Warehouses As Ground Zero For Universal Pay? One Expert Thinks So

E-commerce efforts to appeal to a limited pool of warehouse workers could eventually lead to universal income and more appealing spaces, according to the head of a commercial real estate investment company with properties across more than 20 states.

But Dalfen Industrial President Sean Dalfen said during a Bisnow event last week that the movement among companies to add amenities to warehouse spaces — including air conditioning — and increase hourly pay will likely be temporary until robots take over.

“I can tell you, most corporations don't really care. What they care about is their bottom line. They can tell you they care, but at the end of the day, they're having trouble getting goods on shelves, and it's costing them money. They can condition the warehouse, but on a long-term basis they will get rid of those employees and they will replace them with automation,” Dalfen said. “That's the risk nobody's talking about right now.”

America's labor shortage has impacted much of the service industry, from retail and restaurants all the way to distribution centers. Already, many restaurants are using computers and robots to take orders as the pandemic fueled an automation boom in that industry.

To tackle its labor issue, the e-commerce industry has largely responded with higher pay and other perks, fighting not only to lure in new workers but keep the ones they have from jumping across the street to work at another warehouse for fifty cents to a dollar more an hour, the panelists said.

“You're starting to see some of the similar characteristics of offices where you don't have a break room, you have a café,” Ryan Cos. Senior Vice President Cloteen Jasmin said. Air conditioning in warehouses used to be a luxury, but now is becoming common, and bus stops are being set up in front of distribution centers to help commuters get to work.

Higher-end finishes are becoming more common at distribution centers, especially if there is office space attached. Office space at a Whole Foods warehouse developed by Ryan “rivals some of the offices that we see in office buildings,” Jasmin said.

Cushman & Wakefield Executive Managing Director Nicole Bennett said much of today's labor shortage in the warehousing industry has to do with companies striving to keep costs down but workers tiring of low pay and poor conditions.

“There's a reason why you don't have enough people coming in. You work in a dark, dingy building that's freezing cold and you're not paying enough. You're going to have a labor shortage,” Bennett said. “You start throwing $20, $30, $40 an hour at them, you're going to have massive loads of people coming to pick and pack.”

With the recent boom in the e-commerce and logistics industries, fueled by a rise in online shopping, it would appear these companies have plenty of cash to increase salaries. But e-commerce is plagued by low profit margins on all those sweaters and shoes sent directly to U.S. doorsteps, according to a McKinsey & Co. report. Those margins get even more strained as consumers expect deliveries faster than in years past, Dalfen said, forcing retailers and e-commerce companies to open distribution hubs closer to major population centers, real estate that is often much more expensive.

As operation costs rise, automation becomes more appealing. Warehouse automation is expected to grow 14% a year through 2026, taking it from a $15B industry in 2019 to a $30B one by 2026, according to LogisticsIQ.

Increasing automation potentially threatens the total number of jobs and could lead to a major social revolution, Dalfen said. He said cities that adopted higher minimum wages have seen subsequent job losses on the lowest end of the spectrum. Economists at Iowa State University recently reported similar effects, with up to a 3% loss in jobs for every 10% increase in wages. And in April, economists with the International Monetary Fund said past pandemics have led to jobless recoveries among those at the bottom end of the wage spectrum worldwide.

“So you have self-driving vehicles, you have robots stocking shelves. You get rid of cashiers. You're losing a massive segment of the employment for the population. It will unquestionably be bad,” Dalfen said. “This whole concept of having to re-educate those people, that's a big deal. We haven't seen anything like that since the Industrial Revolution, and I think you're going to have universal basic wage as the need from that standpoint.”

Warehouse automation is not all a bad thing, especially for e-commerce operators facing tight labor supplies across the country, Jasmin said.

“I think that automation is a solution for the labor shortage and it may not necessarily be a zero-sum game. It may actually be complementary, that we make room for automation so that the human experience and human health and wellness can be balanced out so we're not overworking our people and we're not pushing them too far. We also reduce human error,” she said. “Robots don't get sick. They break and you just fix them or put another robot in. Robots don't get tired.”

The switch to electric labor also comes with design shifts at warehouses. Dalfen said companies like Amazon are designing facilities already with an eye toward automation and ways of reducing the need for human labor.

“They also want their floors perfectly flat. They want laser-guided machinery capabilities. Why? Because they're going to replace these people with machines,” he said. “This is the elephant in the room.”

Amazon opened a facility in Metro Atlanta, spending more than $200M on technology and automation, CRG Real Estate partner Mike Demperio said. But that didn't affect the number of workers Amazon needed at the warehouse, where it still employs 1,000 people.

And despite the trend toward automation, Demperio said he is doubtful that will eliminate the number of jobs companies need at warehouses.

“There's been a push over the last few years to squeeze employees and go to automation. How well did that work?” he said. “We can't automate the world We've tried. But people are necessary. We're going to have to treat them better. We're going to have to pay them more. We're going to have to locate where they can get there. We're going to have to offer them amenities.”