There are more inappropriate venues President Obama could have chosen than Amazon.com’s (AMZN) Chattanooga warehouse for his speech on creating good jobs on Tuesday, but not many.
Amazon is remarkably efficient in terms of employing few people per sales dollar. It employs just 14 employees per $10 million in revenue (PDF) compared to 47 workers the same amount at an average physical store, based on U.S. Census data.
So while Amazon’s gaining a greater share of retail spending is a boon for its shareholders, it only exacerbates unemployment because jobs added at Amazon yield a net job loss for the country.
If Amazon lives up to its recent claim that it will hire 7,000 people in the coming months, the positions will come at the expense of more than 20,000 existing jobs at storefront retailers around the country. This generous assumes that Amazon sells a significant volume of products that never would have been purchased from a physical store.
White House Press Secretary Amy Brundage referred to Amazon as “a perfect example” of creating high-wage jobs, but Amazon’s fulfillment position listings offer an average of just over $11 per hour—on par with most low-end retailers. Amazon spokesperson Kelly Cheeseman says starting employees receive both health-care benefits and restricted stock, boosting compensation by 9 percent annually.
But direct hiring isn’t all that matters. Amazon’s independent brick-and-mortar competitors typically employ the services of many other local entrepreneurs in their communities, from accountants to graphic designers, creating a multiplier effect. These higher-skilled, higher-paying jobs are essential to building prosperous local economies and seeding future entrepreneurial activity.
Perhaps the most disturbing aspect of Obama’s choice to celebrate Amazon is the federal government’s role in protecting the corporation from competition. While storefront businesses are obliged to collect sales tax in 45 states, Congress and the Supreme Court have allowed online mega-retailers to largely avoid sharing that burden.
Legally, a physical presence such as a warehouse in any state obliges every retailer to collect sales tax. Yet Amazon plays states against each other to get exemptions and additional direct subsidies. Despite operating multiple warehouses in Tennessee, for example, Amazon has yet to collect any tax, even though the corporation has shifted from its all-out fight against online retailers having to collect sales tax to claiming it only wants a “fair system.” The fairness message understandably generates scorn from storefront businesses subject to being showroomed with Amazon’s encouragement.
The Obama administration also injected itself into a complex dispute that benefited Amazon when the U.S. Department of Justice sued several book publishers and Apple (AAPL) for conspiring to set a minimum price for e-books. The government’s successful lawsuit will dramatically increase the power and market share of a corporation already believed to control more than 60 percent of all e-book sales and an even greater share of physical books sold online.
All this benefits a corporation the IRS is pursuing for $1.5 billion in taxes it avoided through tax-shifting schemes across the globe, Reuters reports.
Independent business owners have a further big reason to resent Amazon: It’s tough to compete against a business that doesn’t need to turn a profit. The corporation lost billions of dollars—an average of $376 million annually—for its first eight years.
Any private business would be defunct with that record, yet investors continue pumping money into Amazon in anticipation of when the company has effective monopolies in some sectors, giving it the power to raise prices substantially.
While politicians always gravitate toward a photo op at a business that promises loads of new jobs, the sustainable creation of good jobs almost always occurs incrementally. The actions that help nurture real, lasting job creation rarely make headlines.
It seems that every politician masters the statistics about small business being the engine of job creation, but delivers the goods to corporations that wield significant political power. The president should consider a different venue for future jobs talks. He could visit business incubators, SCORE offices, community banks, and meetings with local business groups. The support offered by these entities will help create far more jobs than any of the corporate tax cuts Obama promotes. The concerns and ideas he’d hear would be a world away from the mammoth corporations plying the White House and Congress.