Skyline of Crystal City, Virginia
Labor Market Tightens Down on Amazon
The Wall Street Journal reported this week that Amazon plans to split its second headquarters evenly between two locations. Under the new plan, Amazon would split the workforce with 25,000 employees in each city with the finalists being Crystal City in Virginia, Dallas and New York City. With a labor market that is tighter than ever, Amazon may be losing its monopsony power over tech workers.
A monopsony in the purest sense is a market with only one buyer, and monopsony power is often used to refer to the market power the buyer has over the sellers. In the labor market, employers represent the buyers of labor and the workers are the sellers and while Amazon is clearly not the sole buyer of top tech talent – far from it, Amazon still has considerable monopsony power. That power is the strongest in Seattle, where HQ1 calls home.
In Seattle alone, Amazon employs 45,000 employees – nearly six percent of Seattle’s entire population! If that doesn’t seem like a lot, it should. The Seattle Times found that Amazon occupies a mind-boggling 19 percent of all prime office space in the city and more than 8 million square feet of Class A office space, both figures are the most for any employer in a major U.S. city.
With a labor market at its tightest in decades, Amazon may no longer be able to command the labor force it needs to support HQ2 in only one city. The unemployment rate is near a 49-year low of 3.7% in October and there are a record of 7.14 million open jobs, suggesting a shortage of skilled labor. These are signs of an extremely competitive market for labor.
If Amazon were to choose only one city in a competitive market for labor, it would be forced to pay a higher wage as it shifts the demand curve to the right. On the other hand, in a monopsony market for labor Amazon would be able to depress wages and hire top talent without paying a premium. By building two headquarters, Amazon can hire workers from two distinct geographic regions and pay less to hire top talent.The move to split across two cities provides evidence that Amazon expects a far more competitive labor environment for HQ2.
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SOURCES:
Wall Street Journal: Amazon HQ2 Split