Predicting a country's inflation is a tricky and complex
task. In the United States, the U.S. Bureau of Labor Statistics routinely sends testers into
stores to record prices for everything from cheese to tires, and surveys
consumers over the phone how much they spend on gasoline and funeral services.
But apparently, Amazon thinks it can do better.
With the help of
outside researchers, Amazon's economists are working on a way to measure
inflation by making thousands of transactions on their platform. Such way
includes automatically analyzing product descriptions to better assess the
quality of clothing, juicers, or bath mats, theoretically creating a more
accurate and up-to-date product price index. This is just one of the ways
Amazon uses the economists it has recruited in recent years. The e-commerce
giant has now begun to expand from retail business into a number of business
sectors, including cloud computing, while upending the conventional role of
economists at companies.
recruits a large number of graduating PhD economists every year. In the United
States, there are only about 1,000 PhDs in economics graduate each year.
Although the definition of "economist" today is rather vague, the
discipline is often understood as "studying how people use resources and
react to incentives". Amazon has hired more than 150 PhD economists in the
past few years, making it the largest employer in the field after the Federal
Reserve (which employs hundreds of economists). It was also the only company to
have a recruitment booth at the Annual Meeting of the American Economics
Association in January, where pens and trademarked stress balls were handed out
economists who work in academia or government departments, Amazon economists
are almost completely secretive about what they do, and they must sign
confidentiality agreements to begin their work. According to background checks
and leaks from Amazon itself, these economists have been crucial to the company's
phenomenal growth in e-commerce.
economists are responsible for making real estate related decisions, setting
minimum prices for products that bring profit to the company, accurately
identifying customer needs, and determining whether ads are effective. All of
this uses machine learning algorithms that automate decisions on a large scale.
Smaller companies can't afford such systems, leaving Amazon huge advantages
over its competitors.
It's not just
Amazon where corporate economists play a role in the U.S. Other tech companies
that use economists effectively, such as Uber, which has a team of 30
economists, have expressed admiration for the size of the team that Amazon has
built. Uber's chief economist, Jonathan Hall, said in a speech to the American
Economic Association in January that, "Amazon is the only company that
employs a lot of economists and has been hugely successful as a result."
While many companies hire economists to serve as their public spokesmen or to
guide their overall corporate strategy, both Uber and Amazon have tried to make
them key advisers on almost every business decision and to replace human
intuition with vast amounts of data.
economists, economists used to play more of a conventional "chief
economist" role. In fact, economists are no strangers to private
businesses. They have long helped forecasting macroeconomic conditions to guide
strategic decisions about what to produce, which markets to enter, and where to
source raw materials. Their role is also familiar to technology companies, for
example, companies such as IBM, Intel, and Microsoft have had such roles for
decades. For example, Google chief economist, Hal Varian, helped design the
company's new auction model for initial public offering and also proved that
Google had not violated the antitrust laws. Google revealed that the company
now employs about 300 economists and statisticians, but declined to provide
Over the past
few years, a number of small consumer-facing tech companies, such as Homeaway
and Indeed have begun hiring economists to process user data and generate some
data interpretations. These data interpretations can be packaged into a media
format and made available to journalists. These companies also have certain
government relations functions and use data to show the positive impact of the
company on a particular community.
According to a
recent paper by Harvard Business School professor Michael Luca and Stanford Graduate
School of Business professor and former Microsoft economist Susan Athey, the
number of tech companies that advertise jobs for economists in the American
Economic Association's job listing database increased from 15 in 2014-15 to 21
in 2017-18, and is expected to increase even more this year. Considering that
not all tech companies openly advertise for economist positions, that number
may not be the whole story. IBM Chief Economist Martin Fleming said,
"Imagine if you are a major retailer with a large number of stores, we can
typically predict accurately 30-40% of the sales performance of stores".
With today's machine learning and AI capabilities, we're approaching 90%
accuracy in predicting business performance at a given location."
For economists, there
was an assumption that "the private sector was a fallback option for those
who could not get a job at university." While corporate economists rarely
publish in academic journals, they are often paid handsomely, unlike scholars
in many fields of the humanities. In Amazon, even the average economist's
salary is as high as USD 160,000, and corporate economist
may become a popular choice in the future.
in using economists to serve its business provides a case study for companies
to allow the economists exert their talent in the future. Corporate economist is likely to become a
popular choice in the future, and companies that successfully utilize economists
are more likely to outdo their competitors.
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