Browsing the blog archives for November, 2018.

Amazon’s Headquarter Decision


I addressed Amazon’s new $15 minimum wage in my last 2 posts. After attributing the wage hike to the firm’s commitment to social responsibility, CEO Jeff Bezos announced plans to lobby Washington to require his competitors to pay $15 as well.

Last week, Amazon announced its plans to build two new headquarters in Long Island and Crystal City (Virginia) after extracting multi-billion-dollar packages from each in direct payments, tax incentives, and other support. Both cities will be “investing” taxpayer funds in exchange for Amazon’s promise of economic development. Unlike Amazon’s new minimum wage, Bezos is not insisting that his rivals receive the same government handouts. It would be equally difficult to claim that the location decision had anything to do with “social responsibility.” Apparently, Amazon passed on Detroit and El Paso.

To be fair, this type of corporate collusion with state and local governments is not illegal. Amazon is not the first company to secure handouts, which come from both Democrats and Republicans. Taiwanese electronics manufacturer Foxconn recently received $4 billion from Wisconsin to build a new plant there. Outgoing Republican Governor Scott Walker spearheaded the deal.

But make no mistake, this is pure cronyism. When politicians make these deals, they curry favor with some voters at the expense of all taxpayers. In the instance of Amazon, local and state governments transferred tax revenues actually levied on some of Amazon’s competitors to lure the company to the region. Politicians claim that the benefits from economic development spurred by companies like Amazon will justify the “investments.” This could be true in some instances, but governments at all levels have a dismal record in the investment arena and shouldn’t be involved in such activity anyway. Politicians are famous for underestimating costs and overstating benefits of government outlays; just look at the national debt if this isn’t obvious.

Amazon’s toadies cheered when the company raised its wages for competitive reasons, while the company claimed virtue points and insisted that others follow suit. Perhaps they can justify the billions Amazon will get from taxpayers to locate facilities in two of the wealthiest cities in the US.


Amazon’s New Minimum Wage- Part II


Amazon’s minimum wage is now $15 per hour. CEO Jeff Bezos says the change is all about “doing the right thing,” but he also wants government to mandate the company’s new minimum wage to his competitors. I questioned his motives in my last post, but a colleague vehemently disagreed. She insisted that “companies need to be responsive to social change and their stated intentions should be taken at face value.” I don’t think she is seeing the big picture.

Earlier this year, the Seattle city council unanimously passed a measure requiring companies with revenues in excess of $20 million to pay an annual $275 tax per employee to fund “affordable housing” efforts. Amazon (and other large companies) vigorously opposed the tax and the council rescinded it the following month. Supporters assumed that companies like Amazon would simply comply, lest they be scorned for condoning homelessness. They were wrong, and Amazon was justified in its response. Bezos later tweeted a $2 billion pledge to fight homelessness by supporting efforts by nonprofits, not the city’s tax scheme.

At first glance, it appears contradictory that Bezos did not trust Seattle’s local government’s ability to use tax funds properly to address the homeless problem, but does trust government to fight poverty by mandating a higher minimum wage. Indeed, Bezos is correct not to oppose Seattle’s money grab to subsidize housing. Private sector efforts are much more effective at combatting the problem. If you need evidence, consider the longstanding rent control debacle in New York.

I’m not convinced Bezos really thinks that really thinks a higher (government-mandated) minimum wage will improve conditions for those in poverty. Most minimum wage workers aren’t the primary breadwinners in their families anyway, and requiring employers to pay above-market wages encourages them to hire fewer workers. But Bezos has two reasons to campaign for a higher (government) minimum wage. It’s a virtue signal that Amazon “really cares” about the poor, and it would also create a burden to current and potential competitors by requiring them to match Amazon’s pay level.

The same media pundits who criticize “big oil” for “deceiving” the public about climate change seem willing to accept Amazon’s support for an increase in the federal minimum wage without questioning the motives. They should apply a simple standard. Amazon and other firms should be permitted to set wages and make other strategic decisions without government interference, but they should be criticized when they lobby for government intervention that restricts competitors from doing the same.