Dr. Timothy Sullivan
Department of Economics & Finance Southern Illinois University Edwardsville
The recent announcement that Amazon will locate two new facilities in Madison County and hire 1,000 workers is good news for the region. But could these new jobs also create hiring issues in Madison County? Are there enough workers available in the region? Could the good news of Amazon’s arrival be offset by disruption in the local labor market as existing businesses find themselves unable to hire workers?
One extreme theoretical possibility is that the only qualified workers Amazon can hire are already fully employed. Under this unlikely scenario (what economists call “perfectly inelastic labor supply”), Amazon would lure workers away from existing businesses. These local employers, perhaps unable to match Amazon’s pay, would reduce employment by 1,000 jobs. Once the dust settled, there wouldn’t be any new jobs in the region – the only change would be that 1,000 workers would commute to Amazon instead of their current place of employment.
The opposite extreme theoretical possibility is that there are at least 1,000 qualified workers in the region who are currently unemployed or underemployed. Under this second scenario (what economists call “perfectly elastic labor supply,”) 1,000 unemployed workers would find work. Some would take new jobs at Amazon, while others would take over the jobs of currently employed workers who move to Amazon.
Of course it’s very unlikely that either of these extreme theoretical possibilities exactly describes the region’s labor market. The truth is somewhere in between. But where? The answer involves knowing the value of the elasticity of labor supply. In particular, we would need to know the elasticity of labor supply in our region among workers with the qualifications to be hired by Amazon. An elasticity close to zero would be consistent with the first scenario, where Amazon wouldn’t create any net jobs. A large elasticity is consistent with the second scenario, where most of the 1,000 jobs will be new.
Unfortunately, while economists have studied labor supply elasticity for over 50 years, its numeric value is remarkably difficult to pin down. Economists find that labor supply elasticities can vary depending upon the occupation, the geographic location, the current state of the economy and whether we examine hours worked or the number of jobs. As a practical matter, calculating the 2016 labor supply elasticity for warehouse workers in Madison County is impossible.
Instead of trying to identify the precise number, economists often ask the following questions to gauge labor supply elasticities: (1) How does the number of new jobs compare with the number of people in the region who currently have the training and ability to perform the work? (2) Of the people in the region who have the training or ability, how many are unemployed or underemployed? (3) How easy would it be for a new worker to obtain the necessary training to enter the occupation? Answering these three questions will give us some idea of the likely effects of Amazon’s arrival.
First, while 1,000 jobs is a welcomed addition to the local economy, it represents a fairly small portion of the local labor force. The latest numbers from the Bureau of Labor Statistics report over 135,000 members of the Madison County labor force. Adding in the bordering counties (including St. Louis and St. Louis County) puts the total labor force well over a million. Even within the specific occupations likely to be impacted, the 1,000 jobs are relatively small. The most recent government estimates list over 22,000 people in the St. Louis Metropolitan area working as “Laborers and Freight, Stock and Material Movers, Hand.” Another 5,000 have the classification “Packers and Packagers, Hand.” Adding in smaller occupations, such as “Transportation, Storage and Distribution Managers” would bump the value to well over 30,000 (Bureau of Labor Statistics, Occupational Employment Statistics, Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates, May 2015 data). In short, even if we use a fairly narrow definition of “affected labor force,” Amazon’s 1,000 jobs will represent, at most, about 3% of the workforce.
Regarding the second question, while unemployment rates have fallen since the height of the recession, unemployment in “Transportation and Material Moving Occupations” has remained stubbornly high. While occupation-level data aren’t available at the regional level, the most recent national-level data shows an unemployment rate of 7.5%. This is considerably higher than the overall national rate (5.1%), and it is one of the few occupational categories with a national unemployment rate that is higher today than it was a year ago. (Bureau of Labor Statistics, Employment Situation, Labor Force Statistics from the Current Population Survey, Table A-30, July 2016 data). With regards to local conditions, a recent analysis by CEB TalentNeuron, a consulting firm that analyzes local labor markets, rated the St. Louis Metropolitan area as number 10 in the nation for the availability of workers in the “Laborers and Freight, Stock, and Material Movers” occupation. CEB rated the hiring of workers in this occupation as “easy,” indicating a relatively large number of available workers in this occupation in the region.
Finally, most occupations in this category require comparatively little training, making them relatively easy to enter. According to the most recent national-level data, only 11% of workers in the “Laborers and Freight, Stock and Material Movers, Hand” occupation have a college degree, while about two-thirds have a high school diploma or less. The numbers are similar for “Packers and Packagers, Hand” (Bureau of Labor Statistics, Employment Projections, Educational Attainment for Workers 25 Years and Older by Detailed Occupation, Table 1.11, 2012-2013 data). The Bureau of Labor Statistics describes both occupation as requiring “no formal educational credential,” “no work experience in a related occupation” and “short term on-the-job training” (Bureau of Labor Statistics, Employment Projections, Education and Training Assignments by Detailed Occupation, Table 1.12, 2014 data). Thus it should be fairly easy for workers to move into the occupations being hired by Amazon.
Combined, these answers suggest that Amazon’s entry into the region will have a small-to-modest impact on local labor markets. First the 1,000 jobs will represent a relatively small portion of the local labor market. Second, unemployment in the affected occupations remains high, and analysis suggests that a fair amount of slack remains in the local labor market for those occupations. Finally, the most-affected occupations require little formal education, experience or training, making it fairly easy for workers in other occupations to change careers and apply for these jobs. In summary, the evidence suggests that Amazon will have little difficulty filling these 1,000 new positions. And, while the 1,000 jobs are exciting news for the region, they are unlikely to create much disruption.