Local governments across the country have competed for two decades to bring Amazon fulfillment centers to their jurisdictions under the promise these facilities will create an ecosystem of new, good-paying jobs, lift the local economy and grow tax revenue.
To lure the tech giant, municipal and state authorities offer a variety of generous tax breaks.
Amazon scored a $124 million tax break to build a Niagara County warehouse, for instance, which it’s slated to break ground on this summer.
All told, communities have promised Amazon more than $5 billion in special tax breaks and subsidies since 2000, per the watchdog group Good Jobs First.
The question is: Are these deals worth it?
Hardly.
A study I authored with University of Wisconsin-Whitewater economist Matt Winden finds that Amazon’s new fulfillment centers have created relatively few additional local jobs compared with communities that did not get a new Amazon facility — and at a very high cost to taxpayers.
We find that each $1 million subsidy to Amazon created about 23 jobs, which is just 12% of the jobs Amazon and its proponents claimed to create.
Governments spent an average of $44,000 for each new job, which is about 40% greater than the average wage of the warehouse jobs created of $32,000.
Local taxpayers are effectively paying all the wages of Amazon workers in the first year (and more) with relatively little to show for it.
Communities are unlikely to recoup the cost of these subsidies because the low-paid jobs Amazon creates in fulfillment centers pay little in state and local income taxes, and the sales taxes their spending generates will be a fraction of the cost of creating the job.
Because pro-tax-subsidy cheerleaders tout exponential local job growth beyond Amazon, our study looked at the number of new jobs created in the markets where Amazon located a facility and estimated the relationship between the job growth in that community and the amount of the subsidy to the online retail giant.
Amazon tends to locate in areas where there is already robust job growth.
That makes sense: Amazon’s fulfillment centers are large investments, and the company wants to locate them close to growing communities.
But that means the company often finds itself hiring in a tight labor market.
So its employees are not coming from the ranks of the unemployed but are being poached from other businesses, which may explain why we found little job growth in these markets compared with non-Amazon localities.
Our findings are not all that surprising: A plethora of research has found that tax breaks or other subsidies given to favored businesses to attract — or keep — jobs in a community usually produce fewer jobs than advertised.
Amazon is far from the only beneficiary of these incentives, as local governments have granted thousands of subsidy packages to employers over the past decade — but no company has pursued such tax breaks more successfully than Amazon.
Rather than target a specific company with tax breaks, it is invariably more effective for a government to foster a competitive business environment that keeps taxes low and ensures that regulations are not too burdensome.
Another effective strategy is for a community to make itself more attractive for people to live there.
The biggest employer of skilled workers in Madison, Wis., for instance, the health-care IT concern Epic Systems, located in the city because its founder wanted to live there, and it’s easy to sell University of Wisconsin graduates — and lots of other talented people — on the idea of living in the bucolic community.
The clear lesson for communities is that subsidies to lure new businesses and jobs rarely pay off.
As local officials continue to metaphorically wine and dine companies considering their communities, they would be wise to do their due diligence first.
Ike Brannon, a senior fellow at the Jack Kemp Foundation, has served as a senior economist for Congress, the US Treasury and the Office of Management and Budget.
