A Blog by Jonathan Low


Mar 4, 2017

Is Amazon Actually Annihilating Jobs In Retail and Other Industries?

It may be that Amazon and its ecommerce brethren are not eliminating jobs at the fearsome rate of which they are accused. It is certainly true that online sales and advertising have not become as dominant - yet - as some have feared.

But as we struggle to understand the impact of these changes and where they are leading, it is important to recognize that wages and job growth in much of the developed world have remained essentially stagnant for much of the past generation and that this has profound social and economic effects that intelligent polities would be well advised to understand and address. JL

Jeffrey Manne and Jennifer McLean comment in Wired:

By 2016 e-commerce comprised just 8.3 percent ($102.7 billion) of the total retail market ($1.2 trillion). While that’s a big number in absolute dollars, it’s also less than the amount that retail sales regularly fluctuate due to changes in the weather. It hardly represents a “dominant” market share, nor one that portends the inevitable end of offline retail.
Beware the lurking variable. Even if you didn’t suffer through a semester of college statistics, you’re probably familiar with the adage “correlation doesn’t imply causation.” But if you haven’t had the pleasure, it’s a fairly easy concept to grasp.Take a classic example: When ice cream sales rise significantly, the number of shark attacks escalates as well. But ice cream probably doesn’t cause shark attacks. The two things are correlated because they tend to occur at the same time of year but the relationship is not causal: Summer, in this case, is what’s called a lurking variable. While for ice cream and shark attacks the common cause is relatively easy to spot, in more complex analyses myriad lurkers and their confounding cousins can cause all kinds of mischief.
Herein lies the problem with much of the current rhetoric claiming that the automation of industry is leading to the annihilation of jobs and/or the enslavement of humanity.
Consider a recent report by the Institute for Local Self-Reliance (ILSR), an advocacy group for community-rooted enterprise, that has made quite a splash in the media recently. Cobbling together statistics, anecdotes, and assumptions, the report formulates logical fallacies about Amazon’s effect on the retail job market. The title itself, “Amazon’s Stranglehold: How the Company’s Tightening Grip is Stifling Competition, Eroding Jobs, and Threatening Communities,” conjures a dystopian fever dream. (Full disclosure: Our organization has received funding from Amazon as well as its competitors.)
The ILSR report claims that “Amazon’s tightening hold on our economy…, increasing dominance…, and ability to crush smaller rivals and block new firms from entering markets… is hobbling job growth [and] propelling economic inequality.” It even suggests that the decline in new firms is “a trend many economists say is owed to the increasing dominance of big companies like Amazon.” In fact, the authority it references to show that new firm creation is declining—a 2011 Brookings Institution report—pointedly notes that “the reasons explaining this decline are still unknown.” And, it is worth noting, new firm creation has actually increased sharply in the last two years, returning to a rate higher than before the Great Recession—suggesting that the recession, and not “big companies,” was the cause of the slowdown
Equally troubling, the report ignores how efficiencies provided by Amazon’s e-commerce platform may actually have beneficial effects on employment—and it fails to address whether, when retail jobs are negatively affected, there might be offsetting gains in other areas, like lower prices.
The authors conclude with a call for antitrust authorities to step in and impose draconian remedies (including breaking up Amazon) in order to protect traditional retailers, retail workers, and local communities from… well, the future.

Hindsight Is 20/20

The diverse and interconnected variables that shape our economy and affect job markets are often unseen and difficult to evaluate, especially without the perspective of history.
For example, during the time of Amazon’s ascent, China experienced stunning annual growth rates of as much as 14 percent, while US imports from China increased tenfold. The financial markets collapsed, and credit for small businesses, in particular, tightened severely and still hasn’t fully recovered. Health care expenditures as a percent of GDP also rose above 17 percent.
As gas prices increased precipitously, reaching an all-time high in 2012, people (especially young people) started driving less, and the number of internet users in the US skyrocketed, from 14 to 87 percent of the adult population. Twenty-nine states adopted minimum wages above the federal level, raising salaries for a significant number of retail jobs.
Even so, by 2016 e-commerce comprised just 8.3 percent ($102.7 billion) of the total retail market ($1.2 trillion). While that’s a big number in absolute dollars, it’s also less than the amount that retail sales regularly fluctuate due to changes in the weather. It hardly represents a “dominant” market share, nor one that portends the inevitable end of offline retail.
Of course, no one disputes that e-commerce in general, and Amazon in particular, is capturing an increasing share of retail sales: E-commerce is growing at over 14 percent per year compared to just 4.1 percent for all retail sales, and Amazon leads the pack.
It’s also true that automation, robots, logistics software, payment technologies, and fulfillment innovations that are deployed to enhance efficiency and reduce labor costs tend to have their intended effect. As online commerce increasingly substitutes for physical retail sales, providing more choice and convenience at lower cost, the retail industry may well experience job losses. But the opposite may also be true.
For example, the proliferation of ATMs between 1990 and 2010 meant that bank branches needed fewer human tellers, raising fears of pervasive job loss. But as costs dropped, banks were able to open more branches, and the job market for tellers experienced a net increase from its 1999 level.
Throughout history, technological innovations like the ATM have led to organizational and process efficiencies that have upended outdated ways of doing business. Inventions like the loom, printing press, radio, automobile, television, computer, mobile phone, and so many others displaced some workers, but also increased productivity and ushered in wholesale—and wholly unanticipated—economic transformations.

The Other Side of the Coin

If e-commerce platforms continue to appeal to buyers and sellers, this may mean fewer traditional retail jobs —or it could simply mean a shift in the types of activities performed by people in retail occupations. It might also mean more jobs in manufacturing, transportation, advertising, coding, and logistics, to name a few.
And while online distribution and automation may present certain challenges to traditional retailers, they also create significant opportunities. In fact, almost half of retail sales on Amazon’s platform are from third-party merchants who have chosen to sell their wares online instead of (or often, in addition to) through brick-and-mortar stores.
Indeed, the democratizing effect of online platforms (and of technology writ large) should not be underestimated. While many are quick to disparage Amazon’s effect on local communities, these arguments fail to recognize that by reducing the costs associated with physical distance between sellers and consumers, e-commerce enables even the smallest merchant on Main Street, and the entrepreneur in her garage, to compete in the global marketplace.
Today, Amazon hosts 2 million such merchants—in 2016, 100,000 of these sellers generated more than $100,000 each. While this certainly benefits Amazon, it also benefits small retailers and the workers they employ. Indeed, e-commerce may enable some retailers keep their doors open in struggling communities that couldn’t otherwise support them. 
And while the majority of us aren’t retail workers, all of us are consumers. If innovations in e-commerce are accompanied by lower prices, expanded consumer choice, and new product innovations, these benefits accrue to all of us, not just the relatively few who work in retail—and help to ameliorate whatever job losses might occur in the short term.

Spoons Aren’t the Solution

Of course, technological and organizational change can disrupt people’s lives and livelihoods in unwelcome ways. But hasty regulatory “fixes,” which are among the most significant causes of sluggish growth (and thus job loss), are not the answer. Imposing laws and regulations to punish innovators and protect traditional jobs from the perceived threats of the future would stifle productivity, mandate inefficiency, and restrain progress just as readily (and just as sensibly) as would hiring laborers to dig a canal with spoons instead of backhoes.
Instead, we need sound, compassionate policies targeted at empowering the displaced to acquire the education and skills to succeed in ever-shifting job markets—retail and otherwise. Business accelerators, for example, are among the initiatives that have proven successful in stimulating employment. A host of other ideas, ranging from some form of universal basic income to Trade Adjustment Assistance, may offer the potential for transitional aid aimed not at thwarting economic dynamism, but at helping the human workforce to adapt and evolve.
Whatever the right answer, one thing is certain: Banning ice cream cones is a terrible way to stave off shark attacks.


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