Report raises new questions about Amazon, economic development

By: - February 1, 2018 2:40 pm

Amazon jobs and cash incentives to bring those jobs to North Carolina may not be all they’re cracked up to be, according to a new report released today by the Economic Policy Institute.

Amidst the hope and anxiety around Amazon’s HQ2 project, the new report helps bring some important perspective to the fevered speculation surrounding the technology giant’s impending decision of where to locate its second corporate headquarters. The company has promised to create 50,000 jobs and millions in private investment… in exchange for as much as a billion dollars in business incentives from prospective locations. North Carolina, of course, has made the short list.

But the new EPI report raises some thoughtful questions about what it means for the state’s economy and the ways we try to make it grow.

Adding new Amazon jobs to a community doesn’t always grow the total number of jobs in that community—it just shuffles jobs from one industry to another. According to the report, “When Amazon opens a new fulfillment center, the host county gains roughly 30 percent more warehousing and storage jobs but no new net jobs overall, as the jobs created in warehousing and storage are likely offset by job losses in other industries.” In other words, Amazon’s distribution centers may create more warehousing jobs, but their operations are effectively overwhelming local businesses that can’t compete with Amazon’s scale.

A recent Brookings Institution study raised similar concerns, finding that Amazon’s distribution model tends to create the kinds of jobs most likely to vanish due to automation, or that are inaccessible to skilled workers because the physical location of the facility does not match up with where prospective employees live or can travel.

Yet this study focuses on distribution centers, not on headquarters projects like HQ2. So what can it say to North Carolina, currently in the grip of HQ2 fever?

Most importantly, the study reminds us that key public investments are a far better way to grow the overall number jobs in a state or create an economy that benefits everyone. Taxes account for just two percent of overall business costs (and many companies of course take advantage of tax loopholes to pay no taxes at all), despite claims that lowering tax costs is key to securing firm location decisions.  (In fact, economists have found that business incentives are only the deciding factor in “winning” a facility location in about three out of every 10 cases.

Instead, firms care far more about what their tax dollars can buy—a trained workforce, good roads to ship their goods, and good skills for their executives’ kids to attend. In fact, investments in Pre-K programs and early childhood education have proven far more effective at boosting overall job creation than incentives.

Now, this doesn’t mean that North Carolina should scrap its incentive programs, especially as long as other states are using these tools (incentives are still the deciding factor in as much as 30 percent of all location decisions) or when a project comes along that has the very real capacity to transform the state’s economy like an auto plant.

In these cases, discretionary incentives offered on a case-by-case basis may well be the best strategy—as along as strong accountability measures ensure that these projects actually deliver on their promises, drive meaningful benefits back into the community, and don’t undermine key public investments that allow communities to thrive. So in their pursuit of Amazon, here are some recommended tools that North Carolina policymakers should employ to make sure the entire community benefits:

  • Enforcing or establishing accountability measures that ensure companies actually create the number of jobs they promised for every dollar we give them;
  • Investing in strategies that combine sector-wide job training with sector-specific technical assistance on industrial operations and organizational management—these have been found to prove highly effective in boosting job creation;
  • Ensuring Amazon adheres to occupational safety and health laws, especially given the company’s history of labor violations;
  • Building pathways for current residents to access the new good-wage jobs created and limiting the number jobs going to transplants from Washington State;
  • Establishing a “First Source Hiring” commitment that focuses especially on people of color and, where possible, workers from high poverty areas, to make sure that the people who need it most benefit from the project in the construction and operation phases; and
  • Investing in training and building supply chains with smaller, locally owned firms and preferably those that are certified Historically Underutilized Businesses.

This is the key lesson for North Carolina’s policymakers as they consider what to offer Amazon for HQ2 and other projects.

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