A new study calls into question the net benefit of Amazon warehouses for cities.
Each of the 20 cities left angling to be Amazon’s HQ2 are offering up some extreme incentives in hopes of attracting the tech giant to their hood. Newark’s has come to around $7 billion. Montgomery County, Maryland: $5 billion. Atlanta is at $1 billion, and likely to go higher.
On a smaller, but more widespread scale, city leaders have been clamoring for Amazon fulfillment facilities——large warehouses where Amazon Prime products are packaged and shipped. The promise Amazon makes for both types of facilities is the same: That they are going to be a boon for the local economy.
A new analysis by the Economic Policy Institute (EPI) fact checks that claim. In it, researchers Janelle Jones and Ben Zipperer examine the change in employment in counties where Amazon Fulfillment Centers were built. The upshot: While warehousing jobs increased in the two years after, overall employment at the county level remained roughly the same.
“There's all this talk of, ‘Oh, well, even if it's not direct job creation or direct increases to wages, there's going to be such a huge spillover [from an Amazon warehouse]’—that there’s going to be like an economic boom in the locality,” Jones told CityLab. “If that were true, we would be able to see that in terms of net jobs.”
Now, these fulfillment facilities aren’t clean proxies for understanding the impact of HQ2, which requires, for one, a different type of workforce. But the two have some similarities. Fulfillment centers can span multiple blocks and also promise thousands of jobs and high wages and benefits for employees. Amazon requires some of the same things from the places they seek to locate these two types of facilities: An educated workforce, connectivity, good infrastructure, and robust public services. And like with HQ2, cities have offered Amazon millions in subsidies and tax breaks to get them to choose them as the next fulfillment center location.
These facilities are deserving of scrutiny for reasons unrelated to HQ2, too. They are the “linchpin of the Amazon Prime business model,” Jones explained, which promises a two-day delivery on online orders. So, they’re trying to be everywhere. Analyzing their much more widespread impact can, at the very least, help dispel myths about Amazon and companies like it.
“HQ2 is just the second of the headquarters, but as Amazon expands it's going to continue to build like dozens and dozens and dozens of fulfillment centers,” Jones said. “This [study] is looking at a problem that's probably a little bit larger than HQ2, because the headquarters are going to happen so infrequently, and this is happening on a monthly or quarterly basis and around the country.”
So here’s a bit more on the numbers. After controlling for national and regional factors that might influence job creation, the study found a 30 percent increase in warehouse jobs:
But overall, private-sector employment remained roughly the same. It is possible, the researchers say, that the new jobs created by Amazon just siphoned workers at that wage level from retail or service jobs. In other words, Amazon was “kind of shifting workers from sector to sector instead of creating net new jobs,” Jones said. The other possibility is that the jobs created by the warehouses were just were too few relative to total jobs to make a difference. The impact of the warehouse, in other words, was too limited.
One other finding: The wages of the warehouse workers, in particular, remained unchanged after Amazon came to town. That finding is actually a bit more positive than what has been previously reported.
The EPI study looks at data from 2001 to 2015. In response to their findings, Amazon representatives claimed that more recent data from 2016 show that Amazon investments led to the creation of hundreds of thousands of jobs. They pointed out that 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.
EPI researchers said those unemployment drops mirror national decreases over the same period, which suggests Amazon has just been “riding the tide of the economic recovery.”
Their primary takeaway from the study is that local governments should be careful. City leaders readily doling out millions in tax abatements and subsidies should be certain of what they’re getting in return. The study highlights recommendations from policy group Good Jobs First to “turn the tables” on Amazon—asking cities to demand that it commits to community benefit agreements, transit, and affordable housing investments, and support for local businesses in exchange for doing business.
The director of Good Jobs First, Greg LeRoy, is among the experts (which also includes CityLab’s Richard Florida) who have cautioned against the HQ2 bidding war, arguing that incentives are unlikely to determine a company’s decision, and come at the cost of public services, education, and infrastructure investments that localities need. This study bolsters their case, suggesting that investments in people and public goods may go a longer way in promoting economic growth, even though they may be less flashy.
The jobs gained by one locality that lures an establishment from another locality may be zero-sum, but they’re very visible and easy to point to. Jobs that are displaced by luring an establishment are more diffuse. And the specific jobs that could have been gained in the long-term by instead investing in education or other public goods are harder to celebrate—local officials can’t easily organize a ribbon-cutting ceremony around those kinds of jobs.