Question

Amazon has announced that one of its new headquarters will be located in New York City and will create more than 25,000 full-time jobs. Suppose (for now) that there is no change in New York City’s population as a reaction to this announcement.

(a) How would you expect the opening of the new headquarters to impact employment and wages in New York City?

(b) Suppose that most of these new jobs are for skilled workers in highly technical occupations. How would you expect the opening of the new headquarters to impact wages of skilled and unskilled workers in New York City? How would you expect the opening of the new headquarters to impact wage inequality in New York City?

(c) Now suppose that people are allowed to move to or from New York City in reaction to Amazon’s announcement. What type of labour mobility would you expect? How would this movement of people affect labour market outcomes in New York City?

Answer 1

Whenever a new unit of business is established, employment is increased. Even if we assume that for some time the population in NYC did not change due to the announcement of a new headquarter, we can anticipate that Amazon will probably want to transfer some people from other branches. This is the first scenario. Thus, migration will happen.

a) NYC has a lot of people with a diverse culture and socio-economic background. It is not possible that every person in the working age group is employed. New jobs that are created by opening up of new headquarter will bring in new job opportunities. With the promise of around 25,000 jobs, the wages will increase sharply if the labour supply is strictly domestic. But given that people move in and out of NYC all the time, population in the city will increase due to this major re-structuring eventually.

b) If we were to suppose that most of the jobs created were for high-skilled technical work, we can expect immense competition for single job position. As for the most part, the proportion of skilled labour is less than semi-skilled labour. Since, labour is not mobile, sellers of labour have the bargaining power in the market. Amazon needs to compensate workers more than they currently wager to switch from their current jobs. Thus, the wages of the skilled workforce will rise faster relative to the unskilled workers. This wage difference will necessarily create wide wage gaps and increase inequality in the city.

c) If labour markets are fluid, then workers will migrate from all around the country(and outside) to settle in NYC. This will increase the population of the city. Since Amazon can now have a wider pool of labour supply, the workers' bargaining power reduces. This is will lead to a decline in wages, however, it may not be so drastic for skilled workforce as compared to un-skilled workers. As more and more people enter the labour market, the aggregate wages for unskilled workers will fall dramatically. The composition of labour force will change i.e. the ratio of unskilled to skilled increases driving down wages.