Contributor Post Created with Sketch. Yeah, It Looks Like New York City Made a Big Mistake Spurning Amazon

 

Technically, I guess, it was Amazon who rejected the Big Apple last February — deciding not to build a massive corporate campus in Queens and locating some 25,000 jobs there — rather than the other way around. (The company is still coming to Virginia, the other winner of its nationwide “search.”)

But that cancelation of Amazon’s announced plans came after “an unexpectedly fierce backlash from lawmakers, progressive activists, and union leaders, who contended that the tech giant did not deserve nearly $3 billion in government incentives,” according to The New York Times. A comparatively small group of noisy activists may have seen it as a victory, but most New Yorkers didn’t. Same with Gov. Andrew Cuomo and Mayor Bill de Blasio who sought to “diversify the city’s economy from being so dependent on Wall Street.”

Just how much did that backlash cost NYC. Here is economist Enrico Moretti, author of The New Geography of Jobs, in a fantastic interview with the Richmond Fed (bold by me):

Forgoing Amazon had a cost for New York in terms of missed diversification. The tradable sector of New York City — the type of jobs that engage in producing services sold outside New York City — is historically heavily dependent on finance. Diversification of the New York labor market is a good thing for the city because it is too dependent on one sector.

The cost to New York is represented not only by the 25,000 forgone Amazon jobs, but more importantly, also by the forgone agglomeration effects Amazon could have brought to New York. By having Amazon in New York, the city could have attracted more internet and software companies. My work suggests that the indirect agglomeration benefits would probably have been even more important than the direct effect of adding 25,000 new jobs inside Amazon. Overall, the city has forgone a large number of good jobs, not just within Amazon but from an entire ecosystem that could have formed around Amazon. Keep in mind that while finance still offers excellent average salaries, over the past 10 years, salaries in tech have grown more than salaries in finance.

The New York economy, of course, will survive. Without Amazon, it might grow less and might be less diversified. But it remains a thriving regional economy with strong fundamentals.

An important related question is what does this mean for the national economy as a whole. Those 25,000 Amazon jobs are going to locate somewhere else in the United States, so from the national point of view, those jobs are not lost. However, from the national point of view, there are aggregate advantages stemming from the concentration of high-tech employment. 

In a new paper I just finished, I find that by concentrating geographically, high-tech firms and workers become more productive and more innovative, which has aggregate benefits for the national economy. In particular, if you take the current location of inventors in the United States, which is now very concentrated in a handful of locations, and you spread it across all cities, to the point where you equalize the number of inventors in each city, the US aggregate production of innovation in the United States would decline by about 11% as measured by number of new patents. Thus, the concentration we observe in tech employment has drawbacks in the sense that it increases inequality across cities, but at the same time, it is good from the point of view of the overall production of innovation in the country. I see this as an equity-efficiency trade-off.

There are 9 comments.

  1. Stad Thatcher

    James Pethokoukis: Same with Gov. Andrew Cuomo and Mayor Bill de Blasio who sought to “diversify the city’s economy from being so dependent on Wall Street.”

    If Wall Street firms would only move out. They could save millions moving to other cities. Is it the threat of lawsuits should they pull up their tent stakes and haul off? Is it the powerful not wanting to leave the cultural aspect of living in New York?

    Darned if I know, but I think about what would happen if blacks left the Democrat party and voted solid Republican – the Dems would cease to exist. I wonder if Cuomo and De Blasio have heard rumblings of such a defection by Wall Street . . .

    • #1
    • July 31, 2019, at 2:25 PM PDT
    • 2 likes
  2. cdor Member
    cdor Joined in the first year of Ricochet Ricochet Charter Member

    James Pethokoukis: In particular, if you take the current location of inventors in the United States, which is now very concentrated in a handful of locations, and you spread it across all cities, to the point where you equalize the number of inventors in each city, the US aggregate production of innovation in the United States would decline by about 11% as measured by number of new patents.

    How can one know this statement is true? My question to all these high-tech geniuses would be, have you ever heard of Skype or Facetime? And my question to the author, @jamespethokoukis is, how did you conclude the number 11%?

    • #2
    • July 31, 2019, at 2:29 PM PDT
    • 4 likes
  3. Gossamer Cat Coolidge

    cdor (View Comment):

    James Pethokoukis: In particular, if you take the current location of inventors in the United States, which is now very concentrated in a handful of locations, and you spread it across all cities, to the point where you equalize the number of inventors in each city, the US aggregate production of innovation in the United States would decline by about 11% as measured by number of new patents.

    How can one know this statement is true? My question to all these high-tech geniuses would be, have you ever heard of Skype or Facetime? And my question to the author, @jamespethokoukis is, how did you conclude the number 11%?

    Skype or Facetime is simply not the same as the day to day and spontaneous interactions you have when you are in a place with a high density of talent. You don’t accidentally bump into someone on Facetime or Skype like you do in an elevator or a coffee shop. I have worked remotely and it is the spontaneous conversation that I missed the most. And, where I found, a lot of good ideas came from.

    • #3
    • July 31, 2019, at 5:46 PM PDT
    • 4 likes
  4. Al Sparks Thatcher

    There are other areas of the United States that call themselves a Silicon Valley like area, what the experts call technopoles.

    Wikipedia lists Austin, Denver-Boulder, Huntsville, Philidelphia-Wilmington-Trenton, Raleigh-Durham, and Seattle as other technopoles.

    I just talked to someone in Austin who provided us assistance on an extended support call (his employer is Dell) and he had worked in Silicon Valley. I posited that at least the rent is lower there. He said that cost of housing has tripled in Austin the last few years.

    New York City already starts out as expensive for workers. How much more would Amazon add to the existing residents’s problems there?

    In any case, I don’t agree with local goverments giving out tax incentives to particular corporations for locating in a particular area, whether it’s tech firms or sports teams.

    If it’s not unconstitutional (as in equality under the law, including tax law) then it should be.

    And I wonder if, like Silicon Valley which became what it is spontaneously without tax incentives, the other technopoles did too.

    • #4
    • July 31, 2019, at 9:09 PM PDT
    • 2 likes
  5. Jon1979 Lincoln

    Stad (View Comment):

    James Pethokoukis: Same with Gov. Andrew Cuomo and Mayor Bill de Blasio who sought to “diversify the city’s economy from being so dependent on Wall Street.”

    If Wall Street firms would only move out. They could save millions moving to other cities. Is it the threat of lawsuits should they pull up their tent stakes and haul off? Is it the powerful not wanting to leave the cultural aspect of living in New York?

    Darned if I know, but I think about what would happen if blacks left the Democrat party and voted solid Republican – the Dems would cease to exist. I wonder if Cuomo and De Blasio have heard rumblings of such a defection by Wall Street . . .

    If you go back half a century, when New York City implemented its own income tax, the progressives of the day thought they could get away with it with zero consequences, because the city was so fatasmagorical that the rich and those who were CEOs would never move themselves or their companies out of the city. A decade of outward migration (some simply to then-low tax Connecticut or New Jersey, others further afield) caused the city to skirt bankruptcy and for the city and state to start offering up huge tax breaks to big Wall Street firms and other companies, to keep them from destroying the city’s tax base.

    Fast forward a quarter-century past the Giuliani revival of New York, and you have progressives who neither know nor care what happened 50 years ago, and think the same thing. They can shun big corporations from coming to the city, and put the screws to the ones already there, because the city is such an incredible place, no one who really matters would want to leave. Even de Blasio isn’t as clueless as AOC on that front (though mainly because he wants to squeeze the big corporations for his own personal benefit).

    • #5
    • August 1, 2019, at 4:33 AM PDT
    • 2 likes
  6. Stad Thatcher

    Jon1979 (View Comment):
    Fast forward a quarter-century past the Giuliani revival of New York, and you have progressives who neither know nor care what happened 50 years ago, and think the same thing. They can shun big corporations from coming to the city, and put the screws to the ones already there, because the city is such an incredible place, no one who really matters would want to leave. Even de Blasio isn’t as clueless as AOC on that front (though mainly because he wants to squeeze the big corporations for his own personal benefit).

    The left seems to always assume a static model in all of its plans. They think they can arbitraily raise taxes and nothing will change, people will just suck up and take it. Then they scratch their heads when actual revenue doesn’t match up to projections.

    There has to be some breaking point which would make Wall Street companies pull up stakes and move.

    • #6
    • August 1, 2019, at 6:32 AM PDT
    • 1 like
  7. Gossamer Cat Coolidge

    Gossamer Cat (View Comment):
    Skype or Facetime is simply not the same

    If you’d like a chuckle about web meetings, see https://www.youtube.com/watch?v=DYu_bGbZiiQ

    • #7
    • August 1, 2019, at 11:47 AM PDT
    • Like
  8. Stina Member

    Al Sparks (View Comment):
    Wikipedia lists Austin, Denver-Boulder, Huntsville, Philidelphia-Wilmington-Trenton, Raleigh-Durham, and Seattle as other technopoles.

    Orlando used to be a mini technopole for simulations, with quite a few simul-tech developers in the area.

    That changed when Scott became governor. I’m not quite certain what happened there, as I left the industry around that time.

    • #8
    • August 1, 2019, at 12:34 PM PDT
    • Like
  9. Stina Member

    Gossamer Cat (View Comment):
    Skype or Facetime is simply not the same as the day to day and spontaneous interactions you have when you are in a place with a high density of talent. You don’t accidentally bump into someone on Facetime or Skype like you do in an elevator or a coffee shop.

    Would having satellite offices alleviate the concentration issue while maintaining the face to face time AND utilizing meeting tech to bring satellite groups into communication?

    I mean, I get the interaction stuff, but I literally talk to nobody who knows my stuff and just hearing my thoughts out loud is enough to get me in another direction, in which case my 10 year old is quite helpful :p

    Message boards like Stack Overflow are also incredibly useful to network with people who have specialized knowledge. Utilizing an internal Stack Overflow type QA for businesses with satellite offices and contractors could be done for sensitive projects.

    Misthiocracy posted in the link library that the US is one of the lowest in economic innovation. I think a part of that is we have developed old thinking that thinks things can’t change. That attitude is pretty strong in tech, even while being heavily populated by young people.

    • #9
    • August 1, 2019, at 12:46 PM PDT
    • Like