Acquire a nationwide supermarket chain, check. Make movies, check. Launch numerous fashion lines, check. Enter the nappies market, check. Start selling over-the-counter health products, check. Loan money to merchants, check. And don’t forget to try to solve America’s health-care problem while you’re at it.
Amazon’s to-do list goes on, covering as many sectors as one can think of and confirming its status as a global behemoth — a world apart from its humble beginnings as a modest bookseller in mid-Nineties Seattle.
During this meteoric rise, many had joked that Amazon was starting to take over the world, but with a market cap that briefly crashed through the significant $1 trillion barrier and a brand that has become firmly entrenched in hundreds of millions of people’s daily habits, those statements have lost their humorous tone.
Not a day goes by that the retail giant isn’t in the news and with its transformation into a ubiquitous online beast has come much scrutiny from countries focusing on numerous issues, including how much tax it pays, whether it’s violating antitrust laws and how it treats its staff, especially in its labor-intensive fulfillment centers.
As well as being hit with a hefty 250-million-euro fine for alleged unpaid taxes from the European authorities that it’s appealing, Amazon has garnered negative attention from both sides of the political spectrum in the U.S., with President Trump taking to his beloved Twitter to air a series of unflattering views of Amazon, making it one of the very few issues that he and Sen. Bernie Sanders can agree on.
But as it grows bigger by the day, becomes a vital part of people’s daily lives and comes under the microscope of governments and lawmakers, an important question to ask is this: What impact is Amazon having on the U.S. economy?
A good place to start is the 575,700 Amazonians — its global white and blue-collar workforce that has grown from 382,400 a year earlier and 341,400 from the end of 2016, in part thanks to its acquisition of Whole Foods and figures that do not including temporary workers.
This makes Amazon the second-largest private U.S. employer after its rival Walmart Inc., which has 2.2 million on its books, and means that it now dwarfs the likes of McDonald’s, the poster child for capitalism, which has around 440,000 global employees.
It’s true that Amazon has some way to go before it can overtake Walmart as the top U.S. private employer, but its latest set of quarterly results, out later today, are expected to show another sizable quarterly increase in the number of employees. It has also said it could hire up to 50,000 more workers over the next two decades when it finally makes a decision on where to open its second headquarters — a hotly awaited $5 billion project whose list of 20 finalists includes Miami; Washington, D.C., and Chicago.
After all, despite its advancements in artificial intelligence technology and the resulting use of drones and robots, as well as the launch of cashier-less stores, the company still needs human workers — especially in the run-up to the hectic holiday season.
Yet while job creation is always something that will be celebrated, Mark Price, a labor economist at the Keystone Research Center, points out that in the case of Amazon, it has come at a cost — other jobs.
“It has moved beyond books and become this online juggernaut of goods and services,” he said. “As an economist I would say that cuts in two ways. It cuts in a positive way presumably that we are getting access to more goods and services at lower prices, which I think is good. But it does cut in the other direction that it will eliminate some smaller enterprises.”
The latest example is Sears Holdings Corp., which earlier this month filed for bankruptcy after 125 years. Once the U.S.’s largest retailer, Sears struggled to keep up in the Amazon age and made a lot of poor decisions that moved it in the wrong direction.
There will likely be more casualties to follow as there are many traditional retailers — from department stores to mom-and-pop shops all over the U.S. — that are treading water as online platforms thrive.
“They’re filling a need and they create jobs, but they also destroy them in other places so I wouldn’t think of them as a driver of overall economic growth in the country,” added Price of Amazon.
As for the city that will become Amazon’s second headquarters, there will be trade-offs when it comes to job creation for the local economy, Jeff Finkle, president of the International Economic Development Council, which represents economic development officials across the U.S., told WWD.
He believes Amazon and the cities that have submitted proposals will have to think hard about what impact these jobs will have on the area’s other employers and housing markets.
“Only some of these people are going to move into the region to take the new jobs. Others will be giving up other jobs at other companies [in the area] to move to Amazon. How disruptive is this to the competitors?” he said.
In addition, it could also “screw up” a city’s affordable housing program, as Amazon workers wanting to live closer to the office drive up the price of accommodation in the area and displace people who have lower incomes from what would have been affordable housing before, according to Finkle.
The upside, though, is that a substantial boost in the tax base could mean the community would have more dollars in its pockets to improve affordable housing, infrastructure and education. That is if it hasn’t given too much of an incentive — the states of New Jersey and Maryland are reported to have offered Amazon tax breaks of $7 billion and $8.5 billion, respectively.
Matt Gardner, senior fellow at the left-leaning Institute on Taxation and Economic Policy, thinks that might end up being the case as almost every state or local government has made an incentive offer valued at billions of dollars.
“That is going to mean a real significant drain on state revenues that will certainly offset a big chunk of the economic benefit,” he said. “Will the area where they relocate be better off on balance for Amazon locating there? It depends. It’s not obvious either way. The only thing that’s obvious is that Amazon has been aggressively seeking tax incentives.”
These are not the only waves Amazon is set to make in the jobs market. That’s because it unexpectedly revealed recently that it would hike its minimum wage to $15, giving a raise to more than 250,000 employees as well as 100,000 seasonal holiday workers beginning Nov. 1. At the same time, its eliminating restricted stock options.
Not satisfied with raising wages itself, the giant decided to take on the plight to get others to follow suit, with Amazon chief executive officer and founder Jeff Bezos, the world’s richest man, encouraging his competitors and other large employers to make similar pay hikes. It also pledged to lobby Congress to increase the federal minimum wage from $7.25.
Walmart raised its minimum wage to $11 in July, but its workers think it can go higher. Target Corp. last year raised its starting wage to $12 an hour from $10 and committed to keep moving the rate up to $15 by 2020.
While the economy has been going from strength to strength and the unemployment rate has fallen to a 49-year low of 3.7 percent, wages have been slow to catch up. Average hourly earnings were up 2.8 percent in September.
Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, noted that Amazon’s decision was not purely political in the face of widespread criticism over its treatment of workers as it comes at a time when the U.S. has the lowest unemployment rate since the Vietnam War and retailers are embroiled in a battle for seasonal employees.
“It will benefit the employees of Amazon…but we should also be clear that there is cold business logic behind Amazon doing this because by doing this, they will improve their retention of employees,” he said.
“They will quite likely attract employees from other companies and Amazon is successful so they can afford this better than their competitors. This isn’t just a political statement by Jeff Bezos. It’s rational and in my opinion will end up being profitable for Amazon to do this. Especially right now because the U.S. labor market is very, very tight.”
As for whether the wage boost will actually be beneficial to the economy, his answer was “yes.” “In the longer term, this will add to the momentum for an increased minimum wage in the U.S. or ultimately $15 because people will say, ‘look it works for Amazon, why not the whole economy?’ So in that sense I support it. I think it’s genuinely good for the economy that companies pay higher wages.”
Kirkegaard’s comments mesh with a note sent to clients earlier this month by Michael Binetti, an analyst at Credit Suisse, who said Amazon’s comments that it plans to lobby the government for higher minimum wages “could be a catalyst for broad-based ongoing cost inflation across the U.S. retail industry.”
Then there’s the tax question. In 2017 it didn’t pay federal tax for the first time because of tax credits and stock-based compensation, and in fact got a rebate thought to be worth around $137 million, a hard pill to swallow for many when Amazon reported $5.6 billion in profit last year.
This year may not be much different, according to Matt Gardner: “It’s too soon to know, but there’s every reason to expect that two things that have happened in the past are going to keep happening this year,” he said. “One is that they’ll make an awful lot of money and the other is that they’ll be able to use the currently legal tax breaks to avoid paying income tax on a lot of it and that’s likely to be true both at the federal level and at the state level.”
As for sales tax, in June the Supreme Court signed off on a South Dakota law that forces e-commerce companies to collect state sales tax, overturning a prior ruling from the high court that forced e-commerce companies to collect sales tax only in states where they had a physical presence.
John Swain, a law professor at the University of Arizona, said as of 2017, Amazon was already collecting sales taxes on its own inventory in every state that required it to do so as its footprint had gotten so big. It won’t be too affected in that sense, but it will be impacted as far as its third-party vendors are concerned. They post inventory on its site and make up about half of its sales.
“About 10 states have already adopted platform laws where the platforms are responsible for collecting taxes on behalf of the third parties making sales on their platforms. I think that’s inevitable that states are going to move in that direction. I don’t think there is a legal defense available to Amazon,” added Swain.
Second headquarters: Could create 50,000 jobs
Minimum wage: $11 per hour, rising to $15 per hour on Nov. 1
Income tax: $137 million rebate in 2017
Profit: $5.6 billion in 2017