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The Amazon Conundrum

Daniel Gross

Daniel Gross is executive editor of strategy+business.


Amazon is desperate for human labor. An article in the Wall Street Journal noted how the company is short-circuiting and reinventing its training process as it works feverishly to place hosts of seasonal workers in its fulfillment centers.

Being a rapidly growing beast in online commerce presents two challenges. First, Amazon is growing rapidly on a secular basis — the company’s sales are rising at an annual rate of more than 25 percent. So it constantly needs to add new warehouses, and new people to staff them. And while those facilities are highly automated, there is a limit to what robots and machines can do. Amazon already has about 300,000 people staffing its 149 warehouses around the world.

Second, Amazon’s business is highly seasonal. A disproportionate share of the nation’s retail activity — purchases, shipping, returns, exchanges — takes place in the action-packed weeks between Thanksgiving and mid-January. And so, like every other major retailer and logistics company, Amazon has to hire tens of thousands of temporary workers each year. This year, it will add 120,000. And it has to train them and put them to work quickly, lest they lose interest or seek other positions.

As we’ve noted, filling any position is getting increasingly harder for companies. The United States has now had a record 74 straight months of job growth, with 15.4 million payroll jobs added since February 2010. As of October, there were 5.5 million open jobs in the U.S. This is a state of affairs that is good for workers and not so great for companies. Which is why we’re finally seeing some upward pressure on wages.

Amazon is responding with a mix of savvy reinvention and old-fashioned carrots. As the Wall Street Journal described, instead of spending six weeks training new hires in classrooms on the ins and outs of warehouse operations, Amazon is slashing the time to as little as two days, and sends new hires to the floor immediately. It can do so because the company is using technology — algorithms, touch screens, order management systems — to take some of the complexity out of the work.

As for carrots, the company is making the seasonal work more attractive by offering more people the potential to transition to full-time positions. Last year, the Journal reports, about 14 percent of those who signed on for several-week stints became full-time employees, attracted by “perks such as prepaid tuition for warehouse workers who remain on the job for at least a year.”

Paying more, making work more attractive, and offering perks is one tried and tested way of meeting the need for labor when labor markets are tight. Another tack is to design machines, systems, and consumer experiences that reduce or eliminate the need for human labor.

Offering perks is one tried and tested way of meeting the need for labor when labor markets are tight.

Amazon is doing that, too. The New York Times reported in December that Amazon is now experimenting with a retail concept dubbed Amazon Go. It has built an 1,800-square-foot store in one of its office buildings in Seattle that should start operations next year. Open at first only to Amazon employees, it will be stocked with drinks, snacks, and prepared meals. One thing it won’t be filled with is many retail employees. The store will be outfitted with technology — a smartphone app, scanners, sensors — that will enable people essentially to load goods into their bag, then walk out and pay without stopping at a check-out lane.

Amazon thus encapsulates one of the dichotomies of the U.S. economy at this stage of the economic cycle. The demand for labor, which is somewhat expensive and growing more so, is high because economic activity continues to rise. And while technology can in some instances obliterate classes of human jobs (e.g., stenographers), it doesn’t do so across the board. Not by a long shot. Machines are expensive to build, program, and maintain, they can’t come close to performing the full range of human activity, and many customers explicitly prefer to deal with humans rather than machines. All of which is pushing companies to think imaginatively about how to make jobs more appealing, pleasant, and satisfying. And at the same time, companies — sometimes even the same companies — are deploying capital expertise to figure out how to get more work done with fewer humans.

This state of affairs might be dubbed the Amazon conundrum. But it’s also our conundrum. By many measures, the labor market has never been better, with historically low unemployment rates and historically high levels of payroll jobs and job openings. So one service worker might be reasonably optimistic about finding a better position at better wages. And yet anxiety and economic insecurity remains rampant — in part because an increasing number of people rightly fear that their work could one day be done by a machine. And so another service worker might be reasonably pessimistic about the prospect of finding a better position at better wages.

They’re both right.


The Amazon Conundrum