I’ve been writing a lot about ecommerce lately. I would be remiss if I did not address the Amazon offer to buy Whole Foods. I have two thoughts.

First, I’m not an antitrust economist. But it strikes me that under ordinary antitrust logic, Amazon’s purchase of Whole Foods would ring no alarm bells. Despite the name recognition of Whole Foods, the company’s $16 billion in sales last year pales next to Kroger’s $115 billion in sales or Albertson’s roughly $60 billion in sales. If anything, the purchase increases competition in the grocery business.

Second, what is Amazon likely to do with Whole Foods? I’m not privy to Amazon’s strategic thinking, of course. But the main point of ecommerce, when done right, is to reduce the time consumers spend shopping—the drive to the store, the search for parking, the endless trudging through the aisles. In turn, ecommerce companies have been shifting those unpaid hours of household labor into the market sector, creating decent-paid jobs in fulfillment centers and electronic shopping operations.

By my calculations, the shift to ecommerce over the past nine years has saved American households roughly 64 million hours per week in reduced shopping time, or the equivalent of 1.6 million full-time jobs. (yes, that million is right…calculations below).

Some of those hours of unpaid household labor were shifted to the market sector. Over the same period, the number of ecommerce jobs rose by almost 400,000, as fulfillment center workers and drivers took over the tasks that consumers used to do. Brick-and-mortar jobs dropped by 76,000, so that was a net plus for job creation.

If these trends continue, Amazon and other ecommerce companies will try to make shopping for meals easier and less time-consuming for American households, and generate more paid jobs in the process.

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Calculations

According to the American Time Use Survey from the Bureau of Labor Statistics, in 2015-2016 Americans spent .645 hours per day on average shopping for consumer goods or traveling to shopping, or 4.5 hours per week. Since there are 260 million Americans aged 15 and over, that means Americans spend approximately 1.2 billion hours a week shopping for consumer goods or traveling to shopping (that’s the equivalent of 30 million full-time jobs).

By comparison, in 2006-2007 Americans spent 4.75 hours per week shopping for consumer goods or traveling to shopping, or 0.25 more. That extra quarter hour corresponds to 64 million extra hours per week (260 million x .25). So because of the increase in ecommerce over the past 9 years, American households save 64 million hours per week, or the equivalent of 1.6 million full-time jobs.

Note: I get an almost identical result based on the magnitude of the decline in  brick-and-mortar’s share of retail sales.

 

Michael Mandel, chief economic strategist at the Progressive Policy Institute, joined Alphachat to talk about his report, “The Coming Productivity Boom”, co-authored by Bret Swanson of Entropy Economics.

Mandel argues that the decades-long productivity stagnation will end once companies in the “physical” industries — transportation, construction, manufacturing, healthcare, wholesale and retail trade — start investing in information technology the way that companies in the digital industries have.

From the summary of their paper:

The digital industries, which account for around 25% of U.S. private-sector employment and 30% of private-sector GDP, make 70% of all private-sector investments in information technology. The physical industries, which are 75% of private-sector employment and 70% of private-sector GDP, make just 30% of the investments in information technology.…

Information technologies make existing processes more efficient. More importantly, however, creative deployment of IT empowers entirely new business models and processes, new products, services, and platforms. It promotes more competitive differentiation. The digital industries have embraced and benefited from scalable platforms, such as the Web and the smartphone, which sparked additional entrepreneurial explosions of variety and experimentation. The physical industries, by and large, have not. They have deployed comparatively little IT, and where they have done so, it has been focused on efficiency, not innovation and new scalable platforms. That’s about to change.

Mandel tells me why he believes that productivity pessimists such as Robert Gordon are wrong to extrapolate from current trends, why he isn’t worried by the increasing market concentration in the leading companies in many economic sectors, and how public policy can play a role in facilitating this forthcoming productivity boom. And in a speed round, we also discuss the specific ways in which physical industries can be transformed by more IT investment, plus which technologies hold the most promise.

For the full interview, listen here at Financial Times. 

On June 7,  Axios  journalist Chris Matthews wrote a piece “Big Companies, Fewer Workers”  that said:

The five most valuable companies in the U.S. are all technology firms that employ far fewer workers than their industrial predecessors.

He echoes a common complaint. But is it really true?

I decided to  compare employment at today’s most valuable  tech/telecom companies with employment at the most valuable industrial giants of the past.  My point of reference is 1979, the all-time peak year for manufacturing employment in the United States. At the end of 1979, these were the top 10 industrial companies (ordered by market cap), and their total employment.

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Table 1: Top 10 Most Valuable US Industrial Companies, 1979*
	Jobs(thousands)
IBM	337
General Motors	853
General Electric	405
Eastman Kodak	126
DuPont	134
3M	88
Dow Chemical	56
Merck	31
Xerox	116
Johnson & Johnson	72
Total	2218
Data: Siblis Research , corporate annual reports, Progressive Policy Institute

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So as of 1979, the ten most valuable U.S. industrial companies had a total employment of 2.2 million.*

By comparison, I took today’s most valuable tech/telecom companies, ordered by market cap as of June 10. Here’s the list, plus their total employment.

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Table 2: Top 10 Most Valuable US Tech/Telecom Companies, 6/10/2017
	jobs(thousands)
Apple	116
Alphabet	72
Microsoft	114
Amazon.com	341
Facebook	17
AT&T	268
Verizon	161
Comcast	159
Oracle	136
Intel	106
Total	1490
Data: Annual reports, PPI

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So the ten most valuable US tech/telecom companies today employ 1.5 million workers, roughly two-thirds as many as the 2.2 million employed by the ten most valuable US industrial companies in 1979.

However, a look at the two lists shows something interesting:  Take General Motors out of the 1979 list, and the size distribution in 1979 doesn’t look that much different than the size distribution in 2017.   Industrial leaders such as Kodak, Dupont and Xerox employed between 100K and 150K workers in 1979, roughly the same workforce as Apple, Microsoft, Verizon, Comcast, Oracle, and Intel today. GE and IBM in 1979 employed roughly the same number of workers as Amazon today. And Merck in 1979 wasn’t that much larger than Facebook today.

Conclusion: In terms of employment, the major difference between the industrial giants of 1979 and the tech/telecom giants of 2017 is one superstar company, General Motors, whose 1979 workforce dwarfed any other company on either the 1979 or the 2017 list.

 

To be continued…

 

*My definition of ‘industrial’ includes non-energy manufacturing companies. The 1979 list should include Procter and Gamble, but I could not locate their employment data in their annual report.  There’s no reason to think that substituting P&G for J&J would make a significant difference in the list. Ford Motor’s stock price underwent a steep plunge in 1979 that took it out of the top 10 industrial companies by market cap.

 

 

 

 

 

This post updates our March 2017 paper on ecommerce jobs, based on the latest data from the Bureau of Labor Statistics  (we also call this sector “advanced distribution”) . Here’s what we find:

1. Since the last business cycle peak, December 2007, the number of ecommerce jobs is up by 397,000. These gains are being driven mainly by the growth of fulfillment centers in states such as Kentucky, Tennessee, Indiana, and Pennsylvania.
2. Since December 2007, the number of brick-and-mortar retail jobs, as reported by the BLS,  is up 186,000. However, that’s a deceptive gain, because hours worked has fallen. In fact, the number of full-time equivalent jobs in brick-and-mortar retail has fallen by 76,000 since December 2007.
3. That means the gains in ecommerce jobs far exceeds the loss in full-time equivalent  jobs in brick-and-mortar retail.
4. At an annual rate, wage and salary payments to ecommerce workers are up by $19 billion since December 2007, measured in 2016 dollars. Wage and salary payments to brick-and-mortar retail workers are up almost $4 billion, in 2016 dollars, over the same stretch.
5. In an upcoming piece, we do a detailed analysis of the wage difference on a local level between ecommerce (advanced distribution) and retail. Our conclusions–that ecommerce pays significantly more than bricks-and-mortar retail–remains the same.

 

One of the bright spots for the Illinois labor market in recent years has been the App Economy. By the estimate in our just-released report, Illinois had 72,000 App Economy jobs as of December 2016, ranked number 6 in the country, just behind Massachusetts.  These jobs have all been created since 2007, when Apple introduced the first iPhone. To put this in perspective, total private sector employment in Illinois has risen by only 54,000 jobs since 2007, suggesting that the App Economy may be at least partly responsible for the net gain in jobs.

As I have written in a recent op-ed, we may have finally reached the “tipping point” in the ability of the Internet to generate jobs. Not just App Economy jobs, but ecommerce and fulfillment center jobs that help mid-skilled workers. Indeed, we see that

…. advanced distribution–the ability to ensure an order-delivery lag of one day or less–represents a genuinely new advance that has the potential to generate spin-offs of its own.  For example, custom manufacturing  may become a viable business model if a customer can order a made-to-order shirt or chair and get it in one day.  That would require the custom manufacturers to be located near the fulfillment centers, giving them a durable competitive advantage that overseas rivals would not be able to match.

In that way advanced distribution could become an essential complement to advanced manufacturing,  potentially exacting a significant time penalty for offshoring.   Rather building distribution centers around factories, we’ll start building advanced manufacturing or custom manufacturing hubs around fulfillment centers.

However, these potential gains in advanced distribution and advanced manufacturing could be hindered by state-level digital privacy bills that Illinois and other states are considering. These pieces of legislation could fragment the Internet, and would make online browsing and transactions much more complicated.  Jobs would become harder to create, not easier.

Privacy is important for all of us.  We believe in a consistent, national framework for online privacy, administered at the federal level. The logical agency is the Federal Trade Commission (FTC), which has an excellent record of reacting to privacy concerns. But state-level laws are not the way to to go.