­ties for employ­ees who had been out of work due to indus­try clo­sures or had lit­tle employ­ment oppor­tu­ni­ties in their communities. 

Amazon’s ful­fill­ment cen­ter jobs are good jobs that offer com­pet­i­tive pay and com­pre­hen­sive ben­e­fits, which include med­ical insur­ance, bonus­es, 401(k) with 50 per­cent match, gen­er­ous mater­ni­ty and parental leave, and inno­v­a­tive pro­grams like Career Choice that pre-pays 95% of tuition and asso­ci­at­ed fees for employ­ees to get train­ing or edu­ca­tion for in-demand fields, whether they are applic­a­ble to Ama­zon or not. Our goal is to give employ­ees the oppor­tu­ni­ty to learn new skills that can help an employ­ee fur­ther build their career at Ama­zon or even in anoth­er industry.

David Dayen is an inves­tiga­tive fel­low with In These Times’ Leonard C. Good­man Insti­tute for Inves­tiga­tive Report­ing. His book Chain of Title: How Three Ordi­nary Amer­i­cans Uncov­ered Wall Street’s Great Fore­clo­sure Fraud won the 2015 Studs and Ida Terkel Prize. He lives in Los Ange­les, where pri­or to writ­ing about pol­i­tics he had a 19-year career as a tele­vi­sion pro­duc­er and editor.
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