Based on updated data, confirms findings from a 2007 study that the relocation of businesses into and out of California accounts for a very small share of the state's job gains and losses. Includes comparisons with other states and with in-state moves

Jed Kolko

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 Business Relocation and Homegrown Jobs, 1992–2006  September 2010 Jed Kolko Supported with funding from the David A. Coulter Family Foundation  http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  2  Summary This research updates with two additional years of data (2005 and 2006) PPIC’s 2007 report Business Location Decisions and Employment Dynamics in California. Relying on the most recent data, this analysis reconfirms that business relocation—the movement of business establishments from one state to another—accounts for a very small share of California’s employment fluctuations. In fact, relocation accounts for a smaller share of job gains and losses in California than in most other states, in part because most California businesses lie far from the border of neighboring states. This report expands on our earlier research with a closer examination of births, deaths, expansions, and contractions of businesses, assessing in particular how much of these gains and losses occur among locally headquartered businesses. Although regional economic development policies often focus on encouraging businesses headquartered elsewhere to relocate, open, or expand local operations, the strong majority of job gains and losses are “homegrown” in that they take place in locally headquartered businesses.     http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  3  Business Relocation and Homegrown Jobs Employment Dynamics in California Few businesses move into or out of California. From 1992 through 2006, about 16,000 jobs annually moved into California and about 25,000 jobs annually moved out of California. The annual net employment change in California due to relocation—a loss of about 9,000 jobs—represents only 0.05 percent of California’s 18 million jobs.1 Most employment gains and losses are the result of other factors. Jobs are gained due to births of new establishments, expansions of existing establishments, and the in-migration of establishments to the state (only 1 percent of all of the job gains in California from 1992 through 2006 were due to the relocation of businesses into the state). Jobs are lost due to closures of existing establishments, contractions of existing establishments, and the out-migration of establishments from the state (only 1.7 percent of all job losses in California from 1992 through 2006 were due to establishments leaving the state). In fact, as shown in Figure 1, throughout all of the ups and downs of the business cycle, only a small fraction of the state’s job losses are due to businesses leaving the state. Between 1992 and 2006, jobs leaving the state never accounted for more than 2.3 percent of job losses in any given year.  FIGURE 1    Net employment change and relocation in California, 1992–2006 Relocation and Employment in Other States As shown in Table 1, relocation into and out of the state contributes less to job gains and losses in California than in most other states. In the nation as a whole, job relocations at the state level accounted for 1.9 percent of job gains and 2 percent of job losses, compared to 1 percent of gains and 1.7 percent of losses in California.                                                            1 See Jed Kolko and David Neumark, Business Location Decisions and Employment Dynamics in California (PPIC, 2007), for a discussion of the dataset (National Establishment Time-Series) and methodology used in this analysis to measure relocation and other sources of job creation and destruction.  -3%-2%-1%0%1%2%3%4%Net overall employment changeShare of job losses due to relocation outside of California     -  -  -  % http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  4  Relative to the nation overall, more of California’s job gains and losses are due to the births and deaths of establishments already located in the state.  TABLE 1  Share of gross job changes, cumulative, 1992–2006 All states (%) California (%) Job gains   Expansions 41.8 40.6 Births 56.3 58.4 Moves into state 1.9 1.0 Job losses   Contractions 35.6 33.3 Deaths 62.3 65.1 Moves out of state 2.0 1.7 As shown in Table 2, relocation to other states is responsible for the highest share of total job loss in the District of Columbia, Delaware, New Jersey, and New Hampshire. These are all relatively small states where much of the economic activity occurs close to a state border. Thus, many businesses in these states could relocate to a neighboring state and still retain most of their workforce, reducing the cost of relocation. South Dakota and Kansas also experience more cross-state relocation than most other states. Although these states are not geographically small, each state’s largest city lies near the state border (Sioux Falls, South Dakota, is close to the state of Iowa; Kansas City, Kansas, is close to Missouri). TABLE 2Highest  Highest and lowest share of job losses due to out-of-state relocation,  cumulative, 1992–2006  % Lowest  % District of Columbia 6.9 Alaska 0.9 Delaware 4.5 Hawaii 1.0 New Jersey 3.9 Texas 1.2 New Hampshire 3.6 Montana 1.2 South Dakota 3.6 North Dakota 1.3 Maryland 3.1 Mississippi 1.4 New York 3.0 Wisconsin 1.4 Maine 2.9 Arizona 1.4 Connecticut 2.8 Utah 1.4 Kansas 2.6 Louisiana 1.4 In contrast, relocation accounts for the lowest share of total job loss in Alaska and Hawaii, neither of which borders another state. Texas and Montana are next on this list. Most of the economic activity in these geographically large states occurs at a considerable distance from the state border. California comes in below the national average in terms of job loss due to relocation, holding the 21st-lowest position among the states. All of California’s major centers of population and economic activity are far from the bordering states of Oregon, Nevada, and Arizona. Very few California businesses can relocate to another state without having to replace most of their workforce, making relocation out of (or into) California more costly than in most http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  5  other states. Of course, because California is the most populous state, more businesses  move out of (and into) California than out of (and into) most other states, in absolute terms; but as a share of total job losses, job displacement resulting from establishments leaving the state is less common in California than in most other states.  “Homegrown” Local Growth Most business relocations occur within rather than across states.2Economic development efforts in California and elsewhere often involve trying to attract new businesses from outside a local area, either through relocation or by encouraging businesses headquartered elsewhere to open new establishments or to expand existing establishments in the local area. However, most job gains and losses are, in fact, “homegrown.” The main sources of job creation (the expansions and births of establishments) and the main sources of job destruction (the contractions and deaths of establishments) occur both in locally owned businesses and through businesses headquartered elsewhere. A new establishment in an area might be an entirely new business (e.g., a new independent cafe), a new location of an existing locally owned business (e.g., a new Oakland branch of Peet’s coffeehouse, headquartered in neighboring Emeryville), or a new location of a business headquartered outside the county (e.g., a new San Francisco branch of Seattle-based Starbucks). We consider the first two types of births to be homegrown in that they are the result of decisions made by a local company or entrepreneur, rather than made elsewhere. But even in the case of cross-county moves within a state, relocations account for only a small share of job gains and losses. Across all counties in California, within-state relocation across county lines accounts for just 4.2 percent of job gains and losses. 3In California, 74 percent of job gains (see Figure 2A) and 68 percent of job losses (see Figure 2B) are homegrown. Most job gains are due to the births and expansions of locally owned businesses; most job losses are due to the contractions and deaths of locally owned businesses. Businesses headquartered outside a county contribute much less to local employment fluctuations. The homegrown shares of job gains and losses are even higher in smaller cities and towns and in rural areas. Among the non-metropolitan counties  in California, 79 percent of job gains and 74 percent of job losses are homegrown. Thus, although luring businesses from elsewhere or convincing them to open or expand locally is a common economic development strategy, and preventing businesses from leaving the state is a political refrain,  4  most job gains and losses are homegrown.                                                            2 See Kolko and Neumark, Business Location Decisions. 3 Expansions, contractions, and deaths are also homegrown if they are businesses with a single location (and therefore its own headquarters) or larger businesses headquartered locally. Births, deaths, expansions, and contractions in businesses headquartered elsewhere—i.e. outside the county—are not “homegrown” sources of job gain or loss; neither are job gains and losses due to relocation. “Homegrown” includes job gains and losses in local businesses founded by immigrants or domestic migrants. Although businesses rarely relocate, entrepreneurs and workers often do. See AnnaLee Saxenian, Silicon Valley’s New Immigrant Entrepreneurs (PPIC, 1999) and Magnus Lofstrom, Entrepreneurship among California’s Low-Skilled Workers (PPIC, 2010). 4 See Kolko and Neumark, Business Location Decisions. http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  6  FIGURE 2A   Share of total jobs gained in California, 1992–2006  FIGURE 2B   Share of total jobs lost in California, 1992–2006  NOTE: Homegrown employment gains and losses are represented by darker wedges.   Births, locally owned44%Expansions, locally owned30%Births, HQ'd elsewhere13%Expansions, HQ'd elsewhere8%Moves in, intrastate4%Moves in, interstate1%Deaths, locally owned45%Contractions, locally owned23%Deaths, HQ'd elsewhere17%Contractions, HQ'd elsewhere9%Moves out, intrastate4%Moves out, interstate2%http://www.ppic.org/main/home.asp Business Relocation and Homegrown Jobs, 1992–2006  7  About the Author  Jed Kolko is an associate director of research at the Public Policy Institute of California, responsible for managing the institute's economy research. He has conducted numerous studies of the California economy, economic development, housing, and technology policy. Prior to coming to PPIC in 2006, he was vice president and research director at Forrester Research, a technology consultancy, where he managed the company’s consumer market research businesses and served as the lead researcher on consumer devices and access technologies. Jed has also worked at the Office of Federal Housing Enterprise Oversight, the World Bank, and the Progressive Policy Institute. He holds a Ph.D. in Economics from Harvard University. The views presented in this report are the sole responsibility of the author and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California.     PUBLIC POLICY INSTITUTE OF CALIFORNIA Board of Directors Walter B. Hewlett, Chair Director Center for Computer Assisted Research  in the Humanities Mark Baldassare President and CEO Public Policy Institute of California Ruben Barrales President and CEO San Diego Chamber of Commerce Maria Blanco Executive Director Chief Justice Earl Warren Institute on Race, Ethnicity and Diversity University of California, Berkeley School of Law John E. Bryson Retired Chairman and CEO Edison International Gary K. Hart Former State Senator and Secretary  of Education State of California Robert M. Hertzberg Partner Mayer Brown LLP Donna Lucas Chief Executive Officer Lucas Public Affairs David Mas Masumoto Author and farmer Steven A. Merksamer Senior Partner Nielsen, Merksamer, Parrinello,  Mueller & Naylor, LLP Constance L. Rice Co-Director The Advancement Project Thomas C. Sutton Retired Chairman and CEO Pacific Life Insurance Company                          The Public Policy Institute of California is dedicated to informing and improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute’s goal is to raise public awareness and to give elected representatives and other decisionmakers a more informed basis for developing policies and programs. The institute’s research focuses on the underlying forces shaping California’s future, cutting across a wide range of public policy concerns, including economic development, education, environment and resources, governance, population, public finance, and social and health policy. PPIC is a private operating foundation. It does not take or support positions on any ballot measures or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. PPIC was established in 1994 with an endowment from William R. Hewlett. Mark Baldassare is President and Chief Executive Officer of PPIC. Walter B. Hewlett is Chair of the Board of Directors.    Short sections of text, not to exceed three paragraphs, may be quoted without written permission provided that full attribution is given to the source and the above copyright notice is included. Research publications reflect the views of the authors and do not necessarily reflect the views of the staff, officers, or Board of Directors of the Public Policy Institute of California. Copyright © 2010 Public Policy Institute of California All rights reserved. San Francisco, CA                   PUBLIC POLICY INSTITUTE OF CALIFORNIA 500 Washington Street, Suite 600  San Francisco, California 94111 phone: 415.291.4400     fax: 415.291.4401 www.ppic.org     PPIC SACRAMENTO CENTER Senator Office Building 1121 L Street, Suite 801 Sacramento, California 95814 phone: 916.440.1120 fax: 916.440.1121  

Business Relocation and Homegrown Jobs, 1992-2006

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Business Relocation and Homegrown Jobs, 1992-2006

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