The Daily - Amazon and the Labor Shortage

Episode Date: December 1, 2021

Amazon is constantly hiring. Data has shown that the company has had a turnover rate of about 150 percent a year.For the founder, Jeff Bezos, worker retention was not important, and the company built systems that didn’t require skilled workers or extensive training — it could hire and lose people all of the time.Amazon has been able to replenish its work force, but the pandemic has exposed the vulnerabilities of this approach.We explore what the labor shortage has meant for Amazon and the people who work there. Guest: Karen Weise, a technology correspondent, based in Seattle for The New York Times.Sign up here to get The Daily in your inbox each morning. And for an exclusive look at how the biggest stories on our show come together, subscribe to our newsletter. Background reading: Each year, hundreds of thousands of workers churn through Amazon’s vast mechanism that hires, monitors, disciplines and fires. Amid the pandemic, the already strained system lurched.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Sabrina Tavernisi. This is The Daily. Today. Holiday shopping is going on right now, even as we speak. As the holiday season begins. Holiday sales could top $850 billion this year. Amazon, one of the country's largest retailers, is setting new records for sales. But it is also bumping up against a labor shortage. Fewer employees on the floor at most stores.

Already impacting what's in stores and online. That is challenging the very premise of its business model. My colleague, Karen Wise, on what this moment means for Amazon and the people who work there. It's Wednesday, December 1st. So Karen, you report on Amazon for The Times. And I wanted to ask you something I've been wondering about lately, which is, we know that there's been this big national labor shortage. And we also know that there's this this big national labor shortage. And we also know that there's this

supply chain problem. But when I went on Amazon recently to buy something, in this case, it was a dog Frisbee, I'll be honest. I was kind of surprised that that Frisbee showed up at my door so fast. My dog, Clementine, did not need it urgently. Yet there it was the next day on my doorstep. So I'm wondering, why does it seem like Amazon is not affected by what feels like this major disruption in our economy? Yeah, I mean, they were essentially built for this. This is what Amazon does. And they have the technology and the infrastructure and the warehouses and the people in place all around the country to get that dog Frisbee to you faster than you think you even need it. But also, they basically have this commitment to get it to you fast, doing whatever it takes.

That is what has made Amazon so successful. And they can spend and spend to do that in a way that other companies really haven't been able to do. And I saw a stat the other day that said this holiday season, almost 90% of American households are going to buy something on Amazon. Wow, that's incredible. Yes. And what's all the more amazing is that they do this as they are losing employees every week. They have incredible churn. And before the pandemic, it was about twice the level of their competitors. And they're constantly having to replace people and constantly training new people. Last week, they onboarded 45,000 employees in one week. But why do they have so much churn? Why are they having to hire so many people all the time? What's happening?

Part of it is that they're just growing. They're expanding. They're opening up new warehouses around the country. And it's also the holiday season, and they staff up to meet seasonal demand. But also, this idea of high employee turnover has been baked into how Amazon has operated for years. It actually goes back to this kind of system architected by Jeff Bezos a long time ago. Jeff Bezos, a long time ago. He thought people became less engaged and less excited and were less likely to propose new ideas and innovate if they were there for too long. And so he really architected an approach to their hourly workforce that was focused on keeping people for about, you know, two years or less, that they actually pay people to leave. That they have career training for other professions to go be a health aide or whatnot.

And this was his idea that the magic of Amazon was this like highly motivated workforce and that that drained out over time. So it sounds like Bezos is saying, we're not going to bother to keep people engaged beyond that kind of natural timeline of about two years and instead just embrace the idea that workers lose interest after that time.

Yes, and that maybe this is this really rewarding, satisfying two years, and it helps you prepare yourself to do something else somewhere else, essentially. So what does that model actually mean in practice? I mean, what does it look like in real life? Yeah, Amazon basically has created this kind of machine to hire people and to manage people.

And it's really invested heavily in technology. So if you're a worker, you might be picking products. And that means you take an individual product off a robot that brings it to you. There's a photo on a screen that tells you what to look for. A light automatically shines on the particular cubby on the robot where you're supposed to reach. And you put it in a box and it goes off on a conveyor. So there's all this technology that's invented to try to help employees learn the job really quickly because they're constantly bringing in new people and trying to make them be efficient quicker. Okay, so they've come up with systems where you don't need skilled workers or even

really to train people extensively. So they can hire and lose people all the time. And of course, we know Amazon becomes super successful. So it seems like this model works. Yeah, it did work for them. They became this iconic retailer. They created essentially e-commerce. I mean, Jeff Bezos became the wealthiest man in the world because of his Amazon stock. The company hired voraciously. It approached Walmart as the nation's largest employer. staff where they needed to be because they had these systems in place to bring people in. They could expand all over the country, really push product closer to customers, which is the big secret to Amazon. They get stuff close to you and they get it to your front door really fast. That is one of the magical things that keeps people coming back and back and back. But as Amazon grew so much, there was a cost to that, which is that a lot of people were just kind of falling out of its system. It turns out they had incredible turnover. They had about 150% turnover a year. 150%? How is that even possible? Wouldn't it be 100%?

It's 3% a week, which means on average, every eight months, they had to replace their entire workforce. Wow. So they're constantly hiring and it's bringing people in, training them, recruiting them, you know, processing their drug tests, processing their employment verification. All of that has a lot of cost to it and a lot of effort to it because you have to scale. And at the same time, you have to find enough workers who want to do it. It's hard work. It's physically demanding on your body, not so much in lifting super heavy packages, but you are on your feet. time, you have to find enough workers who want to do it. It's hard work. It's physically demanding on your body, not so much in lifting super heavy packages, but you are on your feet. You're not sitting down for 10 plus hours. And you kind of have to be your own advocate to navigate the

company, navigate the way it built HR. It had not invested in as enough in HR to support the growth that it had. So it had these systems that were kind of rickety and would have false errors and stuff like that. And you kind of have to constantly navigate for yourself. And some employees just gave up. It didn't work for them. Some people like the short-term work, but a lot of people kind of had their hopes dashed that they thought this could be a job that they could be at for a long time. And they're falling out pretty quickly. And the turnover is really high in the first couple weeks and the first couple months. So there's this whole host of reasons.

But at the high level, something wasn't working for a lot of people. Right, right. So Bezos has this idea that worker retention is not a priority. And so it makes sense that he created a workplace that people don't really want to stay in for any amount of time. That was the point in some ways. And even though they made a ton of money, it still seems bad for the company to have this level of attrition, right? This was this interesting thing. It was kind of this unresolved tension among people in Amazon's headquarters and managers in its buildings of like,

how do we keep this going? How do we keep doing this? And we look at the projected growth that we have. We need millions and millions and millions of people to apply because we're going to be so big. And you need X number of people to apply. Only so many of those actually show up. And if any of them are falling out really quickly, you've got to go through that whole process again. There's only so many able-bodied, willing-to-work Americans that can do these jobs. So there was this unresolved tension of, is this sustainable? How do we keep doing this? We're going to run out of American workers. At the same time, it was working. I mean, they were able to bring in enough people, and they were growing so fast. A former executive once said it was like. I mean, they were able to bring in enough people and they were growing so

fast. A former executive once said it was like staying ahead of the tsunami. You were just constantly trying to keep ahead of this growth. And it was like this long, long-term problem that you had all these other problems you were working on and all these other things that you've been able to innovate your way out of. So like, let's just keep going with it. So it sounds like some people were concerned that it might not be sustainable, but ultimately they had the attitude that there are lots of workers and it would all be fine. They'd rather invest in making the service faster for customers than focus on human resources. Yes. Yeah, they were exactly that. I mean, one guy told me when he went from

working in operations technology to working in HR, his friends teased him that he was going on sabbatical. And that's like a mindset of the type of the internal feelings at the time. It's a real second-rate job. Yeah, yeah, that they were working on it, but it wasn't where the glory was, essentially. Mm-hmm.

And you could kind of see how this mentality persisted because in many ways it was working. Amazon was able to replenish this workforce and keep expanding and hire new people to show up. But then the pandemic really exposed these vulnerabilities underneath the surface. We'll be right back. Karen, what happened to the relationship between Amazon and their workers when the pandemic hit? So my colleagues, Jodi Kantor, Grace Ashford, and I spent months looking into exactly this question. And what we found was that initially when the pandemic arrived in early March 2020,

Amazon employees just stopped showing up for work, even in states where there wasn't a COVID case yet. People were just scared of the virus. And so Amazon introduced unusually flexible policies to try to keep people there. They let people take as much time off as they want. They relaxed their productivity requirements. They boosted wages. But then they realized that wasn't working for them. They still didn't know who would show up on any given day. And they have this huge flood in demand as everyone's staying at home and not wanting to shop in person. And so they ended that era. And they basically said, no longer can you stay home as much as you want. You need to come back. Because they needed to be operating all the time to meet the incredible demand that everyone had, buying all the puzzles and the toys and everything that people went looking for online instead of going to stores. And that demand level really stayed high for so long. You know,

for more than a year, they had this elevated demand. They talked about how they were operating around the clock at max capacity, and it ended up being actually the most profitable era in Amazon's history. So it sounds like what you're saying, Karen, is that initially in the beginning of the pandemic, they really kind of ratcheted back, if you will, their model saying, okay, workers, you need some flexibility here. It's a pandemic after all. You know, you can take time off. It's okay. But what happened was people didn't come in. They didn't know who was going to show up on any given day, and it wasn't working. And so they went back to the old model, which is not flexible, and they ended up being able to actually fulfill the orders and have profits rise at record rates.

Exactly, because they felt like they had made their buildings safe, and they knew all these industries had laid people off. And there were people looking for jobs at this moment. A lot of people didn't want to work, but a lot of people did. And so all of a sudden, they were this very in-demand employer where they could hire tens of thousands of people each week, potentially, to start staffing up their buildings. And they were offering, you know, this $15 minimum. They had some bonuses at different points.

And mostly, they were just hiring. They went some bonuses at different points. And mostly they were just hiring. They went on a hiring spree that labor economists tell me there is no example like it in American corporate history. Wow. Amazon hired 500,000 people during the pandemic. They grew by hundreds of thousands of people over the course of that year. We know that Amazon has been on this insane hiring spree over the last year or so, especially during the pandemic. That continues.

And it was just this huge expansion as they opened up more buildings. Demand has been huge during COVID. They're planning to open 33 new fulfillment centers this year just to keep up. As they process more product, the world's largest e-commerce retailer announced it delivered more than one and a half billion items around the world. And they were kind of scooping up workers from different industries who were looking for a job. I mean, we've talked to workers who were,

you know, taxi drivers in New York or they worked on Broadway, they worked in restaurants, all the kind of classic industries that collapsed in the pandemic. They turned to Amazon. Lines of cars wrapped around the building as people made their way to Amazon's job fair. Amazon needs to fill both full-time and part-time positions all over the country. to fill both full-time and part-time positions all over the country. So basically, this employee model, it sounds like, was really holding up. Yes, but the pandemic kept dragging on, as we know, and some of the problems that Amazon had in its model were kind of exacerbated by the pandemic. So for example, it's kind of solitary work in the building. You go to

your workstation, and if you're picking products, you're basically picking products at your workstation, not near someone else, for 10 hours a day. And it's kind of good for social distancing, but it's also pretty isolating. Or if you're someone who might stress about maintaining your rate, that can be extra stressful when the world is just super stressful. And so you started seeing people fall out of Amazon's workforce as well. It had this infrastructure to bring people in to hire at these just unbelievable numbers. But the pandemic also started showing the strains in their system as well. The workers here have said that the work is unstable and very difficult. You saw then eventually the first real labor organizing threat at Amazon in years and years.

We have been looked at as disposable. By far the most aggressive effort in Bessemer, Alabama. Union! Hell yeah! Union! Hell yeah! Meanwhile, around the country, the labor market was changing. Many of these businesses are welcoming back these crowds for the first time in about 18 months.

I mean, we saw as more vaccines roll out, more companies were hiring again. Industries started coming back online, restaurant jobs, hotels. All the work that people had come from were now options. As America reopens, many businesses now face a new challenge, bringing back workers and doing it quickly. And then the pressure still on Amazon as they continue to open more buildings and more buildings and try to get back to normal delivery times and really serve customers in the way they're used to.

It's been called the great resignation. Workers said they were burned out, didn't want to go back to jobs. At the same time, workers around the country are really starting to question what they want from work, what they expect from their employers. You know, Black Lives Matter is happening, and you see it at Amazon and other employers. Black workers really taking a stand and saying, like, I need to assert more power. I can assert more power in this labor market to demand changes. Workers have more leverage, more bargaining power than they have in years.

And so we're starting to see now simmering labor disputes. So these are the types of questions that are surrounding both Amazon, but also just the broader labor market as employers try to attract employees who have more power than they have in a long time. who have more power than they have in a long time. So basically, Amazon is now suddenly facing a really different situation than before the pandemic. I mean, on the one hand, they have this huge new demand, which means they need even more workers.

But now the pool of workers want more from their jobs and are harder to get. Right. So what does Amazon do? One of their primary responses has been to pay more and to throw money at the problem, essentially. They began raising wages earlier this year. They've offered bonuses at different times.

They've done these very large incentive bonuses, up to $3,000 to sign on, even more if you're vaccinated. You know, they start really spending. And they're also willing to spend to meet that promise of getting you your dog Frisbee on time. Because they have really, since particularly late summer, started feeling the great resignation and full effect. And they said that for the first time, it's labor that's constraining their business, not physical storage space in their warehouses. And so they're going to spend,

they said, as much as $4 billion this holiday quarter alone, just on labor-related expenses. Wow, $4 billion. $4 billion in one quarter. And they said to expect that they would have no profit this quarter. So willing to wipe away their profit to be able to deliver for consumers in the way that customers expect for them and have built them the loyalty over time. And they're also just having to adapt their operations to having unpredictable staffing. New York City may not be fully staffed, but they can take a product from Dallas, fly it by air through the middle of the country to another air hub, to another building, to a delivery station, to the van that goes down your street in New York City. So they're taking more secure routes, trying to match where they actually have people available to serve the demand.

So that is part of that $4 billion also, is just operating in a less efficient manner, but being willing to spend to solve that for now. So $4 billion is a lot of money. I mean, how does that compare to what other companies are having to do to cope with a labor shortage? You're seeing such an interesting mix where the kind of basis of an employer's relationship with their employee is really starting to show to be a critical part of their business. So for example, FedEx has also said they're spending a ton of money trying to address this issue in very similar ways, less efficient routings, things like that. But UPS has said that they don't have the same problems. In part, they have a unionized workforce that is paid more, but is much more stable as a result of it. Target said that they have a unionized workforce that is paid more, but is much more stable as a result of it.

Target said that they have not had as much labor problems, in part because they focus on attrition as opposed to attracting new people. So you're starting to see how critical labor was in these labor connections and the kind of commitment back and forth from employer to employee and employee to employer. Those are actually showing to be kind of critical business factors in being able to both have profit but also can deliver for customers in the way that will create kind of a strong business in the long term. Does that suggest that the model that doesn't spend that much time thinking about worker retention has kind of run its course? I mean, how many quarters can Amazon spend $4 billion and

have zero profit? It can do it more than most companies, but obviously not forever. And you also have to keep in mind, Amazon is growing and will continue to grow. It has on the books, almost a 50% expansion still planned. Like these are buildings that are physically under construction and all of those will need to be staffed. So these problems and these challenges are not going away. And I think that's why you start seeing earlier this year a change in tone from Amazon. And there was a big moment, Jeff Bezos had said, I've always wanted to be the world's most customer-centric company, and now I also want us to be Earth's best employer. And he kind of sets this, what he called like a co-equal goal. We're going to really try to

raise our bar and really try to deliver better for employees. You also just see a more humble tone from them. You know, they kind of acknowledge problems in a way they hadn't necessarily before. So that's a very public commitment to this. But Karen, I guess I'm left wondering, can a company be both things? I mean, can there be a company that is both the world's best employer and the world's best deliverer of stuff to customers? Like, is that possible? Or are those two things just fundamentally in opposition? In Amazon's mindset, they support each other. And the way they do that, potentially, is that by being able to better serve your employees, you can better serve your customers. And you even hear that in language that their executives speak. I want to

solve this problem for the employees so that they can better serve customers. But is that true? I mean, it sounds like corporate speak to me. I don't understand what it means. There's a lot of corporate speak. I hear you. I hear you on that. It's an ultimate question. I think it's a fair question that companies across the market

are trying to figure out right now is like, how critical is this to our mission? It's clearly been shown to be critical now at this moment as we're facing these labor shortages. So the question is, is do they make that a big audacious goal and put their best minds on it to solve it or not? Do they keep poking around the edges and, you know, they can raise wages more, they can offer more benefits.

There's a lot of things you can do that doesn't change the model. You know, we never heard from them a statement that said, you know, we really want to bring attrition down. We're really rethinking this. That was not language we heard from them throughout our reporting. There was pride in offering jobs to people when they want it. There's obviously in this moment trying to staff up more, but we did not hear a strong rethinking kind of approach. And we'll see. There are people inside Amazon that really hope they will make it, but there's also a lot of people who understand that the system has worked till now. What would it mean if Amazon's relationship with its workers does not fundamentally change? I mean, if they don't respond to this moment by caring more about worker retention? You know, in the short term, I don't think you

would see all that much. It's Amazon. They're going to keep going. They have these incredible systems in place for hiring and bringing people in and training them and getting them up and going. At the same time, their response has a lot in the past been related to wages, and they could keep doing that. I mean, they can afford to pay more if that's the approach that they choose. There's actually a Wall Street analyst that says they should do that because they can do it more than anyone else, and it's a competitive advantage. But at the same time, I've talked with enough folks who've worked in the corporate office here who are really concerned about this. And one of them likened it to climate change, where you kind of keep

burning fossil fuels and you know you shouldn't, but you kind of keep doing it. But eventually, you're going to run out. If you don't address attrition, if you accept this high level of turnover that's twice the industry level, there's only so many American workers. And there's things you can do to kind of attract different pools of workers. You can go back to your worker. I mean, they're already texting workers saying, hey, we know you left. Want to come back again? We're hiring. But at some point,

you got to keep retapping the same pool. And some people are willing to go back, but some definitely aren't. And so that's the looming question that I've never heard anyone really articulate a way to solve without deeply addressing this issue. Karen, thank you.

Thank you. We'll be right back. Here's what else you need to know today. On Tuesday, health officials in the Netherlands said the Omicron variant was in their country before two flights from South Africa arrived there last week. The timing suggests that the mutation of the virus was already in Europe before South Africa sounded the alarm from a sample collected on November 9th. So far, 44 cases of the new variant have been confirmed in 11 European countries. Health authorities there said all the confirmed cases in Europe exhibited mild symptoms

or none at all. And a federal judge temporarily blocked President Biden's vaccine mandate that required all health workers in hospitals and nursing homes to receive at least their first shot by December 6th. The judge, in a U.S. district court in Louisiana, said it was not clear that mandating a vaccine for more than 10 million health care workers was constitutional. The ruling is the first step in the lawsuit brought by 14 states against the vaccine mandate for health workers. In November, a mandate for private employers was also blocked by a federal

court. Today's episode was produced by Robert Jimison, Rob Zipko, and Muj Zaydi, with help from Eric Krupke. It was edited by Patricia Willans and Paige Cowett and engineered by Chris Wood, with original music by Dan Powell and Marian Lozano. Our theme music is by Jim Brumberg and Ben Landsberg of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.