Who's to Blame for Amazon.com's Sweatshop?

The company reportedly forced its employes to work in unsafe conditions, but Wall Street may be indirectly responsible for its actions

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As bad as the recent recession has been, it isn't the Great Depression. Unemployment didn't soar past 20%. We didn't experience crop shortages and famine like during the Dust Bowl. It's been bad, but not that bad. Or has it been? Ezra Klein challenges this notion in his latest Bloomberg View column. He points to sweatshop-like conditions at an Amazon.com facility in Pennsylvania. The details are shocking, but where should we direct our anger?

Brutal Working Conditions

Klein relies on the reporting by Spencer Soper in Allentown, Pennsylvania's Morning Call for the heart of his story. Soper details the conditions at an Amazon warehouse facility. Klein summarizes:

The warehouse, Soper reported, is brutally hot in summer. In a nod to modernity, "computers monitored the heat index in the building and Amazon employees received notification about the heat index by email." One day, the index "exceeded 110 degrees on the third floor." A local emergency room doctor treated so many warehouse employees for heat exhaustion this summer that he called federal regulators to report an unsafe work environment. A security guard called the Occupational Safety and Health Administration after seeing two pregnant women taken to nurses. Some workers would break out into a sarcastic chant: "End slavery at Amazon!"

Obviously, this isn't okay. Klein notes that in a good labor market, these workers might just quit. But at a time when unemployment is high, that isn't an option. So Amazon has the upper hand and can treat its workers poorly.

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Amazon's Defense: The Cost Side of the Equation

Klein's labor economics is exactly right: when demand for workers is low, the employer has all the power. But what would motivate Amazon to do this? Is it just evil? Probably not: it was worried about costs.

We're in a period when consumer demand is weak. Amazon, like so many other firms, is likely cutting costs wherever it can. In this case, it went too far by allowing cut-cutting to lead to unsafe working conditions.

But what was the alternative? If it didn't save this money by forgoing air conditioning, it might have needed to lay off more workers and forcing others to work harder. Or maybe it would have cut benefits. None of these alternatives likely sound very good either.

These assertions might appear to fall a little flat, however. Amazon has consistently recorded net income in the hundreds of millions of dollars. A little air conditioning for its warehouses on hot days surely wouldn't have neutralized all those profits.

Or Is Wall Street to Blame?

For public companies today, however, millions of dollars in profits aren't necessarily enough: investor expectations are what really matter. If Wall Street concludes that your company is growing as quickly as it thinks your business should, then your stock is doomed. Like other public companies, Amazon needs to be very concerned about what its investors think.

For example, during the first quarter, the company's net sales were up 38%. Its net income was $201 million, which accounted for earnings-per-share of $0.44. That doesn't sound so bad, does it? To investors, however, the quarter was a disaster. They expected $0.61 cents per share.

To be sure, Amazon didn't want a repeat performance in the quarters that followed, so it was probably extra careful about controlling costs. It likely leaned heavily on its regional managers to ensure that the warehouses they oversee were doing whatever possible to keep costs low. Unfortunately, the manager of the Pennsylvania warehouse referred to above took matters a little too far.

An Isolated Example

So I would blame this problem more on Wall Street's obsession with quarterly earnings than any evil desire on the part of Amazon to exploit its workers. What probably happened is that a rogue manager got carried away. Amazon corporate almost certainly isn't pleased with the manager's actions, since the cost of air conditioning for this warehouse probably would have been a small price to pay in order to avoid the bad publicity that resulted.

But let's not make the mistake of assuming that this sort of thing is happening all over the U.S. As far as we can tell, Amazon did not have some crazy national policy against air conditioning. It doesn't appear to systematically endanger the health of its workers in order to hit its earnings targets.

And more importantly, we don't have dozens of other reports corroborating the claim that Americans are working in Depression-era like conditions. This isn't the Grapes of Wrath; it's just an awful one-off example of what happens when cost cutting goes too far. Let's hope that Amazon has learned its lesson through this bad publicity, and that other public companies are watching.

Image Credit: REUTERS Rick Scuteri