By Silvia Merler, who joined Bruegel as Affiliate Fellow at Bruegel in August 2013. Her main research interests include international macro and financial economics, central banking and EU institutions and policy making. Originally published at Breugel.
The New York Times has some interesting data visualisation about the growth of e-commerce jobs and the decline of retail sectors employment (Figure 1). Online shopping accounts for only 8.4 percent of all retail sales in the United States, but it has had an outsize effect on the retail workforce. The Financial Times has a graphical review of the recent stock market sell-off on retail department stores, spurred by mounting concerns about the effects of online competition.
Figure 1
A related question would be what the implications are, not only for retailers and retail-property companies, but also for the financial firms that have given them money, from banks to life-insurance companies. The Economist argues that total amount of capital, both debt and equity, supporting American retailing (excluding Amazon) now exceeds $2.5trn. The hundreds of thousands of jobs created by new online firms have not absorbed the job losses at traditional retailers. At the same time, the new jobs are concentrated in a handful of large cities and tech hubs (Figure 2 from NYT). Examining property data from CBRE brokerage, The Economist argues that some cities with fewer shops per person, such as New York and Seattle, may fare better, but that few parts of the country will be untouched.
Figure 2
The Economist has calculated what might happen to retailing workers (excluding those who work in car and fuel sales), under various assumptions about the growth of e-commerce. Assuming that employment in stores rises or falls with changes in those stores’ sales, and that labour productivity improves at historical rates, retailing jobs could shrink by 12%, or 1.5m jobs, by 2022. Under the most adverse scenario, employment could fall by 17% (figure 3 below).
Figure 3
Paul Krugman wonders why aren’t promises to save service jobs as much a staple of political posturing as promises to save mining and manufacturing jobs? One answer might be that mines and factories sometimes act as anchors of local economies, so that their closing can devastate a community in a way shutting a retail outlet won’t. A different reason mining and manufacturing have become political footballs, while services haven’t, involves the need for villains. Demagogues can tell coal miners that liberals took away their jobs with environmental regulations. They can tell industrial workers that their jobs were taken away by nasty foreigners. By contrast, it’s really hard to blame either liberals or foreigners for, say, the decline of retail service jobs. Finally, it’s hard to escape the sense that manufacturing and especially mining get special consideration because their workers are a lot more likely to be male and significantly whiter than the workforce as a whole. As for what can be done to stop service-sector job cuts, Krugman thinks that there is not much. While we can’t stop job losses from happening, we can limit the human damage when they do happen, by guaranteeing health care and adequate retirement income for all, providing aid to the newly unemployed and acting to keep the overall economy strong.
Dean Baker at CEPR argues that Paul Krugman is wrong on retail jobs, and the reason why they are not salient is that they are not very good jobs. Jobs in mining and manufacturing tend to offer higher pay and are far more likely to come with health care and pension benefits than retail jobs. A worker who loses a job in these sectors is unlikely to find a comparable job elsewhere. In retail, the odds are that a person who loses a job will be able to find one with similar pay and benefits. In mining the average weekly wage is $1,450, in manufacturing it is $1,070, by comparison in retail it is just $555. This difference in job quality is apparent in the difference in separation rates by industry: it was 2.4 percent for the most recent month in manufacturing and 4.7 percent in retail, almost twice as high. Baker argues that since only a small segment of the workforce is going to be employed in manufacturing regardless of what we do on trade, we should be focused on making retail and other service sector jobs good jobs. For Baker, the number one item on the agenda should be a concern with the Fed’s rates hikes, which would slow the economy and reduce the rate of job creation.
Noah Smith argues that the retail apocalypse could actually lead to a suburban renaissance. Modern U.S. cities, especially the suburbs, are built around retail stores. If those stores evaporate into cloud servers, huge gaping holes will open up in the economic landscape of almost every suburb and town in the U.S.. The decline of physical retail will thus force the U.S. to rethink its entire idea of what a city is for. Why do people live near each other, if not to shop at the same places? One reason is to go out to eat. Another reason for people to cluster is to take advantage of schools, day-care facilities, hospitals and other local services. Rebuilding the suburbs will mean a lot of spending at the local and state level. Working-class Americans need jobs, and this sort of epic construction project would create a lot of them. If the retail apocalypse leads to a suburban renaissance, maybe it’s something to be relished rather than feared.
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50% Of American Workers Make Less Than $28,031 A Year
blaming e-commerce for the decline in retail sales is convenient, but totally inaccurate. such an effort is similar to framing the taxation debate as rich people pay too little / poor people extract too much whilst ignoring that many fortune 500 corporations pay NO tax (see page 21 for a list of “43 Corporations Paying No Income Tax in 2012”)
the middle class has been decimated by a joint democratic/republican effort. THAT is why retail is dying.
+1
Figure 1 is confusing. Department stores lost 448k jobs? But retail jobs went up by 645k + 841k? Plus e commerce went up $178k? Net gain in jobs?
Just not as evenly spread out as it used to be.
i’d be interested to see what the sales per employee was retail versus e commerce.
Why not just have the government hire the unemployed, including those left jobless by the collapse of retail? There is plenty of work to do. Our infrastructure is decaying and many poor states and municipalities cannot maintain anything like adequate services in a number of important areas.
Perhaps the biggest mistake that Obama made was making health care reform the big goal of his administration. Job creation and saving the states and municipalities should have been priority number one but instead we got a stimulus package that was overloaded with tax cut and Rube Goldberg-syle health care reform.
Even if we didn’t get a full-blown job guarantee Obama should at least have pushed for reinstating Nixon’s revenue sharing program to help keep our states and local governments healthy and spending money and hiring people. One benefit that might come from such a program would be the reversal of the decay of our small towns and rural areas. Increasingly huge, overcrowded cities don’t sound very appealing. They strike me as more reminiscent of a developing country than a wealthy industrialized one.
The liberalism that comes out of the big cities tends to be of the pity/charity variety that reflects the massive inequality of the large cities. This is the direct opposite of the New Deal tradition that sought to create a dignified and independent existence for working people which of course means public job creation if necessary to help people regain their self-worth, confidence and social connections to others in the community.
Big city liberalism also comes with a heavy dose of identity politics.
But big city, small city, small town and deep country liberalism would come with a lighter dose of identity politics and would offer real benefit and morale-building upliftment to everybody. It would be a Whole New Deal.
Yes. Obama was happy to go along with sequestration, to be not-serious about infrastructure reconstruction, all the things where government could have created jobs that would have been worth doing and would improve things for everyone, were things he wasn’t willing to do.
Public job creation!! So obvious, so helpful, and so undone!
Beyond that, the physical retail crash coupled with the commercial real estate crash will leave a ton of jobless people and a ton of empty buildings.
Porque no transform those buildings into free housing and co-operative business?
Because they are owned by private, not public, interests. And the land, if not the buildings, are still quite valuable.
A lot of people prefer to live in concentrated urban centers and a lot of people don’t. I split most weeks between very-urban Chicago and kind-of-rural Indiana. I like both. As long as one has enough money for basics, either life style can be alright.
While it’s always a good thing to emphasize that somehow the vast unused personal and physical capacities of the US should be put to better use, the focus should be on more than the sorely needed infrastructure problems.
More people should be trained and put to work in schools. Likewise with health care. Likewise with the so-called justice system. (There’d be a lot more real democracy here if people who are regularly cheated had access to a functioning court system that is currently has cost barriers that keep it way beyond the reach of most people.)
Obama didn’t “fail” to take up and implement these good things. Obama succeeded in preventing these good things from ever being taken up and implemented. That is why he will be paid hundreds of million dollars by his grateful owners and patrons over the decades to come.
Smith is being overly sanguine – the loss of lots of jobs rarely leads to any kind of renaissance. How are you going to build schools for example when the tax base is depleted?
I live in a city now considered a foodie mecca. That and high end condo building are the two burgeoning industries. The downtown is much nicer than it was a couple decades ago but the new restaurants are high end and have come to the city along with wide scale gentrification which has caused the area to be unaffordable for many. And a group of several restaurants is often owned by the same person, who begins to acquire more as their business increases. These restaurant owners then fight against any increase in the minimum wage. Sound familiar? Different industry, same neoliberal BS.
Restaurant workers are still service industry jobs and currently aren’t much better than retail jobs. The pay is somewhat better but there are generally zero benefits. I do not believe we can have a successful economy with service jobs everywhere and not much else. We can’t all can’t all cut each others’ hair.
Yes, I’ve got an issue with this part of the paraphrase…” Rebuilding the suburbs will mean a lot of spending at the local and state level. Working-class Americans need jobs, and this sort of epic construction project would create a lot of them. If the retail apocalypse leads to a suburban renaissance, maybe it’s something to be relished rather than feared”…Local and state spending is restricted as fed spending is not as states have to balance their budgets while feds an create funds. This policy prescription looks alot like public money financing private profit under the careworn guise of job creation, and this leaves aside that the majority of the suburbs are a wasteland of cheaply made mcmansions and the like. Funny these days to hear folks from the big tech hubs trying to make their dystopia into something that looks viable, while these same cities face a plague of homelessness. “Yes you’ve lost your means of earning in the retail apocalypse, but your kids will get jobs in as yet unknown fields because rainbows and unicorns so suck it up and find a place to bathe and go to the bathroom, for the brave new world is here.”
I also have trouble imagining Smith’s vision of a renaissance. I live in a well-off Fairfield county suburb of New York, and 8 years into the economic recovery the town is still littered with empty store fronts. If these properties haven’t rented by now, will they ever? As these properties remain empty their values will eventual fall and along with them the town’s tax base. This will put more upward pressure on residential property taxes, making these properties less attractive and so on. Should this type of spiral begin, it’s very unlikely there will be funding available for a suburban renaissance.
There’s lots that could be done, we need more libraries and cultural activities and gyms and gathering places (as well as sadly more facilities to help the homeless and drug addicts, housing and safe injection sites and places for counselling and gatherings), but there’s not a chance in hell at this point that government will help finance them. Definitely COULD be done, but we need “democratic socialism” for that . . .
Same here. And here, the primary industry employing the people who live in these luxury condos and eat at these high-priced restaurants is the tech sector. From previous housing busts, condos are the first to drop, and they drop significantly. We have a lot of condos. I view the whole thing as a house of cards – a tech downturn will mean a condo bust, and the fancy restaurants and their employess will be collateral damage. No sign of that yet, however. I am amazed at how things just keep truckin’ along.
And I’ll go ya one better. Because I live in Tucson, a UNESCO World Center of Gastronomy. Yes, that draws some foodie tourists to the Old Pueblo, but the reality is that very few of us residents can afford to eat out that much.
As mentioned previously, I’m a member of a coworking space in Downtown Tucson, where many of the hot -n- trendy restaurants are. Do we patronize those places? Ehhh, not so much. Most of us brown-bag our lunchies. If we go out, it’s to the nearby deli (Johnny Gibson’s) or we order something from (gasp! a chain) Jimmy John’s.
We don’t even have the benefit of a tech sector, not locally at least. It’s other cities’ tech sectors and finance jobs that are largely driving the current boom and the dining and property buying is being done by people from away. Meanwhile the city’s traditional working waterfront (waterfront businesses by local ordinance had to be fishing industry-related) has been slowly dying, with developers salivating over the waterfront property that might soon be available for hotels and high rise condos.
Yes, I believe Smith is doing an optimistic lemons to lemonaide transform,
He writes for Bloomberg and one can believe Bloomberg would like this optimistic view.
See http://noahpinionblog.blogspot.fr/ for his blog postings.
I characterize him as pro-business, not pro-worker..
What happened to all the empty rust-belt factories in the USA?
Where was their renaissance?
Maybe they should have put up “Retail space for rent” signs and wait for the “Retail renaissance” to happen.
Smith’s name is showing up more often it seems, I wonder if he is being positioned to be part of a new generation of blogging economists who will be quoted as “trusted authorities” in the press.
Yeah, I don’t see this renaissance at all. For my last 30 years I’ve seen moldering “ghost malls” built and never filled; retail space emptied since 2008 and now selling mattresses, fireworks, Halloween doodads or nothing at all; main streets of Midwestern small towns that on Saturday night or Monday morning are dark and lifeless as cemeteries. Mr. Smith travels in different circles.
Which is as good an excuse as any to share three of my favorite ruin p0rn YouTube channels:
Dan Bell’s Dead Mall Series:
https://www.youtube.com/playlist?list=PLNz4Un92pGNxQ9vNgmnCx7dwchPJGJ3IQ
Exploring with Josh:
https://www.youtube.com/user/theartofrealitycrew
Retail Archaeology:
https://www.youtube.com/channel/UCR2LNeZSqINp0WTd_eWCIGg
Don’t rents have anything to do with the decline in retail? Wherever I look in my local area I see places for lease that only recently had tenants hanging on. I don’t believe housing rents are the only rents that may be reaching for a break point.
This too. QE was/is a massive giveaway to rentiers at all strata, driving up asset prices which naturally also drove up rents, while ignoring the elephant in the room which was not enough money to pay the bills, back in ’07 due largely to $4/gal gas so now we have wealthy californians behind the 40% cash buys of housing so their kids can escape the meatgrinder, as well as these same having college paid for rather than having student loans which can never be repaid and create an exploitable underclass. Thanks Ben.
There’s a lot of talk about the revival of Downtown Tucson.
Well, let me take you on a little tour of Congress Street. West of 6th Avenue, between 6th and Scott Avenue, I’ve counted eight empty storefronts. In one block. Between Scott and Stone Avenue, there’s a storefront that has been vacant for nearly three years.
That sounds like the ‘revival’ of Downtown Tucson that was “happening” 20 years ago when I left Tucson.
Sadly, when I go back for visits, the only changes I see are for the worse: There’s fewer business there now than there was 20 years ago, and the people I know who stayed are still struggling to piece together a living.
Leaving Tucson was the smartest move I ever made.
yes, I figure it has to have something to do with it, many a retail business fails largely on the fact that they can’t make rent and be profitable.
I can’t help but think how much Krugman and Smith are living in fantasy land.
1) Its real convenient for Krugman to say “how great it would be for universal health care” now, isn’t it? Gee shucks, those evil meeny R’s.
2) Then Noah Smith must have snorted some of Purdue’s finest thinking that you will have a suburban renaissance when we can hardly get the Gov’t to spend money and anything besides machines of war. These are the same people HRC went after and the DNC targeted in Georgia – why would they change their minds and support such a renaissance now?
At least Baker seems to have found some, you know, actual evidence, and is trying to make an argument from it. Is it any wonder we are in the situation we are in today when this an example of what we get from our thought leaders? Good grief charlie brown.
Quanka,
That was my reaction also (you said it better).
Although this by Baker seems unrealistic, imo: “we should be focused on making retail and other service sector jobs good jobs.” Most retail jobs are low productivity. High productivity jobs can be made better by forcing employers to share the bounty — as unions did for manufacturing, mining, etc. I suspect it can be done to low productivity jobs, but to a lesser extent.
His focus on economic growth (if combined with progressive taxation) seem like stronger cards to play.
The Dean Baker explanation seems pretty spot on to me. People don’t really miss manufacturing jobs, they miss unions. Those mining and manufacturing jobs formed the core of a prosperous middle class, and people are angry and sad that they and it have now disappeared. Service sector jobs are low paid employment of last resort for people who can’t find anything else.
Yes, and now even the last resort jobs are being taken away. No good jobs, no shitty jobs when you can’t find a good job, and no safety net, either.
Indeed, mining and manufacturing/industrial jobs are grueling, noisy, dusty, often toxic.
Doing repetitive assembly work in an auto plant, for example, is only a “good” job if you’re represented by the UAW, which at least provides health insurance when the job finally succeeds in destroying your body.
Back in the day, before the struggles of the CIO industrial unions (UAW, USW, UE, etc.) these jobs were looked down upon as meat grinders. With the partial exception of the skilled trades – electricians, millwrights, tool and die makers – needed to make the factory run, what made them “desirable” were the wages and benefits won through struggle by the unions.
For the overwhelming majority of working people, work sucks, and is an expedient. Only a widespread flowering of unionization in the service sector can hope to make those “good” jobs, as well. Perhaps then we could start talking about that “Renaissance” the author mentions, which at the moment isn’t even a mirage.
Michael you hit the proverbial nail on the head. I find it amusing (but not funny -if you know what I mean) when right-wing politicians in my neck of the woods lament the loss of high-paying, good jobs in mining, coal energy production, timber and paper, etc. These are the same who cry for the destruction of unions as bad for business. I and others point out that without unions these jobs would still be the dangerous low pay jobs without benefits they were 100 years ago.
Furthermore, I believe it is the mission of the labor movement to match that same struggle to make the retail, hospitality and low-wage health care jobs of today into the good jobs of tomorrow. About 40% of employment in my hometown is in these bad job sectors. And rising.
There is an additional intersection for this struggle too. And that is women make up the huge majority of workers in these sectors, with people of color and youth over-represented as well.
I believe that organizing in these job sectors a new workers’ movement is emerging to revive the labor movement.
I pray you are right, Mark.
I’m a public school teacher and AFT member, and from my vantage point, things are very depressing: widespread privatization of the schools, demoralized/uninformed-apathetic teachers, and a union misleadership complicit in its own demise.
What is left of the labor movement is struggling mightily to organize and re-organize workers into viable forceful entities. If you peruse the common labor publications you will see that health care workers, public school teachers, internet service providers, truck drivers, tourism industry workers, hotel, restaurant……and so many others are shaping and reshaping contracts often in bitterly fought scenarios. The major MSM are not covering these struggles. Yes, organized labor has been pushed back up against the wall. But, it doesn’t mean the struggle is over or has vanished from the scene. Maybe NC can do some series include in the “Water Cooler” scene?
Not for nothing, but Yves has pointed out how fragile these massive distribution networks would be to work stoppages. Amazon and Wal-Mart have been very successful at thwarting Union drives, but perhaps the lessons of the Market Basket workers could serve as a lesson for how to take back labors fair share:
http://www.themarketbasketeffect.com/thefilm/
Culturally ingrained notions of Americana. The image of mid-century peak America is one of the resource extraction and manufacturing industries, and the associated jobs. Springsteen and John Cougar Mellencamp. Whereas retail is seen as tertiary, the supporting cast to manual labor and white collar, even if it’s not a reflection of current reality. Much as how our culture still depicts paperboys as a staple of suburban neighborhoods, even though they’ve almost entirely disappeared.
There is a renaissance to be had, but it won’t be from retail jobs. It will be from service jobs that pay better. No community needs another Best Buy but it does need competent mechanics, competent nursing/caregivers, competent home repair/services. Businesses selling goods easily purchased electronically will continue to slide. Businesses selling services not easily purchased online will grow.
I’ve been trying to hire a competent contractor to do some home improvement for 5 months. Every single one I’ve contacted based on glowing reviews is too booked for my job. That’s a market and need going unfulfilled.
On the flip side, I needed an item the other day and found that Lowe’s carried (1) in stock. I wanted it right away so I drove over to Lowe’s and they didn’t have it on the shelf. I asked the guy in the department for it, showed him my phone where it said they had one. He told me that was the display model. I asked if I could purchase that one since I wanted it right away. He told me it was missing parts. So, I stood there and ordered it off Amazon right in front of him. Shame about his job, but if Lowe’s can’t be bothered to keep stock, I’m going to go elsewhere.
Tell me about it. I’m in the process of having the Arizona Slim Ranch renovated. Every contractor I’ve hired has been super-busy. Every one.
Right? And the thing that boggles my mind is that most of those jobs pay better than working in the paint department at Lowe’s.
Exactly.
And there’s the pride of workmanship thing. I’m beefing up my construction photography skills by documenting what’s being done on my house. Which means that I’ve spent more than a little time praising the workers, the effort they’re making, and how good things are starting to look at the Arizona Slim Ranch,
The result: Great photos for me and a fabulous looking house. I’m really enjoying how this project is turning out.
Paving, framing, roofing, duct, foundation work, etc. , in an Arizona July?
It’s hard to imagine paying someone enough to do that day in, day out. They should certainly be paid at least as much as, if not more than, people putting together mortgage-backed commercial REITs…
I have been in the midst of a roof replacement, right smack in the middle of an AZ summer.
Actually, I’ve very much enjoyed the order it online and pick up at the store for free experience at places like Lowe’s. I can plan a day or two in advance to spite Amazon.
The decline of retail presents another issue. Small — Mainstreet — retail is what a lot of people think about when they think about starting their own business — if they weren’t thinking about starting a restaurant. Mainstreet retail was hammered by big box stores and shopping centers. The Internet presented new opportunities for small business — opportunities all too soon folded into conglomerates like Amazon, Etsy and Ebay. Soon foreign vendors showed up with cheaper copies to undercut any market that congealed. The decline of small retail is also a decline in the already limited opportunities many people have for starting their own business. The concentration of market outlets gives those who control those market outlets control over those producing goods. And their leverage is greatest over the smaller manufacturers.
I have been living in a small town for 5 years the second year i been living year .a lot of small business folded . Now all store fronts are leased out. at least a hand full are high end retail . I can see some of them go under ,during the next downturn.