The Amazon Shuffle

Posted in: Other Commentary

This is another article about Olneyville, the low income, predominately Latino neighborhood on the west side of Providence, Rhode Island, that I have been studying for over a year.

In case you haven’t heard, Amazon is on the hunt for a second headquarters. The company wants to build a new facility that could become the professional home for as many as 50,000 employees who earn an average of $100,000 a year. When Amazon issued a request for proposals last fall, it was deliberately vague about what it wanted, simply noting a preference for metropolitan areas of over a million people, “a stable and business friendly environment,” locations that would “attract and retain strong technical talent,” and communities “that think big and creatively when considering locations and real estate options.” Cities and metropolitan areas from across the country submitted bids, and late last year, the company announced the 20 finalists. Amazon is expected to choose the winner later this year.

Adding 50,000 high paid, high tech jobs to any metropolitan area has enormous transformative potential. The possible upside is obvious. The city that wins this contest will experience an immediate boost, and not simply from the huge influx of quality jobs. As Berkeley labor economist Enrico Moretti argued in his 2012 book, The New Geography of Jobs, high tech centers tend to attract other high tech talent, which means that Amazon’s decision will likely draw other high tech companies, both well-established firms and start-ups, who want to place themselves in an area with access to a rich and continually refreshed supply of talent. Indeed, this phenomenon is reflected in Amazon’s preferences; they could go anywhere but said they want to be where they can find and keep “strong technical talent.” A metropolitan area that does not already have this high tech infrastructure in place, such as Orlando, is at a comparative disadvantage.

And then there are the benefits that ripple far beyond direct employment in high tech. Young people with discretionary income attract and support an entire economic ecosystem of restaurants, bars, movie theaters, bookstores, fitness centers, home furnishing stores, etc. Moretti estimated that every high tech job tends to create five more in the service sector. Some economists disagree about the size of the multiplier, but most everyone agrees it is substantial. In addition, the people who occupy high tech jobs tend to be net contributors to a municipality’s bottom line, paying comparatively more in all kinds of taxes (property, income, and sales), but using fewer municipal services, like police, public health, and public assistance. High tech jobs thus help replenish a city’s tax base, replacing the revenue that was once provided by heavy industry. Along with life-sciences and higher education, the tech sector has been key to the revitalization of several post-industrial cities like Pittsburgh, Boston, and of course, Seattle (the home of Amazon’s first headquarters).

Yet there is also an ominous potential downside to Amazon’s decision that has received far less attention. Last week, Zillow, the real estate site, released a study that estimated the likely impact of Amazon’s choice on rents in each of the 20 locations. According to Zillow, Denver and Nashville would see the biggest increase, followed by Los Angeles, Raleigh, and Pittsburgh. By contrast, a move to Chicago or Indianapolis would have almost no effect on rents because housing costs are kept comparatively low by ready access to land. In addition, though this did not figure in Zillow’s research, the tech sector tends to favor white men. Because of differential access to education and other professional opportunities that happen upstream, relatively few high tech jobs go to women and under-represented minorities, especially at the executive level. Quite apart from rising rents, therefore, the influx of high tech jobs may further divide rich from poor, men from women, and white from black and brown. (Ironically, Zillow may itself be an example of this phenomenon. Its website lists 12 corporate officers, ten of whom are white men. The other two are white women.)

And this is where Olneyville comes in. Boston is among the 20 finalists for the new Amazon headquarters, and the Zillow study found that if Boston were to win, rents in the metropolitan area would rise considerably—not as much as in Nashville or Denver, but considerably more than in most other cities. Rents in the Boston area are already among the highest in the country, and as housing becomes unaffordable downtown, people in the city move to surrounding towns and suburbs, creating upward price pressures that extend outward from an increasingly unaffordable core. (Boston is hardly unique in this, as anyone who has tried to buy or rent in Manhattan or San Francisco can readily attest). Gradually, those at the bottom of the economic ladder are pushed farther and farther away, since they are least able to absorb the rising costs that radiate out from the city center. Providence, less than an hour from Boston, is exquisitely sensitive to this process, and if Amazon goes to Boston, rents in Providence will rise immediately.

As is always the case, the disruptive effect of this increase will be felt most acutely by those least able to pay higher rents—viz., the working poor. And that means Olneyville, where many residents already devote an excessive fraction of their income to shelter. According to a 2016 study by the Center for Housing Policy, over 90% of Providence households making less than $23,805/year are “severely cost burdened,” which means they spend more than half their income every month on housing. According to the Census Bureau, the median annual household income in Olneyville at this time was under $25,000. One in five households in the neighborhood survives on income of less than $10,000 per year. Let’s be blunt: These renters simply cannot afford to pay more, and if rents rise even modestly, a great many of them will be displaced. And if rents rise as much as predicted by Zillow, the neighborhood—at least as it is now—will be destroyed.

I know what some people are thinking: What about all those new jobs created in the service sector? Won’t they raise wages enough to cover the cost of higher rents? Unfortunately, probably not. One of the most important stories of the new economy has been the disappearance of wage growth. After controlling for inflation, wages are only 10% higher in 2017 than they were in 1973, representing an annual real wage growth of below 0.2%. Though economists argue about why wage growth has disappeared, and a number of factors seem to be at play, no one credibly challenges this basic, sobering fact: workers make basically the same wages today as they did 45 years ago.

At the same time, there has been a dramatic shift in the nature of work. As the service sector has eclipsed manufacturing, the United States has seen an increase in what some scholars call “bad jobs.” Workers are more likely to face periods of unemployment, and even when they have jobs, they are less likely to have benefits such as health insurance or child care. And once again, though every sector of the economy has felt this shift from employment security to insecurity, the “bad jobs” are held mostly by the working poor, who predominate in the service sector. So contrary to what we might hope, the shift to a high tech economy has not raised wages, though it has made work far more precarious, especially for the working poor employed in the service sector.

In some cities, community advocates have taken a hard look at all this and concluded that Amazon will cause more harm than good. The crisis in housing is simply too dire to warrant throwing their support behind their city’s bid for the new headquarters. I do not know enough about the local conditions to judge whether they are being wise or foolish.

In Providence, however, I come down differently. Though the risk to Olneyville and low income neighborhoods like it is exceedingly grave, I hope—for the city’s sake—that Amazon goes to Boston. The upside potential is simply too great to pass up. But at the same time, Providence has a profound moral obligation to take concrete steps that will mitigate the risk to places like Olneyville. Providence must make firm, non-negotiable, legally binding commitments to protect and preserve affordable housing in Olneyville, and to make sure that the benefits that will accrue to the city from Amazon’s decision flow equitably to all of her residents. Indeed, planning for this eventuality has to start now, and not wait for Amazon’s decision.

The Amazon shuffle will be transformative. But a city must do more than merely hope the transformation is positive. Hope won’t pay the rent.

Posted in: Other Commentary

Tags: Amazon, Legal