Tag: Amazon

No Free Lunch At Whole Foods

Recently, I wrote about “other channels of adjustment” for firms facing minimum wage increases (other than reducing hiring or laying off workers). My main point was this: though a minimum wage hike need not lead to job losses at every single firm, in the absence of firms not knowing how to incentivize their workers properly to maximize profitability, other business responses are not costless.

A good example can be seen in today’s story about Whole Foods. Under pressure from campaigners, Amazon recently raised its pay for its lowest-paid employees to $15-an-hour. Now some workers aren’t enjoying the effects:

The Illinois-based worker explained that once the $15 minimum wage was enacted, part-time employee hours at their store were cut from an average of 30 to 21 hours a week, and full-time employees saw average hours reduced from 37.5 hours to 34.5 hours. The worker provided schedules from 1 November to the end of January 2019, showing hours for workers in their department significantly decreased as the department’s percentage of the entire store labor budget stayed relatively the same.

“We just have to work faster to meet the same goals in less time,” the worker said.

            …

The labor budget and schedule cuts at Whole Foods in the wake of the minimum wage increase appear to be similar to changes Amazon made after it raised the pay of warehouse workers to a minimum wage of $15 an hour. That move was widely praised but Amazon also cut stock vesting plans and bonuses that had provided extra pay to some workers.

Some Whole Foods workers say the cuts have led to understaffing issues. “Things that have made it more noticeable are the long lines, the need to call for cashier and bagging assistance, and customers not being able to find help in certain departments because not enough are scheduled, and we are a big store,” said one worker in California.

Whole Foods and Amazon therefore seem to be adjusting to higher hourly pay in several ways: cutting hours for employees and sweating them harder during those reduced hours, cutting back on stock plans and bonuses, and passing on the extra cost to consumers in the form of worse service. None of these are costless:

-       cutting hours or bonuses negates the earnings boost from hourly pay increases

-       sweating workers harder makes the work environment less pleasant, and may reduce job opportunities for workers incapable of “upping their game”

-       a worse shopping experience is a quality-adjusted price increase for consumers

These are exactly the types of impacts I was referring to re: high minimum wages. When statutory wage floors are increased, the fact that the firm would not have opted to undertake these changes in the absence of the wage hike suggests changes would otherwise not have been profitable, and as such are still costly (though some firms are no doubt currently not efficient – making it feasible for some that higher minimum wages could jolt them to a better business model.)

There’s a great discussion of this issue towards the end of a brilliant EconTalk podcast on the minimum wage this week.

For more on the minimum wage, read here, here, here, here, here, here and here.

Trump and Amazon: States Don’t Need More Sales Taxes

President Trump continued his grumbling about Amazon this morning, echoing common but misguided views about the states being hurt by the rise of retail sales over the Internet. NPR has said, “The big problem is a loss of sales tax revenues as online sales climb.” And a coalition of states recently complained that online sales are imposing an “ever-increasing toll on the states’ fiscal health.”

But government data does not show any substantial “toll.” The chart shows total state-local revenues from income and sales taxes as a percentage of gross domestic product (GDP). E-commerce sales have grown to nine percent of retail sales, but sales tax revenues have nonetheless roughly kept pace with economic growth.

Since 1990, sales tax revenues (including excise taxes) have dipped only slightly from 3.1 percent to 3.0 percent of GDP.

Meanwhile, state-local income tax revenues have fluctuated with the economy, but have trended upward. They have risen from 1.8 percent of GDP in 1990 to 2.1 percent today.

Overall, state-local tax revenues (including property and other taxes) have edged up since 1990 from 8.7 percent of GDP to 8.8 percent.

It is not a lack of revenue that is taking “a toll on the states’ fiscal health,” but, rather, ever-increasing spending on Medicaid and worker pensions, as the Wall Street Journal discusses today.

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 3)

This continues Part 1 and Part 2 of my critique of the arguments for aggressive antitrust activism offered in Steven Pearlstein’s Washington Post article, “Is Amazon Getting Too Big,” which is largely based on a loquacious law review article by Lina Kahn of the Google-funded “New America” think tank. 

My previous blogs found no factual evidence to support claims of Pearlstein and Kahn that many markets (which must include imported goods and services) are becoming dominated by near-monopolies who profit from overcharging and under-serving consumers.  

Yet the wordiest Kahn-Pearlstein arguments for more antitrust suits against large tech companies are not about facts at all, but about theories and predictions.

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 2)

The first installment of this blog was a preliminary look at a Washington Post article “Is Amazon Getting Too Big?” by Steven Pearlstein.  That article promoted strong opinions of Yale law school student Lina Khan based largely on (1) faulty market concentration estimates from President Obama’s Council of Economic Advisers and (2) a selective 40-year survey of mergers as evidence of some current problem linking concentrated markets to rising prices.    

There was another bit of indirect evidence in the Obama CEA memo which merits discussion.  A graph from former CEA Chair Jason Furman showed large recent gains in “returns on invested capital” among public nonfinancial firms, as measured by McKinsey & Co.  The CEA insinuated that this shows a recent surge in “rents” (receipts larger than needed to attract capital) which they wrongly defined as “greatly in excess of historical standards.”  There is a simpler explanation.

Return on invested capital is notoriously difficult to estimate and, as McKinsey explains, returns look relatively larger by this measure because invested capital has become smaller as the economy shifted from capital-intensive manufacturing to services and software:

“What if the invested-capital side of the equation approaches zero, as it increasingly does among companies that use outsourcing and alliances and thus reduce the capital intensity of parts of their businesses? Other businesses, such as software development and services, also have inherently low capital requirements or take advantage of atypical working-capital dynamics, including prepayment by customers for licenses and payment by suppliers for inventory. Even traditional businesses are shedding capital: the median level of invested capital for US industrial companies dropped from around 50 percent of revenues in the early 1970s to just above 30 percent in 2004.”

Like the CEA’s mention of a rising share of sales by Top 50 firms in 10 industries between two years, the CEA’s return on invested capital data also failed to uncover any new “market concentration” problem to be solved by the Democratic Party’s mysterious “Better Deal.”

Neither Khan, Pearlstein, nor their cited sources provide any evidence of (1) the alleged widespread increase in market share held by 3 or 4 firms, nor of (2) higher prices outside of federally-regulated and subsidized industries, nor of (3) any connection between concentration and monopoly pricing, nor of (4) any connection between return on invested capital and concentration or monopoly pricing.

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 1)

“Is Amazon getting too big?” asks Washington Post columnist Steven Pearlstein, in a 4000-word column seeking justification for the Democrat Party’s quixotic pledge to “break up big companies” in its recent “Better Deal.” “Just this week,” notes Pearlstein, “Democrats cited stepped-up antitrust enforcement as a centerpiece of their plan to deliver ‘a better deal’ for Americans should they regain control of Congress and the White House.” He concludes by saying “it sometimes takes a little public power to keep private power in check.” But maybe it takes a lot of public power to write antitrust lawyers some big checks.

Politics aside, the question “Is Amazon getting too Big?” should have nothing to do with antitrust, which is supposedly about preventing monopolies from charging high prices. Surely no sane person would dare accuse Amazon of monopoly or high prices. 

Even Mr. Pearlstein has doubts: “Is Amazon so successful, is it getting so big, that it poses a threat to consumers or competition? By current antitrust standards, certainly not… Here is a company, after all, known for disrupting and turbocharging competition in every market it enters, lowering prices and forcing rivals to match the relentless efficiency of its operations and the quality of its service. That is, after all, usually how firms come to dominate an industry…”

That should have ended this story “by current antitrust standards.” But if we simply lower those standards, then “Better Way” antitrust shakedown threats could become far more numerous, unpredictable, and lucrative for politically-generous antitrust law firms

Among the 19 largest law firm contributions to political parties in 2015/2016, according to Open Secrets, all but one, Jones Day, contributed overwhelmingly to Democrats. More to the point, all of these law firms contributing most generously to the Democratic Party are specialists in antitrust and mergers: They appear on U.S. News list of top Antitrust attorneys. And the Trial Lawyers Association (now disguised as “American Association for Justice”) contributed over $2.1 million to Democrats, over $1 million to liberal organizations and $67,500 to Republicans.

Antitrust law is a very big, profitable and concentrated industry. Antitrust lawyers’ have a special interest in greatly expanding the reach and grip of antitrust law. They were surely delighted by Pearlstein’s prominent endorsement of law journal paper by Lina Khan, a 28-year old student and fellow at the “liberal-leaning” think tank New America.

Ms. Kahn believes it self-evident that low operating profits must prove Amazon is “choosing to price below-cost.” That’s uninformed accounting. What low profits actually show is that Amazon has been plowing-back rapidly expanding cash flow into capital expenditures, such cloud computing, a movie studio, and unique consumer electronics (Kindle and Echo).

 “If Amazon is not a monopolist, Khan asks, why are financial markets pricing its stock as if it is going to be?” That’s uninformed finance theory. Investors rightly see Amazon’s current and future growth of cash flow (the result of expensive investments) as the source of future dividends and/or capital gains (more net assets per share).

Will CNN Face Regulatory Retaliation?

A year ago in this space I discussed one of the more disturbing things then-candidate Donald Trump was saying on the campaign trail, his threats against the business interests of Washington Post owner Jeff Bezos, whose paper has been consistently critical of Trump. Trump mentioned tax and antitrust as issues on which Amazon, the company founded by Bezos, might find its status under review. I quoted Wall Street Journal columnist Holman Jenkins: “Mr. Trump knows U.S. political culture well enough to know that gleefully, uninhibitedly threatening to use government’s law-enforcement powers to attack news reporters and political opponents just isn’t done. Maybe he thinks he can get away with it.” 

Mr. Trump is now fighting a very public grudge match against cable network CNN, which as it happens is one of the enterprises affected by the pending AT&T-Time Warner merger. (Time Warner is CNN’s parent company.)  During the campaign, Trump criticized the merger, but in March he nominated to head the Department of Justice’s antitrust division Makan Delrahim, a veteran antitrust lawyer who seemed to take a more benign view. “The sheer size of it, and the fact that it’s media, I think will get a lot of attention,” Delrahim had said in an interview on Canadian TV in October, before the election. “However, I don’t see this as a major antitrust problem.”

Amazon Patents Police Traffic Stop Drone

Last July, Dallas police used a robot to kill the man who fatally shot five Dallas-area police officers. Shortly after the shooting I noted that new technologies, such as robots, should prompt lawmakers to find ways to make the face-to-face interactions citizens have with officers safer and less frequent. A recent Amazon patent reveals how new technologies can play a role in improving traffic stops, one of the most common citizen-police encounters.

Amazon Technologies, Inc. recently secured a patent for small shoulder-mounted police drones. The patent abstract explains that, “The techniques and systems can include routines to provide enhanced support for police during routine traffic stops.”

Drones like the one detailed in the Amazon patent could help improve traffic stops. Drones would allow police to examine a pulled-over vehicle before approaching in person. This increased situational awareness would help police officers, providing them with valuable information about how many people are in the car and whether the driver or any passengers have their hands in sight. As drone technology improves it’s likely that police will be able to use similar drones to issue commands. 

If appropriate accountability policies are enacted, these small drones could serve as useful tools in police misconduct investigations. Drone footage of the Philando Castile and Samuel DuBose shootings, for example, would have been helpful to investigators.

But despite the potential for these small drones being useful in misconduct investigations and helping police during traffic stops, citizens may be concerned about the impact such drones could have on their civil liberties. Having a small drone buzzing around your car during a traffic stop may be unnerving, but unless the drone is outfitted with sophisticated surveillance tools it’s unlikely that it will prompt a robust Constitutional challenge.

If these small Amazon drones are equipped with traditional cameras and don’t enter a car during a traffic stop, then they will only be capturing images of material in “plain view.” Nonetheless, citizens should be wary of small police drones being outfitted with surveillance technology that could raise constitutional issues, such as thermal scanners.

New technologies such as drones and body cameras will undoubtedly play an increasingly prominent role in law enforcement. Small drones like the one described in Amazon’s patent could help make routine traffic stops safer for officers and citizens. However, as the ongoing debates about body cameras have demonstrated, these new technologies can only serve as tools for worthwhile criminal justice reform if they’re governed by good policies. It’s not hard to see how small drones could help police and citizens during traffic stops. But as police drones become more common we shouldn’t forget that they can serve as platforms for a host of technologies that threaten civil liberties.