Amazon Fulfillment Centers: How Fulfilling?

Second in a series of articles.

As speculation intensifies about Amazon’s decision to open a second headquarters, with its 50,000 jobs, state and local officials across the country continue to chase smaller projects such as Maryland’s four Amazon fulfillment centers and their 6,500 jobs.

Although no announcements have been made, articles in The New York Times and Wall Street Journal this week have suggested that the corporate giant may split its HQ2 between Crystal City in Arlington, Va., and Long Island City in the New York City borough of Queens.

That would be a blow to Maryland, which put together a lucrative bid to lure the company to Montgomery County. But political leaders from Maryland, Virginia and Washington, D.C., have said that locating the project in one jurisdiction could prove helpful to all.

“Anything that comes to the region is going to benefit the region,” Amelia Chasse, a spokeswoman for Maryland Gov. Lawrence J. Hogan Jr. (R), said in an interview this week. She declined to comment on the reports about Amazon passing on Maryland’s bid.

“Amazon asked the states to maintain confidentiality, and we’re honoring that,” she said.

Even if Maryland doesn’t get the big prize, it already has a well-established relationship with the Internet giant.

This fall, Amazon opened its fourth Maryland facility, the Sparrows Point fulfillment  center, in the Tradepoint Atlantic development, once the site of RG Steel, a mill that employed 30,000 workers in its heyday and closed in 2012 with fewer than 2,500 employees.

State and local governments usually offer millions in tax credits and other incentives to lure the facilities. Touted as job creators, Amazon’s fulfillment centers offer thousands of jobs and the evidence of economic development success. Critics deride the government subsidies as corporate welfare, arguing for alternate means of job creation.

Amazon has at least 75 fulfillment centers across the United States, which serve the millions of Amazon Prime members who can get just about any merchandise they want from the giant retailer within a day or two.

The company says median pay at fulfillment centers is, on average, 30 percent higher than employee pay in retail stores. On Nov. 1, Amazon began paying a minimum of $15 per hour for all its U.S. employees. The increased hourly wage comes as the company eliminated bonuses and stock awards for hourly warehouse and customer service employees.  Maryland’s minimum wage increased to $10.10 per hour July 1.

Amazon’s net sales increased from $43.7 billion in the third quarter of 2017 to $56.6 billion in the third quarter of 2018.

Amazon said its Tradepoint Atlantic facility will have more than 1,500 full-time positions, in addition to the 5,000 associates working at two sorting and fulfillment centers in Baltimore and a fulfillment center in North East, in Cecil County.

“Our vision for Tradepoint Atlantic is to attract world-class companies that want to take advantage of Baltimore’s deep talent pool, prime mid-Atlantic location and integrated transportation network,” said Baltimore County Executive Don Mohler (D). “Tradepoint Atlantic is transforming a vacant industrial peninsula into a 21^st century global logistics and manufacturing hub. The economic upside is clear in terms of new jobs and investment. Amazon is just one of a number of national brands, including FedEx and Under Armour, bringing jobs back to the former steel mill site at Sparrows Point. There already are more people working at Tradepoint Atlantic than when the steel mill closed in 2012.”

Baltimore County officials say fulfillment centers offer middle-skill workers jobs in a tight labor market as well as incentives such as Amazon’s Career Choice program, which adds the benefit of significant tuition assistance for training in a career of the associate’s choice after one year of employment.

A Baltimore-regional report from a public-private entity known as The Opportunity Collaborative, identifies a critical need for middle-skills jobs in the Baltimore metropolitan area like the kind offered by the fulfillment center to offer ladders to career paths and help lift the economic status of workers who do not have a college education.

According to the company, Amazon’s investments in Maryland contributed an additional $100 million into Maryland’s economy from 2014 through 2016. The company also boasts that its investments in the state have created an additional 3,000 indirect jobs on top of the company’s direct hires.

To assist with the Amazon Tradepoint Atlantic project costs, the Maryland Department of Commerce approved a $2 million conditional loan through the Maryland Economic Development Assistance Authority and Fund (MEDAAF). Additionally, Baltimore County has approved a $200,000 conditional loan to assist with development costs at the new facility. The company is also eligible for various state and local tax credits, including Maryland’s Job Creation Tax Credit.

“Amazon’s decision to open a fourth facility in our state is tremendous news for this local community and for Maryland as a whole,” Hogan said in a statement.

But critics of such incentives for Amazon’s fulfillment centers say the facilities offer negligible benefits to the communities offering the incentives and the workers who ultimately get jobs.

Greg LeRoy, executive director of Good Jobs First, a D.C.-based national policy resource center for grass-roots groups and public officials, argues that Amazon needs local communities more than the communities need Amazon because Amazon has to have fulfillment centers around the country to serve the roughly 80 million to 100 million Amazon Prime members with expedited service.

“The conversation is backwards about which way the money is flowing,” LeRoy said. “Not only should taxpayers not be subsiding Amazon to come, Amazon should be paying to arrive. I don’t think anybody should be subsidizing Amazon fulfillment centers because they are going to be built no matter what.”

LeRoy added that the job creation numbers touted by state and county officials amounts to “job churn.”

“We’re closing retail stores and opening warehouses,” LeRoy said. “The net job growth is nil. Record numbers of retail store are closing. Amazon repeatedly makes the point that they pay better than retail but it’s an apples and oranges comparison. These are grueling jobs often at odd hours.”

According to the Good Jobs First “Amazon Tracker,” Amazon has already been awarded about $1.6 billion in subsidies nationally, “and counting,” including for subsidiaries such as Whole Foods Supermarket, Zappos and Audible.

In addition, the Economic Policy Institute, a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions, said in a report that 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.”

So why do local and state governments offer the subsidies? Isn’t it the coin of the realm that in order to attract Amazon, some sort of economic enticement will be required? The answers lie more in politics than in economics, according to University of Texas-Austin Professor of Government Nathan M. Jensen.

Jensen believes economic incentives for companies like Amazon are “redundant, redundant, redundant.” Jensen, co-author of “Incentives to Pander,” said the majority of firms would make the same decision on locating facilities in certain communities even without incentives.

“This is an effective way for politicians to take credit for investment,” Jensen said. “If an Amazon fulfillment center is going to come to your town because of your physical location or decades of investment in infrastructure, it is hard for politicians to take credit for it. But an elected official can come to a ribbon cutting ceremony and talk about the support the city or state provided to seal the deal.

“This may sound cynical, but our research shows through surveys, voters think these policies work and they reward politicians for doing it. The honest point is that it is really hard for politicians to create jobs, and even harder to do it in the short term.”

Amazon is not the only large company to receive subsidies, of course. Jensen pointed to the example of the roughly $3 billion or more in tax and other incentives the State of Wisconsin will provide over 15 years to lure Taiwanese electronics manufacturer Foxconn to southern Wisconsin. The Foxconn project promises about 13,000 new jobs in a $10 billion facility.

Jensen is not optimistic that the rush by state and local governments to offer incentives to corporations like Amazon and Foxconn will end anytime soon. He pointed to the billions of dollars offered to Amazon by cities hoping to land Amazon’s HQ2 – Montgomery County and the State of Maryland have offered an $8.5 billion package to lure HQ2 — and Wisconsin’s $3 billion-plus subsidy for Foxconn.

“The biggest critics of these programs were the progressive left and the tea party right with a common theme of opposition to corporate welfare,” Jensen said. “But HQ2, and before that Wisconsin’s offer to Foxconn, shook my confidence that we were on the right path. Democratic and Republican mayors and governors went all in for HQ2, and the state of Wisconsin offered Foxconn a deal that under unrealistic optimistic assumptions, won’t break even for 25 years. Most of the HQ2 bids have been shielded from the public through the use of non-government agencies are using exceptions to public records.

But my one hope is that many states continue to be more serious about their evaluations of these programs.”

Jensen’s advice for state and local government is to “look at the general business environment and improve the system for all firms to benefit. This could be tax reform, permitting, and definitely investments in education. Other programs like workforce development have a much better history in helping workers obtain skills that are valued by employers. But there is no magic bullet and many of these programs require sustained investments over a long time period.”

Bill Zaferos is a Milwaukee-based writer. His novel, Poison Pen, will be published by HenschelHAUS Publishing in January.

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