The Impact of E-Commerce

As shoppers hop online in search of the perfect gift or the best deal this season, one Babson College professor has found that online shopping can hit home, lowering wages or eliminating jobs of the hourly-wage retail workers in your community.

“We looked at very granular data when looking at the wages of millions of workers so we could see how each individual worker is affected,” said Linghang Zeng, assistant professor of finance at Babson. “What we saw was that salaried workers aren’t as affected as hourly workers, and part-time workers are affected the most.”

Research also shows that the youngest and the oldest retail workers in the community face the most negative impacts.

The research on e-commerce and its short-term influence on local retail workers is featured in a paper co-authored by Zeng called “Creative Destruction? Impact of E-Commerce on the Retail Sector.” The name references an economic theory that says capitalism is ever evolving and older forms of established processes must be dismantled to make way for improved methods.

Linghang Zeng, assistant professor of finance at Babson College, researched the impact of e-commerce on local retail workers.

Zeng worked with Sudheer Chava, Alexander Oettl, and Manpreet Singh from the Georgia Institute of Technology. The researchers poured over the quarterly payroll information of 2.6 million workers between 2010 to 2016, crunched consumer data provided by a major credit bureau, and identified new fulfillment centers (FC) in the counties where these workers lived.

Fulfillment centers, similar to area warehouses, are used by major e-commerce companies to deliver online orders faster.

“The establishment of a FC in a county has a negative effect on the income of retail workers in that county and neighboring counties within 100 miles,” Zeng and his co-authors state in the report.

The authors didn’t name the massive e-commerce business that’s become ubiquitous in households across the country. However, for the purposes of this article we can say the company rhymes with Shmamazon.

The paper was featured on the National Bureau of Economic Research’s website in August, and will soon be published in the highly respected Management Science, a peer-reviewed scholarly journal.

E-commerce Convenience

Zeng and his fellow researchers used data from 3.2 million stores and found that as fulfillment centers increased, employment at proximate stores decreased by 2.1%. The retail sector lost 938 jobs per county per quarter, according to the report.

Retail workers at the highest risk of losing some or all of their wages also happened to be workers with high credit card utilization, Zeng said.

“Basically, before anything even happens to their job, they’re already having trouble making ends meet. So now you’re seeing a delinquency, so it’s not just wages that are affected,” Zeng said.

“We looked at very granular data when looking at the wages of millions of workers so we could see how each individual worker is affected.”
Linghang Zeng, assistant professor of finance at Babson College

But, what about delivery jobs or other work potentially created by e-commerce? The researchers looked at aggregate data at the county level and found that while FCs did create new jobs in the transportation and warehouse sector, the job losses in the retail sector dominated the job gains.

“This may suggest that the workers who rely on brick-and-mortar stores for compensation did not find a substitute, at least not in the short run” Zeng said.

Zeng cautioned that the study only researched a short time, and it took place before the COVID-19 pandemic forced many brick-and-mortar businesses to shut down temporarily. But, the impact on brick-and-mortar stores and retail workers likely got worse over that time.

“The service that I see from e-commerce is much, much better than five or six years ago,” Zeng said.

The news wasn’t all bad, however. The one demographic that flourished as e-commerce increased, according to the study, were shoppers.

“Clearly these services are incredibly convenient and popular for consumers,” Zeng said.

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