Blessing or curse?

With many brick-and-mortar stores forced by the COVID-19 pandemic to close or cut back, American shoppers have turned to e-commerce to meet their everyday needs—clothing, groceries, even toilet paper. The leader of the pack, Amazon, has expanded its workforce to meet the challenge. And it has expanded its footprint. Two mammoth fulfillment centers—one near Syracuse and one planned for Gates—will add more than 6 million square feet of warehouse space to the Amazon network and will employ 2,000 between them. 

Some question the overall economic impact of the e-commerce boom. Yet a recent analysis concludes that while conventional retail jobs have been lost to internet shopping, total paid employment in the “shopping” sector has actually increased as e-commerce displaces the unpaid labor of shoppers. E-commerce also promises to train a new generation of “tech-enabled” workers, teaching job skills that can be transferred to entirely different sectors of the economy.

How retailing has changed

In the world of Laura Ingalls Wilder’s “Little House on the Prairie,” retailing began and ended at Oleson’s Mercantile. If Mr. Oleson didn’t have it and Pa or Ma couldn’t make it, Laura largely did without. In 1850, just over half the U.S. labor force was in farming and 85 percent of the nation lived in rural areas. 

As the nation grew, the vast rural market encouraged Montgomery Ward and Sears & Roebuck to begin selling through mail order, a revolutionary idea. Ward published its first catalog in 1872, with Sears following in 1887.

Manufacturing’s post-World War II expansion and the mechanization of farming spurred a massive migration to the cities, prompting another revolution in retailing. With 63 percent of Americans living in urban areas by 1960, the shopping mall—Southdale in Minneapolis in 1956 and Midtown Plaza in Rochester in 1962—started a new era.

Sam Walton, Kresge (through its Kmart brand) and others adapted the department store model and pioneered a parallel revolution. Founded in 1962 (as was Kmart), Walmart became America’s dominant “brick-and-mortar” retailer.

Walmart recognized the continuing purchasing power of rural areas, pushing aggressively into small towns. One analyst asserts that 90 percent of the nation’s population is within 10 miles of one of its stores. Not only did Walmart’s expansion force out many traditional downtown retailers, it also took business away from the catalog merchants like Sears and Montgomery Ward. The iconic Sears “Big Book” was discontinued in 1993. The productivity of the “big box” store—including retailers like Home Depot, Target, Costco, and Best Buy—had a major impact on retail employment and kept retail wages stagnant.

Much of Walmart’s dominance over its peers can be attributed to yet another revolution, that of logistics. The firm applied manufacturing’s “just in time” principles to retailing, nearly eliminating the “storeroom” common to most mid-century retailers and vastly accelerating turnover per square foot.

Today, we’re living in yet another revolution, that of e-commerce. While hardly new—Amazon was founded in 1994, eBay in 1995—the pandemic has supercharged the sector. The Washington Post (owned by Amazon founder Jeff Bezos) reports that Amazon employment has grown by two-thirds during the pandemic, and now tops 1 million. 

In an ironic reversal of Walmart’s elimination of the storeroom, e-commerce eliminates the store by creating a network of vast, highly automated fulfillment centers. This is a new kind of facility. A fulfillment center (whether owned by Amazon, Walmart, eBay or many other firms) looks nothing like the sleepy cavern the word “warehouse” invokes.

Rochester and Syracuse will have a front-row seat to the next chapter in the growth of e-commerce. Amazon seeks to build a 2.6-million-square foot facility on a 100-acre site on Manitou Road in Gates. Expected to employ 1,000, the total investment will top $400 million, including $280 million in building construction and $100 million in equipment. 

An application for a tax abatement was the subject of a public hearing on Jan. 15. The application was approved by the County of Monroe Industrial Development Agency at a meeting of its board of directors on Jan. 19.

Another fulfillment center is already under construction in Clay, a Syracuse suburb. Approved for a tax abatement by the Onondaga County Industrial Development Agency in October 2019, the $350 million, 3.7 million-square-foot project is also expected to employ 1,000 when completed. Said to be the second-largest structure of its kind in the world, the building is expected to be completed by this fall. (See drone view of the construction process here.)

Amazon is also building a distribution center in Greece. A “modest” 180,000-square-foot facility, it is projected to employ 50 full time and 50 part time. It also has a smaller distribution facility in Henrietta that opened in 2018.

Does e-commerce kill jobs?

Nearly 3 million square feet of new construction and more than 1,000 jobs certainly looks like a big win for Monroe County. Yet as a nation and a locality, are we simply swapping fulfillment and distribution employment for traditional retail jobs? 

More important: These centers are highly automated—will adding 1,000 hyper-efficient e-commerce jobs displace 2,000 or 3,000 brick-and-mortar retail jobs?

In the early 1800s, groups of textile workers, dubbed “Luddites,” destroyed machines that were taking their jobs. Economists have long observed that technology creates new jobs just as fast as it destroys the old ones. That’s not a natural law, of course. Highly automated fulfillment centers would appear to challenge the principle—an issue I’ve written about issue previously.

In a 2017 report titled “How e-commerce creates jobs and reduces income inequality,” Progressive Policy Institute chief economic strategist Michael Mandel comes to a surprising conclusion: The e-commerce sector has added jobs faster than the retail sector lost them. How is this possible?

If you’ve worked in retail, you know how inefficient these jobs can be. Some clerks in clothing retail (stores like The Gap or Abercrombie & Fitch) quip that they spend more time refolding clothes than waiting on customers. All of brick-and-mortar retail struggles with the cost of staffing the store when business is slow.

By contrast, the work in a fulfillment center is nonstop and is highly automated. Workers are managing the machines as much as they are the product. These jobs are fast-paced and physically demanding; there are few slow times. The sheer scale allows fulfillment center managers to adjust labor needs to the work flow. While the work is predictable, so are the hours and the pay.

Mandel’s analysis finds that the “shopping” sector (if we combine traditional retail with e-commerce) employs moreworkers through the growth of e-commerce, not fewer. What has changed is the number of hours spent by customers. 

Economists have long struggled to incorporate the work performed in the household sector in gross domestic product and other indicators. Tell stay-at-home parents that they “don’t work” and you’ll get a much-deserved earful. But the work isn’t paid and is rarely captured in economic statistics. 

Mandel employs the American Time Use Survey to estimate the time spent by households either shopping for goods and services or traveling to purchase goods and services. He finds that this “unpaid work” dropped by about 64 million hours a year from 2007 to 2017, a trend that surely accelerated during the pandemic. That’s equal to about 1.6 million full-time jobs. Brick-and-mortar retail lost 140,000 full-time-equivalent paid hours, but e-commerce added 401,000, for a net gain of 261,000 paid, full-time positions. 

This figure doesn’t include employment in related sectors, particularly transportation. If you find the fleets of Amazon, UPS and FedEx vehicles crisscrossing the city troubling, be comforted that these trucks are displacing millions of personal trips. Suppose a driver delivers 30 packages in an hour. It is not hard to imagine a net reduction in traffic and pollution if even a quarter of these deliveries replace a solo trip from you or me.

The trend has accelerated since these data were released, particularly during the pandemic—as noted above, Amazon alone added 400,000 jobs. A few weeks ago, I asked Mandel to summarize the e-commerce employment estimate using the latest data. He reports:

Jobs in e-commerce fulfillment centers, local delivery, and electronic shopping companies rose by roughly 1.4 million from December 2007 to December 2020, substantially exceeding the roughly 500,000 decline in brick-and-mortar retail jobs over the same period.

Added to the benefit of more paid jobs is the reduction in “unpaid work” by consumers. When Amazon Prime was first introduced in 2005, 

Amazon’s competitors didn’t believe that they could really make a profit and offer free, 2-day shipping. But gradually they realized that Amazon’s improvements in productivity and fulfillment had turned this into a real working business model. It isn’t just Amazon—Walmart, Target and other retailers have been using data to figure out how they can optimize the shopping experience. And it turns out that customers really like getting things delivered. 

One analyst estimated in 2019 that 82 percent of American households were Amazon Prime members. As 2019 was BC (Before COVID), this is another statistic that is surely out of date. (Based on a survey, incidentally, it could also be inaccurate.)

If you are one who lives to shop, then the shift to online may have reduced the variety found in-person. Not all products are more conducive to online purchases. Consider clothing: We come in all shapes and sizes and may miss the opportunity to try on a half-dozen dresses or slacks before buying. One- or two-day shipping with a liberal return policy just isn’t the same. 

Clothing aside, most consumer purchases can be adequately described online. With a 2.7 million-square-foot fulfillment center in our backyard, free one-day or same-day delivery will become common here, just as it already is in many major cities. 

Contract fulfillment centers support small business

The innovations in logistics that are implemented in the fulfillment centers “haven’t just been good for Amazon, Walmart and eBay,” Mandel says. “Lots of smaller companies find it much more efficient to sell through the online platforms these big companies have created. And that was not true before.”

Order fulfillment is a separate and specialized function. Whether a seller operates a physical store or is wholly online, the core competency of the founder centers on the product, not the fulfillment mechanics. The internet has empowered eBay, Amazon, Walmart and others operate full-service marketplaces that include order fulfillment. Other sellers may prefer to outsource only the order-fulfillment function. A number of firms offer these services to vendors either as a package of services or à la carte. 

But are these good jobs?

The e-commerce sector might have more than offset the loss of traditional retail jobs, but whether the new positions are comparable to—or better than—the old ones is a separate matter.

How is the pay? The jobs displaced are mostly in brick-and-mortar retail. Propelled by New York’s increasing minimum wage (now $12.50 an hour upstate), many of the retail jobs with posted wages at Indeed.com for Rochester pay near the $15 minimum paid by Amazon. The Bureau of Labor Statistics reports that the median hourly wage for cashiers or retail sales clerks in 2019 was $12 in the Rochester metro area. Amazon’s minimum is $15 an hour, not dramatically higher. According to data at Indeed.com, Amazon drivers earn about twice that rate.

Roughly a third of the posted retail jobs at Indeed.com are part time, however. The problem of scale in retail makes staffing very difficult. To cut costs, retailers rely heavily on part-time workers and are often quick to cancel shifts or send workers home early when business is slow. E-commerce jobs are more likely to be full time and offer benefits. 

In a December blog post titled “Considering e-commerce wages,” Mandel challenged a Bloomberg analysis of e-commerce compensation. Without reiterating his careful critique, he asserts that earnings in warehousing have increased 11.5 percent after adjusting for inflation in the 2013-2019 period he calls the “e-commerce era,” a larger increase than in other major sectors such as manufacturing, health care and retail.

What about the work itself? Mandel asks, “Do they fit our idea of what is a ‘good job’? They are not easy jobs. They require physical labor. Do we believe that physical labor jobs are acceptable jobs in this society?”

A Reddit thread titled “Anyone enjoy working in an Amazon Fulfillment center / Warehouse?” is worth reading. The 40 comments include a range of opinions, sampled below:

• Rosita_la_Lolita: “Hell no, I enjoy my paycheck tho”
• BriTheIntrovert22: “Id rather complain about it being too busy than be stuck in an office job from 9-5. I love it. Most of the reviews Ive seen on Amazon gave off an entitled attitude or pure drama. I was nervous, but now that Im here and its almost been 4-5ish months, its not that bad. As others have said, they are good and bad days, but thats unavoidable in any profession. I’ve worked at $7.25/hr jobs to now $15/hr job, Im super grateful and enjoy my team.”

Tempting as it is for policy makers to pursue high-tech, high-pay jobs, a large share of the Rochester-area workforce lacks the qualifications for these positions. Only a third of the population aged 25 or over without a high school diploma was in the labor force in Monroe County in 2019. By contrast, three-quarters of the population with a bachelor’s degree or higher was in the labor force in that year. 

While we lack current statistics for the county or metro, the unemployment rate at the national level for the population aged 25 or over for people without a high school diploma was 5 percentage points higher than those with a bachelor’s degree (9 percent vs. 4 percent in January).

Tech-enabled employment

Unlike retail jobs, fulfillment centers train workers in a specific skillset that transfers to other sectors that improve productivity by matching human wits and flexibility with the capabilities of artificial intelligence and computer-controlled machinery. Says Mandel:

These fulfillment centers are creating a whole new class of tech-enabled workers who are trained to work with robots, whether in an e-commerce warehouse or a pharmaceutical production center or in digital manufacturing. They fill a necessary hole for people with a high school education.

Spillover impacts

Mandel also speculates that a fulfillment center like the one being built in Rochester might serve as a magnet for supplier firms, possibly manufacturers. 

I expect that e-commerce fulfillment centers will actually become centers for manufacturing. It will be more efficient for manufacturers to locate near fulfillment centers because it eliminates one step in the distribution process. There’s no evidence of this yet—but that’s partly because we’re still trying to scrape manufacturing off the ground.

He also notes that the high degree of automation offers a local opportunity for robotics research and development partnerships with universities plus contracts for local firms for robot maintenance and repair. The Rochester area is well-placed to take advantage of these opportunities. Rochester Institute of Technology offers a degree program in robotics and manufacturing engineering; the University of Rochester houses the Robotics and Artificial Intelligence Laboratory and affiliated degree programs; Monroe Community College offers a Mechatronics Certificate through its Department of Engineering Technologies.

Parting thoughts

Many important issues remain untouched in this post:

■ Has e-commerce—and Amazon, in particular—overreacted to the shift to online prompted by the pandemic? What is the risk that these massive fulfillment centers will become supersized versions of shuttered shopping malls?

■ Continued productivity gains in e-commerce will surely have a negative impact on brick-and-mortar retail, despite the net gain in employment reported by Mandel. Assuming that the combination of a fulfillment center and distribution center in Monroe County makes same-day or one-day shipping ubiquitous in the near future, what will be the consequences for local retail?

■ Will fulfillment centers serve as economic engines for their regions? Or will the supply-chain panic triggered by the pandemic dissipate as normality returns?

■ Do the “tech-enabled” skills required by highly-automated warehouses transfer to other sectors?

■ Should e-commerce workers join a labor union? A vote to join the Retail, Wholesale and Department Store Union is underway among Amazon workers in Alabama. Ballots are to be mailed back by March 29.

■ Has “Big Tech” acquired so much market power that these companies should be split up by regulators?

The near-term impact of the planned fulfillment center Gates appears to be largely positive. A $280 million construction project will create thousands of well-paid, albeit short-term jobs. One thousand full-time positions earning a minimum of $15 per hour (and paying benefits) will boost employment prospects and a career ladder to many in the community. Bottom line, Monroe County is fortunate to be included in this new wave of retail expansion.

Kent Gardner is Rochester Beacon opinion editor.