economics Uncategorized

If Amazon can do it…

Amazon announced that they will increase their minimum wage to $15 an hour. The people pushing for such a wage are already using them as an example, saying if Amazon can do it, anyone can. Let me explain why that assumption is wrong, and how increased wages actually HELP Amazon.

First, the vast majority of the products sold by Amazon are produced by slaves, or people so close to being slaves that there is no real difference. Yep, most of the stuff sold by Amazon is made in China. Second, most of the things sold by Amazon that are NOT made in China are actually being sold by other companies and Amazon is the agent, not the seller. I know, I used to sell lots of stuff on there. Third, many Amazon warehouses are subcontracted out. A company owned by my brother provides services to some of those locations. Fourth, Amazon has more robots working in its facilities than it does employees. Lastly, Amazon doesn’t employ many workers for the amount of goods sold, compared to most retail sellers.

All of this adds up to $15 an hour hurting Amazon’s competitors more than it helps the workers at Amazon. In fact, Amazon’s purchase of robotics manufacturer Kiva Systems for $775 million is a bargain. When you divide that amount by the 200,000 robots they have, the cost works out to less than $4 thousand per robot.

Amazon sends about 7 billion packages a year with annual revenue of around $100 billion a year.

This warehouse near Orlando covers 59 football fields, has 800 human and several thousands of robotic workers. Every bit of it is controlled and optimized for efficiency by computers.

This is the future of the American worker. Just like Henry Ford’s invention of the assembly line made manufacturing more efficient, robotics will do the same for most other industries. Fifteen dollars an hour won’t matter when three quarters of the workforce has been replaced by machines.

Labor is pricing itself out of the market. Companies like WalMart can’t compete with Amazon unless they pay less than $15. This causes employees to say things like:

“They don’t care about the associates [entry-level employees such as cashiers] at all. They just want more money for themselves,”

Of course, Amazon has half as many employees. Their physical locations are in rural areas with lower costs. They have less employee theft. All of this means that, in order to compete and keep prices low, costs (including wages) must also be kept low.

If, as an employee, a person wants to make more money, you have to produce more value than any potential employee who could replace you. Why should you expect a raise just because you have been working for an employer for 20 years, if you are still the same employee they hired 20 years ago? What skills have you picked up in the past two decades? Have you gone to school? Learned new skills? Made yourself more valuable? If not, they why would your employer want to pay you more, when they could hire someone with the same skills and education for less?

Or replace you with a robot?