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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Amazon, Labor, and Automation



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George Packer of The New Yorker has written a long essay on Amazon, which offers a critical take on the successful online retailer, focusing in particular on the transformative role it has played in the publishing industry. (I recommend Brad Stone’s The Everything Store for a more balanced assessment.) There is much to discuss in Packer’s article, but the following sentence caught my eye:

Amazon employs or subcontracts tens of thousands of warehouse workers, with seasonal variation, often building its fulfillment centers in areas with high unemployment and low wages. Accounts from inside the centers describe the work of picking, boxing, and shipping books and dog food and beard trimmers as a high-tech version of the dehumanized factory floor satirized in Chaplin’s “Modern Times.” Pickers holding computerized handsets are perpetually timed and measured as they fast-walk up to eleven miles per shift around a million-square-foot warehouse, expected to collect orders in as little as thirty-three seconds. After watching footage taken by an undercover BBC reporter, a stress expert said, “The evidence shows increased risk of mental illness and physical illness.” The company says that its warehouse jobs are “similar to jobs in many other industries.” …

None of Amazon’s U.S. workers belong to unions, because the customer would suffer. A company executive told the Times that Amazon considers unions to be obstacles that would impede its ability to improve customer service. In 2011, the Allentown Morning Call published an investigative series with accounts of multiple ambulances being parked outside a warehouse during a heat wave, in order to ferry overcome workers to emergency rooms. Afterward, Amazon installed air-conditioners, although their arrival coincided with the expansion of grocery services. In any case, Amazon’s warehouse jobs are gradually being taken over by robots. Bezos recently predicted to a gobsmacked Charlie Rose that, in five years, packages will be delivered by small drones. Then Amazon will have eliminated the human factor from shopping, and we will finally be all alone with our purchases.

We have discussed Amazon’s fulfillment centers in this space before, but it’s worth thinking through the implications of this paragraph. First, Packer reports that Amazon builds its fulfillment centers in areas with high unemployment and low wages. Assuming that work in the fulfillment centers is as intense and dangerous as Packer reports, it is not obvious that Amazon could find many willing employees in areas with low unemployment and high wages without offering wages that would encourage the substitution of capital for labor. (Amazon offers information on its fulfillment centers that might be of interest.) And of course Amazon is working on substituting capital for labor, hence Bezos’s prediction that “packages will be delivered by small drones” within the decade, and his broader effort to automate the work of picking, boxing, and shopping books and other products.

In 2011, Ethan Lewis of Dartmouth College published an article on “Immigration, Skill Mix, and Capital Skill Complementarity” in the Quarterly Journal of Economics. An earlier and conveniently ungated version of the article, released in 2005, addresses a puzzle in the literature on immigration’s impact on local labor markets:

Since 1970, immigrants – 40 percent of whom have less than a high school education (compared to 10 percent of native-born Americans) – have risen from 5 to 15 percent of the U.S. workforce. Furthermore, the impact of this boom has been geographically uneven: immigrants are highly concentrated in particular labor markets, and the proportion of the workforce which is less-skilled is higher in more immigrant-dense markets. Yet study after study has found that the local labor market impact of immigration on the relative employment rates and wages of less-skilled workers is almost zero. High-immigration markets have succeeded in productively employing large amounts of unskilled workers despite the supposedly increased demand for skilled labor that the diffusion of new technologies has generated. How is this possible?

One way markets may be able to absorb less-skilled immigrants is by adopting less of the new high skill technologies. The expectation that the local labor market imp act of immigration ought to be large derives from a standard view that production technique is invariant to input availability. Recent models of innovation (Acemoglu, 1998 ) and endogenous choice of technique (Beaudry a nd Green, 2003, 2005 ) demonstrate tha t technique may respond to skill mix . In these models, the adjustment of technique to skill mix mitigates its effect on relative wages . A modified version of Beaudry and Green (200 5 ) presented below shows how a local market can adapt to an influx of less-skilled workers by using less of a skill-intensive technique, allowing immigrants to be employed at existing wages for less-skilled workers.

Lewis finds that automation is indeed more likely in plants in regions with a low availability of less-skilled workers than in comparable plants in regions with a high availability of such workers. (To put this another way, if there were large numbers of poor immigrants in the United States willing to work as personal chauffeurs for middle-income Americans for wages far below today’s statutory minimums, it is less likely that there would be much interest, or investment, in self-driving cars.) He acknowledges that there may well be other factors at work, so his findings aren’t dispositive. But the paper is valuable insofar as it offers a potential explanation for why the arrival of large numbers of less-skilled immigrants doesn’t appear to have depressed employment rates or the wages of less-skilled natives, and why it only appears to have reduced the wages of existing immigrants by only 6 percent. The presence of large numbers of less-skilled immigrants discourages investment in sophisticated technologies that can eliminate jobs that are (relatively) dangerous. In a similar vein, high unemployment rates and the prevalence of social maladies in a given region that depress productivity levels among native workers might also discourage such investment. 

So should Bezos be celebrated for investing in automation despite the fact that there are large numbers of people living in the United States who are willing, and in some cases even eager, to take on such jobs? One interpretation is that what Bezos really ought to do is raise wages and improve conditions in his fulfillment centers, regardless of cost or impact on delivery times for consumers, as this is the humane thing to do. Such a policy would presumably improve the relative position of firms that instead subjected their employers to harsher terms and conditions, or indeed firms that replaced such workers with machines. Bezos might be in a position to unilaterally redistribute resources from Amazon consumers to Amazon workers if he achieves a durable near-monopoly. It is not obvious that this is an outcome that Packer would celebrate, or that those of us in the broader public ought to celebrate either.

 



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