Race to One Trillion: It’s an Amazonian Economy

This is the third part of our analysis of Amazon’s rise to 1 trillion. Today, we look at Amazon’s economic power and impact on jobs and wages.

When we talk about Amazon we do not just talk about the world’s largest online retailer or the rising star in Washington’s lobbying circles. Arguably, Amazon’s impact on job creation, investment and industry competition levels is even more important. The company’s size is large enough to change the personal lives of millions of people and the economic life of entire regions, if not entire countries.

Again, the best way to start forming a picture of the company’s scale are numbers. Amazon employs 566,000 people, which makes it the 2nd largest U.S. private-sector employer behind WalMart. By comparison, Google’s staff amounts to just 85,000. Even more impressive is Amazon’s annual expenditure on R&D of $22,6 bln in 2017, which ranks Bezos’ organisation at the top for corporate R&D investment globally and overshadows Alphabet’s $16,6bln.

Yet, retail is not entirely a positive-sum game and Amazon’s growth has eaten up large market shares of brick-and-mortar sellers. The central question for policy-makers all over the world is to understand whether the entry of Amazon in the sector has added or reduced jobs overall. Despite Trump’s over-simplifying tweets, the issue is quite complex. On one hand, retail jobs are undoubtedly decreasing. In March 2018, for example, the retail, wholesale and clothing sectors posted on aggregate a loss of 19,000 jobs. In the same period, non-store retail, transportation and warehousing added a similar number of jobs. Any rushed conclusion should be avoided, but it appears that Amazon is causing more of a transition than an absolute job loss. Yet, much will depend on how experiments on human-less stores and warehouses evolve.

What is more worrying, according to an Economist article, is the impact of Amazon’s entry in a regional labour market on wages. According to their analysis, flat or falling industry wages are the norms in the regions where Amazon opens distribution centres. This seems to refute conventional economic thinking, which posits that a tighter labour market should lead to higher wages. Hypotheses suggest that the fall in wages might be linked to Amazon’s tendency to hire young, unskilled workers and to the labour market concentration due to Amazon’s dominant position in any region it enters.

 

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An Amazon Fulfillment centre. Ralph D. Freso/Reuters

The picture is significantly different when it comes to the high-paying management jobs that Amazon creates. The company estimates that over the last 6 years its presence in Seattle has brought $5bln in direct investment, $25bln in employees’ income and an additional $38bln in returns for the county. Now cities all over North America are battling to secure the second HQs of the company, projected to bring billions of investment as well as thousands of high-income jobs. The main battlefield is taxation incentives, with councils offering multi-billion tax cuts for the company, should it move in their constituency.

A secondary area of concern when we consider Amazon’s impact on the economy is competition. A recent paper by Yale’s Kahn, leading expert in competition law, highlights Amazon’s antitrust paradox. Amazon is not breaching antitrust laws based on 20th-century criteria such as output and price and is not currently affecting consumer surplus. Yet its strategy of growth-above-profit is enabling it to charge predatory prices, driving competitors out of the market.  According to Khan, more attention should be given to the rapid accumulation of market power by tech giants, even if it is not directly applied. A new and increasingly popular way of looking at tech giants involves considering personal data as the currency users employ to pay for apparently free services. Given the failure of conventional competition policy, some suggest that personal data wealth should be the target of policy-makers to “tame the titans”.

 

by Giovanni Pierdomenico

N.B. This article reflects the author’s opinions only.

 

References:

https://www.yalelawjournal.org/note/amazons-antitrust-paradox

https://www.economist.com/united-states/2018/01/20/what-amazon-does-to-wages

https://www.marketwatch.com/story/amazon-impact-on-economy-visible-in-march-jobs-report-2018-04-06

https://www.ft.com/content/cf98680c-738f-11e7-aca6-c6bd07df1a3c

https://www.bloomberg.com/view/articles/2018-04-05/amazon-s-technology-and-content-spending-a-huge-gift-to-economy

https://www.seattletimes.com/business/amazon/amazon-exceeds-earnings-expectations-as-head-count-tops-a-half-million/

https://www.economist.com/leaders/2018/01/18/how-to-tame-the-tech-titans

https://www.ft.com/content/f9f2b3bc-5eaa-11e8-9334-2218e7146b04

https://www.amazon.com/b?ie=UTF8&node=17044620011

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