Following a year in which almost 3,000 cities submitted a bid, Amazon’s much-touted HQ2 announcement has arrived. Instead of opening a single facility employing as many as 50,000 workers over the next 15 years, the company decided to split operations into two or more smaller facilities. Locations include Queens, New York, and Rosslyn, Virginia.
The news was not surprising, but many cities — including Chicago, Indianapolis and Columbus, Ohio, which made it into the final 20 — felt some understandable disappointment. There are some important lessons here.
The first lesson is that Queens and Rosslyn are among the most expensive sites Amazon could have chosen. Land costs are more than $4 million per acre in Rosslyn and top $2.5 million per acre in Queens. There are large commercial tracts available in Indianapolis for $50,000 an acre. The average wage per job in Arlington, Virginia, is 40 percent higher than the highest-paying county in the Indianapolis metropolitan area. Wage and salary data in Queens is similar.
Some 70 percent of Rosslyn residents have a bachelor’s degree or higher. Only a third of those in Indianapolis, Columbus and Queens have college degrees.
The very robust transportation system in New York means Amazon can draw on a 4.2 million-person labor force. The D.C. Metro system is less robust, but the Rosslyn location is rich with talent. To attract the same talent in the D.C. or New York metro areas, Amazon will have to pay close to twice as much in salaries and benefits.
Given the huge gulf in costs, the incentive packages are almost a minor afterthought. Both locations are offering roughly $25,000 per job in incentives, though I would expect that to grow over the coming years. This is high, but to put this deal in context, Wisconsin has offered Foxconn more than $350,000 per job. The Foxconn jobs pay only between one quarter and one third as much as the average Amazon job.
The clearest lesson of Amazon is that people matter to business location decisions, probably more than everything else combined. Not only are these two locations several times more expensive than most applicant cities; the sheer scale of the D.C. and New York City metropolitan areas will make these companies far less important than they would be in, say, Columbus, Ohio.
To understand that firms care about value rather than cost, you must accept the following fact: To attract high-tech jobs means that first, you need a community that can attract high-tech workers and their families.
Indianapolis and Columbus made it onto Amazon’s list because they are attracting these types of workers, just not yet at the scale of New York and D.C.
What these residents do want is to live in more prosperous places where their families can flourish. Tax incentives and a business-friendly tax climate likely do little to attract families; it is worth noting that New York ranks 48th for business taxes, and Indiana ranks 10th. So what does attract families?
The Washington, D.C., metropolitan area is home to 33 high schools that rank in the U.S. News and World Report’s top 100 list. The Indianapolis metropolitan area has only four, and Columbus, Ohio has eight. Scaling both cities by population, both should have at least 12 of these elite high schools.
Families don’t flourish because of tax incentives or local economic development efforts. Schools, public safety and transportation infrastructure matter more than all the bells and whistles and fancy presentations to site selectors.
Michael J. Hicks is the George & Frances Ball Distinguished Professor of Economics and director of the Center for Business and Economic Research and professor of economics at Ball State University. Send comments to [email protected].