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Economics in Brief: Fees to Small Businesses Are Amazon’s Largest Revenue Source, Report Finds

Also: The latest on the Fed’s leadership changes, and results of year one in NY State’s bail reform.

(Photo by rupixen/Pixabay)

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Amazon’s Largest Revenue Source? High Fees Charged to Small Businesses That Sell on the Platform, Report Finds

In 2021, Amazon stood to collect about $121 billion just in fees and advertising revenue from third-party small-business sellers on Amazon Marketplace, according to a new report by the Institute for Local Self-Reliance. On a granular level, this translates to sellers on Amazon’s Marketplace turning over roughly 34% of every sale to the online retailer.

Both TechCrunch and The Verge report that this represents the tech behemoth’s largest source of revenue, up from some $60 billion in 2019. Previously, Amazon Web Services (AWS) had been considered the company’s biggest “cash cow.” But according to the ILSR report, Amazon’s Toll Road, “Drawing on analysts’ estimates of the margins Amazon likely earns on seller advertising and other seller fees, we find that Marketplace may have generated operating profits of $24 billion in 2020 — significantly more than the $13.5 billion in profit that Amazon reported for AWS.”

Amazon disputes the report’s conclusions, asserting in a statement to TechCrunch that the cited numbers “conflate Amazon’s selling fees with our optional add-on services,” and calling the fees they assess “competitive” with other online retailers. But report co-author Stacy Mitchell responds that the “optional” add-on services are hardly that, given the preferential treatment Amazon’s algorithm gives the sellers that pay for them. “If you’re a company that makes or retails consumer products,” Mitchell told The Verge, “You’re damned if you don’t sell on Amazon and damned if you do.”

Fed Happenings: Jefferson Eyed for Governor; Brainard, Powell Nominations Go Before Committee

Lots of staff movement at the Fed in the new year. First, Bloomberg reports the Biden administration intends to nominate economist Philip Jefferson to one of three vacancies on the Federal Reserve Board of Governors. Jefferson, currently vice president for academic affairs, dean of faculty, and an economics professor at North Carolina’s Davidson College, would be only the fourth Black man to serve as governor in the Fed’s century-plus history. Additionally, Banking Dive reports that next week, Senate Banking Committee hearings are scheduled for both Jerome Powell’s renomination as Federal Reserve Bank Chair, and for Lael Brainard’s nomination as one of two Fed Vice Chairs (she currently serves as a Governor).

For more context on these moves and what they mean for U.S. monetary policy in the coming years, check out Oscar Perry Abello’s insightful Next City feature about the Fed’s reckoning with racial equity. The Biden administration is set to appoint three of the seven Board of Governors members, which could affect monetary policy for years to come and significantly diversify a leadership that has traditionally been very white and very male. Abello’s story examines the Fed’s longtime refusal to prioritize full employment as a means for economic empowerment for traditionally marginalized populations, and how their “colorblind” approach to tracking job numbers allowed race-based disparities in unemployment to flourish.

Now that the Fed has changed its monetary policy, Abello says, the scales tilt back slightly toward workers, in particular workers of color. “The Fed has always had this information, but they’ve never had the proper framing, they’ve never said let’s specifically take into account whether everybody is really at the unemployment levels they should be at,” says Next City Board Member Andre Perry, who was interviewed for this story and is a senior fellow at the Brookings Institution. “I would give credit to the many advocates who have been screaming out loud waiting for someone to hear that Black unemployment should be the bar for whether we have a healthy economy.”

New York Bail Reform’s Year One Results Are Both Endorsed and Criticized

City and State reports on the data from the first full year of the bail reform program New York State enacted in 2019, and says that both “opponents and supporters” of the program claim the numbers reinforce their points.

During that first year of the program, nearly 100,000 people were released because of the new reforms, which eliminated cash bail for most misdemeanor and nonviolent felony arrests. While awaiting trial, fewer than 4% were arrested again for a violent felony, which amounts to about 3,400 people. Two-thirds of the 100,000 released were not arrested again; the remaining were charged with misdemeanors or nonviolent felonies.

Advocates for criminal justice reform, including new Manhattan District Attorney Alvin Bragg, intend to build on the current legislation and enact additional reforms on prosecution and sentencing for low-level offenses. But Democratic gubernatorial candidate Rep. Tom Suozzi said in a press conference that 3,400 re-arrests for violent offenses indicated a “serious problem” in the state. “These are not just statistics,” City and State quotes Suozzi as saying. “This is real-life stuff.” Suozzi favors giving judges greater discretion to remand defendants who are deemed “dangerous.”

Regarding the vastly different interpretations of the year-one data, City and State said, “Activists from both sides used that data for vindication — it’s either ‘nearly 4%’ rearrested for violent crimes and a whopping 1 in 3 total rearrested, or it’s ‘only 4%’ with a two-thirds majority of defendants committing no new alleged crimes.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.

Tags: small businessamazonbail

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