Economic incentives and geography

June 16, 2009 by Emsi Burning Glass

image of Lightcast gradiant

The Wall Street Journal published an article last week detailing the move of the NCR Corp. headquarters from Dayton, Ohio, to the Atlanta area. Since then, Ohio lawmakers and others have questioned whether federal stimulus money was used to lure NCR — which manufactures ATMs and other electronic kiosks — to the South, and the role economic incentives should play in business recruitment.

As The Economist, this trend of Southern states attracting companies from Ohio, Michigan, etc., through incentives, lower taxes, and a non-union environment has been going on for a long time. However, another part of the equation has to do with “economic geography.” Here’s an excerpt from a post at The Economist’s Free Exchange blog:

But there are increasing returns to scale in urban economies; that’s the gravitational pull that holds cities together. In that sense, movement of a company from one city to another is a very big deal.

This is one of the tricky parts about stimulus, or indeed, about economic growth in general. Economies are naturally lumpy. Attempts to boost all areas equally will in some sense be counterproductive.

Place matters, and the economic makeup of a region matters in assessing either the loss or gain of a company. A firm leaving a region can have little effect, or be “a very big deal” depending on how interconnected it is to the region. This is where regional cluster analysis and modeling the impacts of a business coming into an area or leaving an area plays a key role in economic and workforce development. With all this, EMSI’s data and tools can help.

To illustrate, we used our input-output tool to model the impact of NCR’s move of its headquarters (1,250 jobs, according to the WSJ) on the Dayton MSA.

  • In the Management of companies industry (NAICS 551114), the loss of 1,250 jobs in the Dayton MSA translates to a total job loss of 3,050 and an earnings loss of $195.5 million when all affected industries are considered.

  • The industries impacted most indirectly via ripple effects are Local government, General medical/surgical hospitals, and Full-service restaurants.

  • The average earnings per worker for the direct jobs lost is $113,000.

For more on the usefulness of input-output modeling, check out our IO Guidebook. And follow this link for an article on cluster analysis.