BBA Economic Digest: Staying Put
A Tougher Proposition
There was a time not so long ago when moving to a different town for a new job opportunity was fairly common. That time -- when most households had one primary earner -- is no longer.
The reason: Most households today rely on two incomes and relocating requires finding two good jobs instead of one. That makes it a much tougher proposition for many couples.
More than 60 percent of all U.S. households have two working parents, according to Pew Research Center. White-collar workers are more likely to be part of households where both partners work full time.
"Now, when you have two-professional couples, you don’t want to go to a place where one has a great opportunity and one doesn’t," Rob Atkinson, president and CEO of the Information Technology Innovation Council told Axios.
"You want to go to a labor market where it’s rich with opportunities, and with plenty of back-up plans for both in case the job you went there for doesn't work out."
Smaller markets will often find it more difficult to lure candidates precisely because fewer job options exist for "trailing spouses."
Despite a strong economy, fewer than 10 percent of Americans moved to new places in the 2018-2019 year, the lowest rate since the Census Bureau began tracking domestic relocations in 1947.
The high cost of living in certain big metros often holds people back from looking for new opportunities there, according to Prudential's Pulse of the American Worker survey.
Nearly half of those surveyed said affordability and proximity to family and friends were the most important factors, while only 15 percent listed job opportunities as a primary reason.
Although 6 in 10 people are willing to relocate for a new job, 88 percent wouldn’t commute more than an hour, even for their dream job. Most surveyed said they've lived in their community for more than 15 years. Only 23 percent said they'd relocated for their current job.
Do Not Seek The Treasure
A recent story in The Wall Street Journal shockingly reports (I say that in jest) on a study that questions the value of economic development incentives.
The Journal says state and local governments spend at least $30 billion a year to attract and keep companies, but the biggest deals generate little in the way of economic benefits in return.
The study from Columbia Business School economist Cailin Slattery and Princeton University economist Owen Zidar questions the practice of using firm-specific tax breaks to attract businesses and boost employment.
The researchers found that states tend to offer more incentives when governors are up for re-election and when corporate tax rates are higher to start with.
My take: Academia and the press have long held dismissive if not hostile views toward the idea of incentives being awarded to companies for capital investment and job creation. Add this story to the list.
But mistakes if not horror stories have occurred to the expense of the tax-paying public. That said, I'm not opposed to the judicious use of incentives to "grease the skids" to make investment projects work in certain places.
When I say judicious I mean the economic impact of a project should far outweigh the temporary tax benefits awarded. Done right, this can be a win-win.
In an article that I wrote for the December/January issue of FDI Alliance International, I advised economic developers to realistically assess return on investment in terms of jobs created (both direct and indirect), annual payroll, an assortment of additional taxes expected to be paid, and the general economic effects.
"Only then, when armed with the numbers, should economic developers be offering public dollars as an inducement," I wrote.
I also advised companies to "never to get 'big eyes,' and allow and/or put incentives as the driver of a location investment decision. Rather, solid business reasons, which entail a wide variety of factors usually pertaining to operating costs, should prevail when choosing a location."
Companies should beware of site consultants who promise the Moon. Borrowing a line from the movie O' Brother, Where Art Thou? -- "Do not seek the treasure!"
A Tale of Two Americas
One of the things that I talk about when I speak to economic development groups (I'll be speaking at the Economic Development Association of Alabama later this month) is the two Americas that are cheek in jowl.
In the classic "A Tale of Two Cities," Charles Dickens opens with the famous line that "it was the best of times and the worst of times." I believe that is what we are seeing today.
It is noteworthy that 53 million U.S. workers, about 44 percent of the total workforce, work in jobs with a median hourly wage of $10.22 and median yearly earnings of $18,000, according to a recent Brookings study. About a quarter of low-wage workers are the only earners in their households.
Despite the unemployment rate near a 50-year low, 2019 saw nearly 600,000 people losing their jobs, a 10 percent increase over 2018. There were more job cuts related to bankruptcy in 2019 than in both 2008 and 2009, during the Great Recession.
The oft-invoked healthy American consumer carried the economy last year, but U.S. retailers announced 9,302 store closings, a 59 percent increase from 2018 and the highest number since Coresight Research began tracking the data in 2012. Job gains have largely been confined to certain areas and industries.
Poverty is dropping, but household income hasn't changed much in the past 20 years. On an inflation-adjusted basis, households are making only 2.7 percent more than in 1999. “Most families have just barely made up the ground lost over the past decade,” said Economic Policy Institute senior economist Elise Gould.
Meanwhile, large numbers of Americans are paying significant portions of their income on rent as housing costs have outpaced growth in wages.
Consider this quote from Peter Drucker, one of the most influential thinkers on business that ever was:
"Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."
An economic development organization can distinguish itself through marketing and innovation, but every journey begins with a first step. As I suggested in our Digest last week, having a mission statement is a good place to start.
EDOs should write mission statements (I can help) because it forces them to state their purpose for being. A mission statement gives meaning, not just to clients, which would include existing businesses and stakeholders in the community, but also to staff.
It can also prevent misunderstandings, douse unreasonable expectations, and go a long way in preventing professional economic developers from getting sideways with their boards. Again, this is an area where we at BBA can help.
“The effective mission statement is short and sharply focused. It should fit on a T-shirt,” Drucker wrote. “It must be clear, and it must inspire. Every board member, volunteer, and staff person should be able to see the mission and say, ‘Yes. This is something I want to be remembered for.’”
Real Estate Realities
Regardless of who owns property or what type of ownership it may be, government retains four rights in land. Think the acronym PETE.
Police Power is the right of government to regulate and control the way land is used. The most common is zoning. Other examples include wetlands and environment protection, health and fire codes.
Eminent Domain is the right of the government to take private land for public use. The land is supposed to be taken for the common good, and the action of doing so is called condemnation.
Taxation is the right to tax real estate. Property taxes, aka ad valorem taxes, is based on value. The greater the value, the higher the taxes.
Escheat is the process of transferring real estate to the state when a person dies without a will and heirs. If property is abandoned, the government takes ownership via escheat. We'll go into more details about these rights of government in upcoming segments.
What We're Reading
The Future of America’s Contest with China The New Yorker
He Was One of Mexico’s Deadliest Assassins. Then He Turned on His Cartel. The New York Times
What fossils will modern-day civilization leave behind? Science Magazine
The Last GE Man The Economist
How Will History Books Remember the 2010s? Politico
The Twin Trends of Aging and Automation Marsh & McLennan Advantage Insights
Our BBA Team
In publishing this newsletter, it is my hope is that economic developers will be able to leverage any newfound information gained and become more successful at what they do.
That is at least my goal. And, of course, I want them to know that BBA stands ready to help with consulting services that we offer.
But I also have learned to ask for help when I need it. And let me tell you that I need it, because if I solely depended on my wits, this BBA ship would have sunk a long time ago.
At this time I want to publicly thank the BBA team -- Tim Feemster, Barry Albrecht, Mike Lehmkuler, Rob O'Brian, Dan Collins, Ben Magill and Andrew Sloss. Each have specialized knowledge that I don't possess.
Before I tell you of their expertise, I should acknowledge that this team, with members scattered around the country, lacks diversity, and I take full responsibility with the hope to change that. Your thoughts and ideas are welcomed. Feel free to call or write me to privately discuss.
Tim is my supply chain, logistics guru and is based in Dallas, about a mile from me. Barry is in Oklahoma doing site selection work for the defense industry, which he understands thoroughly. Mike in North Carolina has a deep understanding of the automotive industry and manufacturing.
Rob in Missouri has great knowledge of organization and the complexities of running an economic development organization. My friend Dan Collins here in Dallas has a background in energy, artificial intelligence and high level corporate affairs.
Ben, also in Dallas, is my go-to person when it comes to labor analytics, hugely important these days. Andrew in Houston is my tax expert, which can be especially important in the site selection.
On any given project -- be it one to help an economic development organization or a company for a site search -- any one of these individuals may be involved.
I just thought you should know who they are. Visit our team page to learn more about this most talented group.