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Thursday, September 17, 2020
Why Does Amazon Hire so Many PhD Economists?
Chan Kung

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.

Amazon now 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 for free.

Unlike 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.

Amazon's 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.

As corporate 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 further details.

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.

Final Analysis Conclusion:

Amazon's success 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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