Your Tax Dollars Subsidize Amazon. Are the Jobs Worth It?

I really I think Amazon coming to down is a good thing. I think the city made the right column. As you just heard, the company in question is Amazon, the world's biggest online retailer. In Amazon opened a giant warehouse in Shakopee. It hired a thousand people to work there in this town of about forty people. But whether Amazon's arrival has been a good thing for Shakopee has has divided the town. I think overall, to benefit you have to invest money to make money, and overall, in

the long period that Shackoby will be much better. That's Duane worm Restriction, who owns a jewelry shop in town and What he's referring to there is that Shackoby give Amazon something in return, about three million dollars in tax breaks over nine years. That's what some people don't agree with, like Matt Layman, who owns a local auto repair shop. He's also a Shackopee City councilman. Here he is talking about Amazon CEO Jeff Bezos. This guy's hobby is to

put spaceships in the outer space. Okay, he just bought out seven million dollar housing in Washington, d c. Um, what kind of financial assistance is it that you need? The DC mansion was actually twenty three million dollars. But you get the point. Right now. There's a debate raging across the country over how to create more American jobs. President Trump says this is one of his top priorities.

It seems like every day he's congratulating or taking credit for a company that announces plans to employ more U S workers. Amazon was among the companies that announced new staffing plans just before Trump was sworn into office. The company said it would hire one hundred thousand people over the next eighteen months. And for the cities competing to win these new jobs from Amazon and other big corporations, they're going to need to deal up quite a bit

and tax breaks and other kinds of subsidies. These are the kinds of subsidies that are dividing Shackoby at this very moment. Hi, I'm Akio and I'm Spencer Soper, and this weekend Decrypted, We're going to be asking some tough questions about the jobs Amazon is creating in return for these big incentives. One report estimated that these tax breaks could be more than a quarter of a billion dollars.

That's a lot of money that could have gone into repairing roads and building schools, then instead, put it one way, ended up subsidizing the growth of what was already one of the world's largest companies. We'll also look at the impact Amazon's new warehouse has had so far in Shacopy to get a sense of whether these subsidies have had positive ripple effects across this Minnesota suburb. Yeah, whether the subsidies have been or ultimately will end up being worth

that investment. You'll be hearing from the residents I met in Shakope, as well as people living in San Marcos, Texas, which is another city with a new Amazon warehouse. That's me in the shack of Pee car repair shop owned by Matt Lahman. On top of running his business, Matt has served on the Shakopee City Council since two thousand and two. He took a break to puff a few Marlboroughs and chat with me about the new Amazon warehouse. He's wearing a baseball cap, beard and glasses. Various cities.

I suppose we're negotiating with Amazon on sweetheart deals to try to convince them which city to go to. Apparently we gave m a sweetheart deal that they can't refused. Matt voted against offering incentives to Amazon. The wages that they pay you basically have incentivized below livabola jobs. Well, I started out to be ten twelve bucks an hour. I see now that they're slowly moving their wages up

because they can't get no help. Um, which I guess it's a good thing, but but even at that, they're not livable way just to where somebody working there can't afford to actually buy a house make the payments. Local governments use the tax revenue that they collect from residents and companies to pay for things like schools and libraries.

Parks and emergency services. They also have agencies whose job it is to talk to companies and convince them to set up their operations in your town, to create jobs in your area. And the most shall we say, persuasive tool they have is to offer tax breaks. But here's the tricky part. Let's say Amazon wants a new warehouse somewhere close to Minneapolis, where the company has a lot of customers and it needs another facility to keep up with rising demand. The question becomes where to build it.

Unlike Matt Lane men the councilman we just heard from, there are a lot of people who really want Amazon to pick their town. So a community like Shakope ends up having to fight, sometimes against neighboring towns for Amazon's business in a really competitive situation. It basically turns into an auction where cities fight each other to give Amazon the most lucrative packages they can muster. And it's Amazon and all these other big companies that end up benefiting

from these bidding wars. All of this is based on the idea that the city's investment will pay off over time from the boost a new company will give to the local economy. And if that isn't what ends up happening. It can be hard to justify the deal. Now you think that some of the people who would be the most strongly opposed to having Amazon in town would be people running local business. Is this classic narrative of these

multinational corporations killing mainstream merchants. Interestingly, I met a few business owners in Shakopee who do think the gamblon Amazon is working. Like Dwayne we heard from earlier, he's had a jewelry shop downtown for the last thirty five years. But I think what I've noticed in the last even with Amazon coming in, I think that you know, most people are working, and uh, you know, there's a lot

of jobs out there that can be more selective. So I think that's kind of helped the pool a little bit. Around the corner from the jewelry shop is Bill's Toggery, immen's clothing store. It's been there for eighty years. I stopped buying a Tuesday morning. The place was bustling. People were buying dress shirts, browsing for work boots, picking up

clothes from the tailor. And the best part is what they did develop and the tax break they didn't give them to develop that area, created a few more flats for other businesses that have our be built up. So that's another local businessman feeling upbeat about Amazon. So just their business alone has allowed it for I think at least three other businesses to come in around them. A ripple effect, yes, and which is a good thing for our time. This is what economists called the multiplier effect.

There's actually been a lot of research done on the impact of new jobs that come to a city, and it's this research that convinces local officials to deal out tax breaks to attract new businesses in the first place. It goes like this, Even if Shakopee isn't making its investment back directly from the workers Amazon is hired, the building of the warehouse has stimulated other economic activity nearby. And Shacopy isn't the only town that has seen this happen.

Take San Marcos in Texas. Last year, Amazon opened a warehouse there. It's spent a hundred and ninety one million dollars on construction and equipment and side, and it hired three thousand people. In exchange. San Marcos promised Amazon twenty one million dollars in tax breaks over fifteen years but Sam Marcos says Amazon's warehouse was just the first step in a bigger economic development plan. If you look for it on a map, San Marcos is about halfway between

Austin and San Antonio. That's three point five million people nearby. It wants to position itself as a shipping hub for companies selling goods to all the people in those cities. Besides the impact, of course of jobs and investment, you know, having that brand name, having uh, you know a company say, well, it's been vetted by Amazon, it's certainly worth looking into for our operation. Um that that's a huge win for us. That's Adriana Cruz, who heads the Greater San Marcos Partnership,

an economic development agency serving the region. She also it's something interesting about the kinds of jobs Amazon was bringing to San Marcos. Earlier in the show, we heard Matt Lehman and Shakopee say that Amazon's jobs didn't pay a whole lot, but Adriana said that in San Marcos were retail and service jobs are the biggest industries. There is a bonus for the people Amazon hires. The benefits begin day one that includes medical for a one K career

choice tuish and reimbursement benefits. That's something you can't really count on in the retail business. A lot of people work part time or their job doesn't come with healthcare in sick days. For our community and for the community surrounding us, we felt it was it was a good, you know, way to diversify our industrial sector, you know, and enter the e commerce and logistics area. All of that's evaluated as we take this before our our council.

You know, we thought this is going to be for you know, a segment of our population and employer of choice. So this brings us to our next question, what kind of jobs is Amazon offering? The main criticism here is that Amazon pays about twelve dollars an hour for warehouse jobs. Yeah, these are jobs like walking around a huge warehouse to gather things that Amazon customers have ordered, packing them in boxes,

and stilling all of the new incoming inventory. The pay and Benny's make it a step up from flipping burgers for minimum wage, but it's still about half the median hourly pay for those working in car manufacturing. High paying manufacturing jobs are the big jackpot for economic development agencies.

That means factory workers have a lot more money to drop in the local economy, whether it's the restaurants and bars you're frequent at the end of a shift, or the local doctor you go see when you catch the flu. But when you get paid a lot less as an Amazon warehouse worker, you also have a lot less money to spend. And because of that, attracting low wage jobs doesn't help your economy the same way attracting higher paid

work does. Amazon should not be subsidized at all. Taxpayer should stand back on what the dynamics of the market in retailing play out. That's Greg Leroy, and he says you can't even compare the jobs Amazon with the manufacturing job. Although to be fair, it's not like Shakoby had the choice of whether to invite a factory or an Amazon warehouse.

Right factory jobs are disappearing across the country. Greg would even argue Amazon isn't really creating jobs at all, it's just shifting them over from department stores and big box retailers like Walmart. The broader issue here is there's a market change going on driven by a business model. Amazon's very aggressive market share business model in which it is

growing at the expense of other retailers. You know. The headlines are full of closures by the Limited and Sears and Kmart and Macy's and lots of regional and local chains as well. Greg is the executive director at Good Jobs First. It's a watchdog group that tracks the results of so called job creation deals like the ones Amazon is negotiating. If Macy's and Sears and km Ard are going to shrink and Amazon is going to grow, that's the market. It's not like there's some poverty alleviation mission

going on here. The group put out a report last year that said Amazon received more than a quarter billion dollars in tax breaks to fuel its warehouse expansion over a two year period. They say Amazon shouldn't get tax breaks because it has to build these facilities anyway, and his little choice somewhere they should go. You and I do not have more money with which to shop. This is not net growth in retailing. It's churn in retailing

between different companies and different business models. We have Macy's and Sears and Kmart getting displaced by Amazon. Again. It's all retailing, and it's all about shopping. It's just a different way to shop. But it's the same amount of buying power available with which to shop. Of course, the counterpoint to all of this is the people who actually take the jobs at Amazon brings to towns like Shakopee and sam Marcos. Spencer, you talked to one of these workers. Yeah,

his name was Derek Peters, and he's a veteran. He served more than four years in the army, including more than a year in Iraq. I come from a military family. My grandfather was in the army. My father was in the army, and I had a brother who had joined West Point and I had to deploy to Iraq, and so I was able to, you know, see from his letters and emails home, the experiences that he was having.

I was able to see, you know, what he was doing for our country and also what he was doing for him as an individual and a leader, and so so compelled to join the army. San Marcos has a lot of veterans in its workforce because it's just a couple of hours away from forth Hood, which is one of the largest military bases in the world, and last year, Amazon committed to hiring twenty five thousand veterans and their

spouses over the next five years. Derek started working with Amazon as an intern while he was completing a master's in business administration. He said, it was tough finding work after the recession of two thousand eight, and so one of the things I hadn't anticipated was how hard it was going to be because of the recent recession to

find an opportunity available. And I probably applied UH to fifteen different companies, probably was interviewed by ten and what I kept hearing from recruiters was, Hey, we like you, but we can't take a chance on your background because you're making a career switch, right and they say, But

then he got a call from Amazon. I ended up getting a project that I worked on around conveyance and material handling UH and I didn't have a background in this, and so I was really kind of surprised that they would they would let me do this. I was able to successfully complete the project, but really just fell in love with with the company, with how they let me come in and and add value in any way I could, how they valued my military background. Today, Derek is an

assistant manager at the warehouse in San Marcos. He was part of the team that helped open the facility last year, so there's no question that Amazon is employing lots of people, even if at least some of those jobs with Amazon might be merely replacing positions that existed at other retailers.

And hearing from Derek and hearing from the local businesses and Shakope, it sounds like Amazon's presence has been a pretty good thing zooming out from these two towns, though, and looking at this whole practice, the cities and states trying to outbid each other with bigger and bigger subsidies, it makes you wonder if it's a good thing for

the country over time. Because for America as a whole, it doesn't matter if this new warehouse goes to this or that suburb of Minneapolis, as long as it's within the United States. But there's still competition between cities and states within the US, which enables companies to pit them against each other. It's similar to professional sports teams playing cities against one another for the nicest stadium in the

best terms. And this is not just Amazon, it's basically every company that can afford to make these flexible decisions about where to build new operations. Because of this, American taxpayers end up poor. It's essentially transferring all this money that could have been spent on schools and public parks or just funded tax breaks for US actual individual residents, and enriching these companies, many of which are already doing

quite well. Like Amazon. It's one of the biggest success stories of our generation, and that success has made CEO Jeff Bezos an incredibly rich man. He's the third wealthiest man in the world, behind Bill Gates and Warren Buffett, with the net worth exceeding seventy billion dollars. It's also made a lot of money for Amazon shareholders. Here's Greg Leroy again, there absolutely is an issue here of the sort of corporate rich getting richer or the corporate one

percent getting richer. We looked carefully, for example, at fourteen states with programs that were theoretically open to companies of every size, but we found that seventy of the deals and of the money was going to big you know,

usually multi state multinational companies. Even though these programs are theoretically open to small and local entrepreneurs, In reality, the vast majority of money is going to companies that have the most aggressive business strategies, and the and the tax consultants and the lawyers and the site location consultants to

help them get those tax breaks. From the taxpayer's perspective, it'd be a whole lot cheaper if every city and state in America just suddenly agreed to stop offering these incentives and Amazon just randomly picked a new location out of a hat. At this stage, you may be wondering what's Amazon's position and all of this. We did ask, but the company decided not to comment. Number One, it makes no sense to me to subsidize a business whose CEO is one of the richest people in the country.

That's Matt Lehman again from the shack Apee City Council. Remember Matt voted against the Amazon deal for his town, but it went through anyway. Since then, a new mayor has been elected and the town has adopted a new nineteen dollar an hour minimum wage for companies looking for similar tax breaks for job creation deals. Now are two. It makes no sense to me to subsidize a business whose workers will require additional taxpayer funded subsidies. How does

that help the taxpayer? Okay, it doesn't. This is an important point. These additional taxpayer subsidies. Amazon's wages are low enough that parents of one or two children working at Amazon could be eligible for things like food stamps and housing subsidies. These benefits are calculated based on household income and number of people in the household, so young families would be likely to qualify. That's been a big part of the minimum wage debate that if wages are so

low workers can't support themselves. Taxpayers supporting food stamps and housing assistance are essentially subsidizing the companies that benefit from this low wage labor. They don't want to see me take their hard earned money subsidize a business and then turn around and come back to them again and say, gee, because I subsidized as low paying business, I need more of your money to subsidize these workers houses, daycare, transportation, and social needs. Um. That's crazy, but even low paying

jobs are better than no jobs at all. Right, There's another scarier scenario looming ahead of us, which is automation. Amazon already has forty robots deployed in warehouses around the world, including in Shackopine, and it's experimenting with a Seattle convenience store that doesn't have cash registers or cashiers. You know, but I don't think I'm buying this job killing narrative just yet. Yeah, Amazon defies that by deploying robots and

hiring tens of thousands of people simultaneously. And these tax breaks usually have strings attached to make sure Amazon is honoring its hiring commitments. If it fails to maintain the jobs promised, it loses the tax break. Suspenser give us the final take for every economic development official listening to

this show. Are Amazon's jobs worth a tax break? It's an interesting question that will keep playing out with Amazon and other companies, and the willingness of cities and states to doll outbreaks varies depending on the health of the economy. As the labor market titans, they can afford to be more finicky, and Amazon might encounter tougher wage requirements like the ones that were just adopted in Shakopee. We'll leave you with these parting thoughts from Matt. My job is

not too help just one company. My job is to help the taxpayers out large, my constituents. My constituents would like to keep the money they earned. They don't want to give it to billionaires. And that's it for this week's episode of Decrypted. Thanks for listening. Tell us what you thought of the show, Record us a voice memo and send it to us at Decrypted at Bloomberg dot net, or you can write to me on Twitter I'm at

Spencer Soaper and I'm at Akiso seven. You can subscribe to Decrypted on iTunes or wherever you get your podcasts and leave us a rating in a review. This helps us make our show better and it also gets our podcast in front of more listeners. And this month we're participating in a fun project on Twitter where we're recommending everyone our favorite podcasts with the hashtag tripod as in try a podcast. My favorite show aside from Decrypted is a Gimlet media show called Startup and I Like a Choir.

It's a podcast put out by Madrona, a venture capital firm in Seattle. This episode was produced by Pierre Getkari Magnus Hendrickson, and Liz Smith. Emily Busso edited the print story running with this article, which you can read on Bloomberg dot com slash Technology. Alec McCabe is head of Bloomberg Podcasts and a special thanks to our reporter Shelley Hagen, who helped with research for today's show. We'll see you next week,