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The Grim Externalities of Amazon.com

In the midst of national debates over raising the minimum wage, the New York Times recently published a blistering account of the working conditions at Amazon, the most valuable retail company in the world.

The mainstream arguments over the minimum wage essentially boil down to two directly opposing ideas.  On one hand, conservatives contend that labor markets are already basically efficient, so raising the minimum wage will destroy jobs by artificially setting wages higher than employers will be willing to pay.  On the other hand, liberals argue that many employers wield enough power over employees to act like monopolists, so raising the minimum wage will beneficially transfer wealth from big corporations to low-income individuals.

Enter Amazon, whose labor practices suggest a disturbing third alternative.  In 2011, a local Pennsylvania newspaperreported that temporary employees in an Amazon warehouse had been passing out under the strain of mandatory overtime hours spent in temperatures sometimes exceeding 100 degrees.  Now comes the Times story, detailing conditions that even Wall Street veterans characterized as “extreme”: sleepless nights, mandatory termination quotas, and discrimination against cancer victims, new parents, and even one woman with a recently stillborn child.

The third alternative to the prevailing minimum-wage arguments is that employers not only wield power over workers, but that they often possess even more power than they currently exercise.  Berkeley professor Melvin Eisenberg points out that most corporations are restrained to some degree by social and moral norms.  This observance of common decency would create an opportunity for a hardcore libertarian unconcerned with such niceties, one who would view such behavior as an exploitable opportunity.  Amazon founder Jeff Bezos (who reportedly wanted to name his start-up “relentless.com”, a URL that still redirects to www.amazon.com) fits the bill.

Traditional social and moral norms would not permit a manager to allow, let alone encourage, a woman who miscarried twins to leave home for a business trip the day after her surgery.  But Amazon is not most companies.  Traditional social and moral norms would not permit a boss to call an employee “a problem” because she had cut back on working nights and weekends to care for her cancer-stricken father.  Clearly, Amazon is not inclined to observe traditional social and moral norms.

Of course, working in Amazon’s offices does not come without any benefits.  Salaries are competitive, and some employees point to the exhilaration that comes with being at the center of supply-chain innovation, a “futuristic and magical” feeling.  Others celebrate a culture of opportunity, where even junior employees can see their ideas come to fruition.

That said, the real victims of Amazon’s disregard for common social norms may not be the employees themselves, who at least stand a chance of enjoying those benefits.  Where the costs or harms stemming from a transaction are imposed on third parties, economists agree that a “market failure” occurs.

Many of the costs created when a company chooses to fully exercise its power over employees are borne by third parties.  Destroying work-life balance harms more than just the one doing the work.  It harms those who share the life.  The fiancée who drove daily to an Amazon campus at 10 p.m. and begged his partner to come home.  The family of the woman whose child was stillborn.

By imposing these costs on third parties, Amazon creates (and profits from) a market failure, in much the same way as a factory dumping toxic chemicals into a nearby river.  Yet there is today precious little preventing other companies from following in Bezos’ path.

In Amazon’s conduct, one can witness the full extent of the power some employers have at their disposal, and what it looks like when that power is used.  Laws like the minimum wage protect not only employees themselves, but also their families, friends, and local communities.

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John Newman is assistant professor of law at the University of Memphis’s Humphreys  School of Law. 

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