The issue is not Amazon, or even the best means of stimulating job growth.
It is whether
regional bidding wars are a misallocation of resources whose impact and return on investment could be more productively applied to infrastructure and other improvements in order to produce optimal economic results for governments, the workforce and the private sector. JL
Janelle Jones and Ben Zipperer report in Economic Policy Institute:
When Amazon opens a new fulfillment center, the host county gains 30% more warehousing and storage jobs but no new net jobs
overall, as the jobs created are
offset by job losses in other industries. This seems to add evidence to an already-strong research base indicating
that the zero-sum strategy of attracting existing employers away from
other regions does not guarantee good economic outcomes.
What this report finds: When Amazon opens a new fulfillment center, the host county gains roughly 30 percent more warehousing and storage jobs but no new net jobs overall, as the jobs created in warehousing and storage are likely offset by job losses in other industries.
Why it matters: State and local governments give away millions in tax abatements, credits, exemptions, and infrastructure assistance to lure Amazon warehouses but don’t get a commensurate “return” on that investment.
What we can do about it: Rather than spending public resources on an ineffective strategy to boost local employment (luring Amazon fulfillment centers), state and local governments should invest in public services (particularly in early-childhood education and infrastructure) that are proven to spur long-term economic development.
Introduction and key findings
Since its founding in 1994, Amazon’s network of fulfillment centers has grown to nearly 100 across the country. In 2017, publicly available data identified 95 Amazon fulfillment centers in 25 states. Current estimates suggest that fulfillment centers occupy over three-fourths of the total square footage of Amazon’s entire U.S. distribution infrastructure.
The expansion of Amazon’s physical distribution network has coincided with a strategic business plan of negotiating millions in tax abatements, credits, exemptions, and infrastructure assistance from state and local governments in the name of regional economic development. By the end of 2016, Amazon had likely received over $1 billion in state and local subsidies for its facilities, which would include not only fulfillment centers but “sortation” centers that only sort packages, mailing centers, and other facilities. In return for the incentives each of the fulfillment centers receives, Amazon claims to create hundreds of jobs with competitive pay and benefits.
An analysis of these claims is timely. As Amazon looks to open a second headquarters in 2018, it is employing a similar strategy, on a much larger scale, exchanging tens of thousands of jobs for massive incentives in return. For example, the District of Columbia reportedly offered Amazon a permanent corporate tax rate cut as well as sales tax exemptions. According to The Washington Post, the announcement of the finalists in the running for hosting the new headquarters “also raised more difficult questions about the influence of large tech giants on cities and the possible unintended consequences of giving tax breaks and other benefits to an already successful corporate titan.”
Using tax and other incentives to lure businesses to state and local areas is a long-running economic development strategy pursued by subnational governments. In nearly every state, businesses can receive a significantly lighter tax burden for constructing a sports stadium, filming a movie, or building a manufacturing assembly plant. The results on whether these types of community development strategies have a positive impact on job creation and growth is highly debated in popular news outlets and among researchers. And as Amazon has grown, the debate in some cases has specifically focused on Amazon.
Studying the employment effects of opening Amazon fulfillment centers is an excellent opportunity to provide evidence for this debate. Using publicly available data on the opening of these fulfillment centers, we undertook a rigorous statistical assessment of claims that the opening of an Amazon fulfillment center in a specific county will provide broad employment gains to that local area.
Our key findings show that luring Amazon fulfillment centers is an ineffective strategy for boosting overall local employment
- The opening of an Amazon fulfillment center leads to an increase in warehousing and storage employment in the surrounding county. Two years after an Amazon fulfillment center opens in a county, warehousing employment in the county is approximately 30 percent greater. This effect is robust to numerous statistical controls.
- The opening of an Amazon fulfillment center does not lead to an increase in county-wide employment. Two years after an Amazon fulfillment center opens in a county, overall private-sector employment in the county has not increased. It is possible that the jobs created in the warehousing and storage sector are offset by job losses in other industries, or that the employment growth generated by Amazon is too small to meaningfully detect in the data. This finding of no effect is also robust to a series of statistical controls.
- The fact that some of our specifications show small reductions in county-wide employment—albeit not statistically robust—reinforces just how completely ineffective Amazon fulfillment center openings have been to providing any boost to overall local employment. The exact sign of the overall employment effect of opening an Amazon fulfillment center in a county is actually negative in some of our specifications, indicating that small reductions in county-wide employment follow these openings. Because this effect is not statistically robust across all statistical specifications, we do not claim reductions in county-wide employment but do assert that this effect supports the finding of no job growth.
State and local policymakers seeking maximum long-term benefits should reconsider extending tax incentives to lure businesses
The promise of luring jobs is nearly always and everywhere a very hard one for policymakers to ignore. 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. Nevertheless, our findings support other research suggesting that state and local policymakers should consider the following points when debating whether to extend incentives to lure businesses:
Tax incentives likely constitute an unneeded giveaway
At an intuitive level, offering tax incentives for firms to move businesses to particular locales may strike some as sensible. All else being equal, firms likely would prefer to locate in a particular area if doing so lowered tax costs and hence increased profits. However, there are other considerations that significantly influence location decisions, including access to customers, the quality of public services needed to run businesses (for example, the existence of reliable electricity and high-quality roads) and access to a pool of qualified workers.
Research has shown that state and local taxes are on average less than 2 percent of the cost of doing business. This means that simply offering to cut taxes won’t do that much to sway firms’ location decisions. In short these incentives are likely ineffective or, at best, an inefficient use of resources. These incentives are largely a windfall to firms that were going to locate in that spot even without the incentives, all while sacrificing revenue that areas need to invest in public goods.
Tax incentives may do little to boost overall employment
While luring an establishment of an existing national employer to a specific state will create jobs at that establishment, it will not necessarily create more jobs overall. If, for example, labor supply in a particular locale is limited, job gains in the newly lured establishment could be offset by job losses among competitors. This is what happens when luring a Walmart into a county leads to shutdowns of local grocery stores—overall employment and economic activity is unaffected. Measuring the extent of this type of employment displacement is key to assessing the overall economic benefits of luring establishments of existing national chains. Our findings of the lack of overall job growth from opening an Amazon fulfillment center suggest that some sort of employment displacement is taking place, or that the growth in warehousing jobs is too limited to spill over into broad-based employment gains for the overall local economy. This is in keeping with a robust body of evidence indicating that reducing public services to provide tax cuts does not actually spur economic growth and job creation.
Investments in public services are more effective than tax incentives at generating long-term economic growth
Another key downside of tax incentives is that they deprive states and localities of resources needed to invest in public goods, such as transportation or education. The research literature indicates that public spending and the expansion of public services increases local economic activity—and that such public investment is obviously hamstrung by policies (like offering tax incentives) that reduce resources available to state and local governments. Investments in public services (particularly in early-childhood education) and infrastructure are a much stronger recipe for spurring long-term economic development than providing tax increases to existing national employers.
Amazon fulfillment centers
The expansive network of centers that store, pack, ship, and provide customer service for products is crucial to Amazon’s business model, which requires quick delivery throughout the country. As displayed in Figure A, construction of Amazon fulfillment centers in the United States increased significantly around 2008. Amazon had under 10 centers through the mid-2000s and had nearly one hundred by the end of 2017. The sharp rise in fulfillment centers corresponds with the 2005 introduction of Amazon Prime, in which subscribers pay an annual fee for two-day shipping and other benefits, and the 2006 launch of Fulfillment by Amazon, in which participating sellers have their items stored, packed, and shipped by Amazon.
Total number of Amazon fulfillment centers: Cumulative openings, 1997—2017 (Chart Below)
Because these openings are spread widely across geography and time, they provide a potentially powerful statistical tool to assess their effect on regional employment growth. Creating more jobs is a key reason why state and local governments often try to entice firms to open operations in their regions, and the history of Amazon fulfillment center openings provides a very good case study of whether job creation benefits really do emerge.
Empirical methodology
In this report, we look at the effect of opening an Amazon fulfillment center in a county on that county’s warehousing industry employment as well as overall private-sector employment. For fulfillment center locations and opening dates, we use the publicly downloadable database from Guided Imports, a part of Procu International LLC, a sourcing company headquartered in Shenzhen, China. This database was cross referenced with available data from Avalara, a Seattle-based company providing tax compliance advice to businesses, and consulting firm MWPVL International. The sample contains all fulfillment centers listed in each of the three sources during our reference period.
For employment, we use data from the Quarterly Census of Employment and Wages (QCEW), a program of the Bureau of Labor Statistics. Because it is based on employment data that state unemployment insurance programs are required to maintain, the QCEW is perhaps the best source of local area employment statistics, covering approximately 95 percent of all employment in the United States and available every quarter.
In addition to overall private-sector employment, the QCEW contains data on the warehousing and storage industry. We limit our sample to the 1,161 counties for which we have warehousing employment information for the entire 2001–2015 period. By 2015, there were 69 Amazon fulfillment centers open across the United States in a total of 45 counties. Our balanced sample of 1,161 counties includes 54 fulfillment centers in 34 counties, meaning that it applies to more than three-fourths of the known fulfilment center locations overall in 2015.
To estimate the employment effect of opening a fulfillment center, we examine whether employment rose in a county after it opens a fulfillment center, relative to employment trends in counties that did not receive a fulfillment center. We focus specifically on warehousing employment and total private-sector employment in each county. To account for population changes, we calculate county-level employment-to-population ratios for warehousing and total private-sector employment from Census Bureau estimates of county population, and we use these employment-to-population ratios as our outcomes of interest.
For robustness, we also control for multiple factors that may be correlated with employment outcomes and fulfillment center openings. For example, counties that open fulfillment centers may have higher warehousing employment in general (regardless of the opening). In addition, warehousing employment and employment overall around the time of a fulfillment center opening may also be affected by national events such as a national recession, or regional or state-specific economic changes or “shocks” to local employment, due to changes in regional labor demand or specific policies that affect employment.
When we estimate the effects of opening a fulfillment center, we use a variety of specifications to control for these permanent differences in employment between counties, and to control for time-varying economic shocks that may occur when fulfillment centers are being opened. Specifically we control for national, regional, and state-specific shocks with three different statistical models: a common time fixed effects model, a Census division–specific time fixed effects model, and a state-specific time fixed effects model. All regressions also include controls for permanent differences in county employment (county fixed effects). Depending on the specification, we also control for a measure of predicted private-sector employment (based on industry shares in the 1996–2000 period), and for different employment trends among counties (county-specific linear time trends).
We also want to make sure that we account for any employment effects that take time to develop after a fulfillment center opening, and that any changes in warehousing and overall employment we see are not simply continuations of existing trends. Therefore we also include lagged indicators of openings in order to capture up to two years of lagged employment effects that may develop after an opening, and directly control for differences in employment up to two years prior to the opening of a fulfillment center.
Warehousing employment is a larger share of private-sector employment in counties that opened a fulfillment center. In counties that never opened a fulfillment center, warehousing employment was about 0.5 percent of total private-sector employment. In counties that opened a fulfillment center, county warehousing employment averaged about 1.0 percent of total private-sector employment prior to opening a center and 1.4 percent after opening a center. We use county fixed effects to control for persistent differences in the level of warehousing employment between counties that did or did not open a fulfillment center.
Results
We find that warehousing employment rises substantially in counties after an Amazon fulfillment center opens. At the same time, total private sector employment generally does not change after an Amazon fulfillment center opens. In some specifications we find that private-sector employment falls significantly after a center opens but these negative employment findings are not robust across most specifications or time periods. The increases in warehousing employment after a fulfillment center opens do not seem to generate any employment benefits beyond the warehousing and storage sector.
First we examine how warehousing employment changes after a fulfillment center opens in a county. For brevity, the top panel of Figure B reports, for the model using state-specific time fixed effects and county-specific linear trends, the cumulative percent change in warehousing employment due to the opening of a fulfillment center over a period of four years, beginning two years prior to the opening and continuing through two years after the opening. Appendix Figure A reports the cumulative change in warehousing employment for three models: the top panel controls for common national shocks, the middle panel controls for Census division–specific time shocks, and the bottom panel controls for state-and-time-specific shocks. All of the models in the appendix figures (A, showing warehousing employment, and B, showing overall employment) control for county fixed effects and county-specific linear time trends.
At the time of a fulfillment center opening (t=0), warehousing employment begins to grow substantially. The solid line pulls up from zero, and zero is generally no longer part of the confidence interval.
Averaging the findings from our three specifications, we find that by two years after an opening, county warehousing employment has grown by more than 30 percent. Based on average warehousing employment in counties before they open an Amazon fulfillment center, that percentage growth in employment translates to an addition of roughly 1,300 jobs in the warehousing sector. This large gain in warehousing employment seems plausible given that our source data indicate that several fulfillment centers employ 1,000 or more workers.
Theoretically, Amazon could open a fulfillment center in a county without increasing warehousing employment in the county. For example, the new fulfillment center may simply replace other warehouses that have gone out of business. However, if we had found no effect of fulfillment centers on warehousing employment over all counties we analyzed, it would have meant either that this sort of displacement effect was occurring, or that the statistical tools we are using are simply incapable of capturing the economic effect of opening a fulfillment center. Given the latter possibility, it is reassuring that we find growth in warehousing employment after an opening, as this provides additional confidence that our statistical tools are able to identify a clear signal from these openings.
We also investigated how a fulfillment center opening affected the earnings of warehousing workers, but we found an opening led to little to no change in these workers’ average wages. Estimates varied depending on the specification, but for the most credible specifications that had the smallest preexisting trends (using county-specific linear time trends) the effect of Amazon on warehousing workers’ earnings ranged from negative 1.7 percent to positive 0.5 percent (Appendix Table 1 shows the results for all specifications). None of these preferred estimates was distinguishable from zero at conventional levels of statistical significance.
These results differ from the findings reported in The Economist, which found that the earnings of warehousing workers rose prior to the opening of a fulfillment center and fell afterward, and that warehousing workers in counties with fulfillment centers in December 2017 earned 10 percent less than warehousing workers in counties without centers.
While both our study and the analysis in The Economist investigate what happened to employment and wages in counties that opened fulfillment centers, our study actually estimates the counterfactual outcome of what would have happened to the labor market in counties with an Amazon presence had Amazon not opened a fulfillment center. We do this by controlling for economic factors (like regional economic shocks or different wage trends among counties) that may affect wage trends in counties that opened a fulfillment center even if that county had never opened a fulfillment center. For this reason, the Economist’s figure simply comparing wages between counties with and without fulfillment centers in December 2017 does not definitively show the effect of opening fulfillment centers.
For example, many of the counties that had fulfillment centers in December 2017 may have only had them for a short time, and may even have seen different wage growth trends in the periods before attracting Amazon warehouses. We account more precisely for these preexisting differences by using the precise timing of a fulfillment center opening, comparing outcomes in counties with and without fulfillment centers around the time of an opening, and by accounting for regional shocks and county-specific trends, as described in the “Empirical methodology” section. The limited wage effect we find in our analysis suggests that some of the wage differences found by The Economist would have occurred regardless of the opening of a fulfillment center.
Additionally, both our wage analysis and the analysis conducted by The Economist use wage data based on total quarterly earnings per worker, as opposed to hourly wages. Our estimates are consistent with reports that Amazon fulfillment centers reduce the hourly wages of warehousing workers, if these employees earning lower hourly wages were to work longer hours, producing a minimal net effect on total quarterly earnings per worker.
Although we find consistent evidence that fulfillment centers lead to substantial gains in warehousing employment, the new centers do not clearly increase total private-sector employment in the county, as shown in Figure C. Instead, after the fulfillment center opens, private-sector employment remains at relatively the same level, with none of the changes in employment statistically distinguishable from no change in employment at all. Appendix Figure B reports the cumulative change in private-sector employment for three models: the top panel controls for common national shocks, the middle panel controls for Census division–specific time shocks, and the bottom panel controls for state-specific time shocks. All of the models in Appendix Figure B show similar results.
One concern with the timing of the estimates in Figure B and the appendix figures is that total private-sector employment is already abnormally high in counties about to open a fulfillment center, relative to areas where fulfillment centers are not about to open.
We adopt three strategies to account for this potential problem and report the results in Table 1 and Appendix Table 2. First, instead of just the three models we discussed above, we examine a total of nine statistical models, which differ depending on whether they control for common national, Census division-specific, or state-specific time shocks; whether they include a control for industry-share predicted employment; and whether they include county-specific linear time trends. Second, for robustness and in case employment trends changed dramatically in some areas after the recession beginning in 2008, we present results for both the full 2001–2015 time period, as well as the 2008–2015 period. Third, we directly control for preexisting trends by subtracting them from the cumulative effect of the fulfillment center opening; and in Table 1, we present the three models for each sample for which the preexisting trend was smallest in magnitude. (Appendix Table 2 shows the results for all models.)
Conclusion
State and local governments have many tools and strategies to spur economic growth. One tool proven particularly effective by research is public investment that increases the efficiency and attractiveness of local amenities such as transportation and the quality of local education. Public investment opportunities are obviously curtailed if state and local governments willingly forfeit revenue in the name of attracting businesses. Given this sharp trade-off with public goods provision, the benefits of tax incentives should be exceedingly strong to be pursued as good development policy. So far, the best research has not identified such strong benefits.
This paper bolsters these findings for the most politically salient economic indicators used to assess state and local development policies: the total number of jobs in a locality. We use a high-quality dataset that provides cross-locale variation to assess the effect of opening an Amazon fulfillment center on county-level employment. We find that opening an Amazon fulfillment center does lead to gains in warehouse jobs in a county, but does not lead to gains in overall county-level employment. These findings are consistent with theories arguing that luring establishments from existing national employers to a particular locale may just displace incumbent jobs. This seems to add evidence to an already-strong research base indicating that the zero-sum strategy of attracting existing employers away from other regions does not guarantee good economic outcomes.
It is this lack of broader development benefits that has led to many advocacy organizations, including Good Jobs First, to call for “turning the tables.” Specifically, they argue that firms themselves, not taxpayers, should foot the bill of locating in a community and beginning to draw on the community’s infrastructure. Instead of committing to giving away public funds to attract existing employers from other regions in a zero-sum contest, communities should demand concrete actions that ensure that an employer’s arrival will make their region a more prosperous place—or that at least offset some of the harms the arrival could create.
Good Jobs First lays out what such concrete demonstrations from Amazon (and by extension other employers) could include: an impact fee to offset lost tax revenues if existing retailers lose business or close and a Community Benefits Agreement (CBA) that ensures a range of benefits. The CBA could require that the employer provide jobs with living wages and benefits, hire disadvantaged workers, evaluate the environmental impact of the facility, and provide other benefits. Good Jobs First has also weighed in on what Amazon should offer to cities bidding to become the home of Amazon’s next headquarters. In an open letter, Good Jobs First calls on Amazon president Jeff Bezos to provide affordable housing supports, transit investments, and a commitment to strengthen small business.
1 comments:
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