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

A new study by the Economics Policy Institute shows that overall employment does not change when
Warehouse wages also do not change when Amazon comes to town.
The study's authors warn that the cities and towns providing tax incentives to Amazon for the opening of warehouses may be getting a "bad bargain."
Amazon disputes the study's findings.

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 has 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 by 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 found that if anything, employment actually decreases two years after Amazon opens a fulfillment center in a county, though not to a statistically significant degree.

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

The authors list two possible reasons Amazon's new warehouses don't appear to increase overall employment, though neither can be verified by currently available data. It's possible that workers are leaving competitors in the county to join Amazon's workforce, or it's possible Amazon's hiring just isn't enough to offset losses elsewhere in the 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 criterion 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. A separate study released in January found that 700 Amazon employees in Ohio — about 10% of Amazon's workforce in the state — drew benefits from foot stamps.

Amazon disputed the findings of the EPI study in a statement:

The study, Amazon said, focused on a "misleading" section of time (2001 to 2015) that included both the recession and a time when Amazon was not building warehouses at the clip it is now.

In addition, Amazon said that most of the incentives it receives are available to most companies that seek them, and they are based on the performance of the company in the region.

Amazon touted its fulfillment center positions as "good jobs" that offer "competitive pay and comprehensive benefits," including medical insurance, bonuses, 401(k) with 50% match, maternity and parental leave, and programs that can pay tuition for employees in certain instances.

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

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