Cities vie for Amazon HQ2, but will it deliver?
WASHINGTON — Dozens of cities are working frantically to land Amazon’s second headquarters, raising a weighty question with no easy answer: Is it worth it? Amazon is promising $5 billion of investment and 50,000 jobs over the next decade and a half. Yet the winning city would have to provide Amazon with generous tax breaks and other incentives that can erode a city’s tax base.
Most economists say the answer is a qualified yes — that an Amazon headquarters is a rare case in which a package of at least modest enticements could repay a city over time. That’s particularly true compared with other projects that often receive public financial aid, from sports stadiums to the Olympics to manufacturing plants, which generally return lesser, if any, benefits over the long run.
For the right city, winning Amazon’s second headquarters could help it attain the status of “tech hub,” with the prospect of highly skilled, well-paid workers by the thousands spending freely, upgrading a city’s urban core and fueling job growth beyond Amazon itself.
Other companies would likely move, over time, to that city, including employers that partner with Amazon in such cutting-edge fields as virtual reality and artificial intelligence. Some Amazon employees would also likely leave the company to launch their own start-ups, thereby producing additional job growth.
In theory at least, those trends could help attract more highly educated residents in a virtuous cycle that helps increase salaries and home values.
“This definitely beats other deals that I have seen, to be sure,” said Enrico Moretti, an economist at the University of California at Berkeley and author of “The New Geography of Jobs.”
It’s that hope that has triggered excitement, from Chicago to New York and New Jersey to Maumee, Ohio (population 14,000). The deadline for submissions was Thursday.
High-tech firms like Amazon create a “clustering effect,” Moretti’s research has found, whereby a company attracts workers with specialized knowledge in, say, software and data analysis. These workers are rare in other cities but reach a critical mass in a tech hub.
And higher-skilled workers are more productive when they work in proximity to each other, sharing ideas and experiences.
A result is that each new high-tech job can create up to five more jobs, Moretti estimates. That’s far more “spillover” than is true in manufacturing, where a new job typically creates fewer than two other jobs, he calculates. His findings suggest that Amazon’s second headquarters could lead to as many as 300,000 total jobs over a couple of decades.
The spillover job growth would likely include not only other high-tech positions but also professional occupations — doctors, accountants and architects, for example — in addition to higher-paying blue collar jobs and lower-paid service jobs at retailers and restaurants.
By contrast, manufacturing jobs tend to decline over time, Moretti said, as factories become more efficient through automation or succumb to competition from overseas.
Like most economists, Moretti doesn’t think cities should dangle billions in subsidies to Amazon. Many say local governments should focus on developing assets that would benefit the larger region, such as offering to upgrade community colleges.
Still, for a city struggling to develop a modern economic base, landing Amazon could be transformative.
“It’s certainly big enough that one place, particularly in the Midwest, could have its fortunes meaningfully improved,” Mark Muro, a senior fellow at Brookings Institution’s Metropolitan Policy Program, said, referring to Amazon’s HQ2 announcement.