Cities that lure Amazon with incentives may be getting a 'bad bargain,' new study says

The promised benefits of Amazon's new fulfillment centers may not be materializing as planned.

A new study of publicly available data by the left-leaning Economic Policy Institute found that when Amazon opens a new warehouse, the county where it is located does not see an increase in employment during the following two-year period. Warehouse jobs do increase about 30%, but the county's overall employment stays steady.

Amazon has opened fulfillment centers in 25 states, often courting state or local tax incentives to build them. The study suggests that these localities are not getting a return on that investment, one of the study's authors, Ben Zipperer, told Business Insider.

In fact, the study shows that if anything, employment actually decreases two years after Amazon opens a fulfillment center in a county, though not to a statistically significant degree.

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7.5 percent of Seattle's working-age population are Amazon employees

Amazon has more than 300,000 employees worldwide, and 40,000 in Seattle alone.

As a portion of the city's working-age population — roughly 528,000 — that comes out to 7.5% of the city working at Amazon.

For perspective, if the same portion of New York City's adults worked for one company, that company would have about 488,000 locals on staff.

Amazon accounts for 43% of all online sales

Amazon used to be a way to buy books online; today, it's the default buying site for just about everything, especially for people who have Amazon Prime.

An analysis by Slice Intelligence released in February found that 43% of all US online retail sales were done through Amazon in 2016.

That's up from 33% in 2015 and 25% in 2012.

1 out of every 4 US adults has Amazon Prime.

Speaking of Amazon Prime, the company now counts approximately 63 million people among its subscriber base, or about 25% of the total US adult population.

That number may underestimate the true coverage, however, since it doesn't account for multiple adults in one household all sharing the same Prime account.

Amazon ships 1.6 million packages a day

Amazon fulfillment is a beast of its own.

A report from 2013 (the latest year for which data are available) found Amazon shipped 608 million packages that year, or 1.6 million packages a day.

As of 2015, Amazon estimated its fulfillment centers were within 20 miles of 31% of the US population, and within 20 miles of 50-65% of its core, same-day-accessible market.

That's enough cardboard to span all of West Virginia

A back-of-the-envelope calculation reveals all those packages (not including padded envelopes) yield roughly 26,400 square miles of cardboard.

The total land area of West Virginia, meanwhile, is just north of 24,000 square miles.

Given the speed of Amazon's shipments, the company could blanket the whole US in cardboard in about five months.

45,000 robots roam the floors of Amazon's warehouses

To help those shipments leave the warehouses on time, Amazon relies on a growing fleet of autonomous robots that fetch packages from their shelves and bring them to human employees.

The 45,000 robots live across 20 fulfillment centers in the US. In 2016, the company increased the fleet 50% from its prior head count of 30,000.

Amazon is more valuable than all major brick-and-mortar retailers combined

The sum total of those investments in infrastructure and supply chain management have made Amazon by far the most valuable retailer in the United States.

Amazon's $356 billion valuation is so big, it's larger than Wal-Mart, Target, Best Buy, Macy's, Kohl's, JCPenney, and Sears combined.

With the recent acquisition of Whole Foods, there are no signs the retailer has any plans of slowing down.

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EPI used data from the Bureau of Labor Statistics that included warehousing employment figures in 1,161 counties around the country. That includes 54 Amazon warehouses in 34 counties, accounting for about 75% of all Amazon fulfillment center locations.

According to the authors, there may be two reasons why Amazon's new warehouses don't appear to increase overall employment, though neither can be verified by currently available data. It's possible that either those workers are leaving jobs in other industries in the county to join Amazon's workforce, or Amazon's hiring just isn't enough to move the needle on overall jobs in the particular county.

Either way, the study suggests that "maybe there is a bad bargain here," for localities, Zipperer said.

Cities and towns often throw millions at Amazon to come to their necks of the woods, but without a sizable new increase of jobs, it's possible that Amazon is not paying its fair share. No net increase of jobs means no net increase in local tax revenue, possibly leading to a strain on local resources.

"There does seem to be a trade-off here that is maybe a little more real than we make it out to be sometimes," Zipperer said.

This study comes as Amazon is evaluating cities for its new HQ2 project, one criteria of which is how much the state and local governments are willing to provide in tax incentives. Amazon says the project comes with a $5 billion investment and, eventually, 50,000 jobs. The incentives these cities and towns are offering the company seem to increase by the day, but Zipperer says this study should make local governments wary.

"Any kind of incentives that local governments make, they need to think very seriously about, because — at least in the case of Amazon warehouses — Amazon hasn't delivered on the jobs front," Zipperer said.

The study also found that average warehouse wages, based on total wages, do not increase when Amazon opens a warehouse in a county. That could be because Amazon hires a mix of part-time or hourly and salaried employees, keeping overall wages down.

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A separate study released in January found that 700 Amazon employees in Ohio — about 10% of Amazon's workforce in the state — draw benefits from foot stamps.

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