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Amazon Shrugs Off Leaked Labor Memo: ‘Doesn’t Represent the Actual Situation’

Even with more than 1.6 million full- and part-time employees at the end of the first quarter, Amazon might have a budding labor crisis on its hands.

The e-commerce giant’s well of job applicants appears to be drying up, according to a report from tech outlet Recode, citing leaked Amazon internal research from mid-2021.

“If we continue business as usual, Amazon will deplete the available labor supply in the U.S. network by 2024,” the research said.

The research indicated that Amazon would exhaust its entire available labor pool in the Phoenix metropolitan area by the end of last year, and in California’s Inland Empire region before this year is over.

Amazon dismissed the Recode report.

“There are many draft documents written on many subjects across the company that are used to test assumptions and look at different possible scenarios, but aren’t then escalated or used to make decisions. This was one of them,” Amazon spokesperson Rena Lunak told Sourcing Journal. “It doesn’t represent the actual situation, and we are continuing to hire well in Phoenix, the Inland Empire and across the country.”

Amazon’s internal report calculated the available pool of workers based on characteristics like income levels and a household’s proximity to current or planned Amazon facilities; the pool did not include the entire U.S. adult population.

Attrition at Amazon’s facilities appeared to be a significant factor in its scenario planning. Turnover at the 20 Phoenix-area facilities reached 205 percent in 2020 from 128 percent the year before, as the pandemic and an online shopping boom pressured fulfillment center employees.

The high attrition rates, combined with the overall labor shortage, allegedly forced Amazon to reverse, or stop enforcing, some workplace policies at Phoenix warehouses, one former manager told Recode.

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“There was a joke among the…managers that it didn’t matter what [workers] got written up for because we knew HR was going to exempt it,” Michael Garrigan, a former entry-level manager at Amazon warehouses in Phoenix from 2020 to early 2022, told Recode.  “It was almost impossible to get fired as a worker.”

Amazon’s U.S. attrition rates were 123 percent in 2019 before jumping to 159 percent in 2020, the obtained data indicated. Turnover rates across the U.S. transportation and warehouse sectors were much lower: 46 percent and 59 percent respectively in 2019 and 2020, according to Bureau of Labor Statistics estimates.

Amazon’s research said the company could cycle through every Inland Empire worker who’d be interested in applying for a warehouse job by the end of 2022.

Recode inferred from the research that competition from other retail giants was impacting Amazon’s ability to retain employees.

“We are hearing a lot of [Amazon] workers say, ‘I can just go across the street to Target or Walmart,’” Sheheryar Kaoosji, co-executive director of Inland Empire-based nonprofit Warehouse Worker Resource Center, told Recode. Kaoosji said that Walmart is offering some workers with past warehouse experience as much as $25 an hour.

That rate is well above Amazon’s average U.S. starting wage, even after the e-commerce giant started offering $18 per hour last year. Walmart’s actual minimum wage including store employees is still $12 per hour, while Target is currently investing up to $300 million to increase employees’ starting wages, which will now range from $15 to $24 depending on the job and local market.

Amazon’s internal research seemed to align with the widespread thinking that raising minimum wages would be the first and easiest step to draw more prospective employees. The report predicted that for every dollar Amazon increases its minimum wage, it adds 7 percent more workers to its potential hiring pool. If Amazon raise its hourly minimum by $1.50, that too would expand its pool of potential workers enough to extend its hiring ability in the U.S. by three years, Recode said.

Phoenix and Inland Empire weren’t the only regions that concern Amazon. The Memphis, Tenn. and Wilmington, Del. markets are also running low on available labor supply, according to the leaked research.

Amazon’s models were 94 percent accurate in predicting the U.S. geographies where the company was significantly understaffed in the lead-up to last year’s Prime Day, the report said, ultimately contributing to delivery delays for shoppers in those markets. The warnings about Amazon’s labor supply shortages indicate that in at least some markets, Amazon shipments could face more severe delays in the future.

As the company seeks out new employees, it is looking to thin out its excess warehouse space in the interim, first by subleasing as much as 10 million square feet, according to a Bloomberg report published in May.

Amazon is reportedly considering exiting some leases entirely, freeing up additional square footage. Southern California, New York, New Jersey and Atlanta were cited as markets where Amazon’s real estate portfolio is bloated.

Amazon later confirmed the subleasing, but not the number, or whether it would exit certain agreements.

The Covid-19 pandemic thrust Amazon into rapid-fire hiring, and in turn, the company also had to build out its distribution and fulfillment capacities to support the new demand. In a two-year span, Amazon doubled its fulfillment network to more than 930 facilities across the U.S. by the end of 2021.

BigRentz, an online construction rental equipment marketplace, released a report in January saying Amazon’s planned and existing warehouse network totaled roughly 319 million square feet at the end of last year.

In an April earnings call, Amazon chief financial officer Brian Olsavsky said the company was “chasing labor” in the second half of last year. If anything, he said that Amazon found itself “overstaffed” in the first quarter of 2022, because the company hired more people ahead of the holiday season and the Omicron variant subsided faster than expected.

The company is working on finding the balance between “having the right capacity and the right demand matched at the warehouse level and the transportation node level,” he added.

CEO Andy Jassy echoed the company’s focus on right-sizing industrial real estate and appeared to quell any fears that the company would be negatively impacted by a labor shortage.

“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network. We know how to do this and have done it before,” Jassy said.