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What Amazon’s HQ2 Means for City Economies

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Phone: 203-610-0235
Mon - Fri : 09:00 - 17:00
What Amazon’s HQ2 Means for City Economies

Amazon wants to open a second headquarters – HQ2 – and cities all over the US have been scrambling to bid for the honor. Normally, city and state governments bid for incoming business in secret. Amazon’s public solicitation has launched this affair in the open. Nearly every major metropolitan area in North America has been invited to make their pitch for HQ2.

HQ2, according to Amazon, will open up to 50,000 high-paying jobs within the chosen community. The estimated average salary for these jobs is over $100,000 a year. That is on top of an estimated investment in the area of more than 5 billion US dollars for construction alone. Aside from the initial hiring and investment, Amazon foresees the operation of HQ2 as generating tens of thousands of additional jobs. The online retail giant also expects to invest tens of billions of dollars more within the surrounding community.

Amazon sees HQ2 as a sort of clone to the 8.1 million-square-foot behemoth in Seattle. The investments that Amazon has made in these existing offices since 2010 have added 38 billion dollars in additional investments to Seattle’s economy, the company reports. This equates to a boost of 140% over what Amazon itself invested.

Amazon’s Requirements

Amazon isn’t just asking the entire North American continent to come on down and place their bids. They have specifics. They want metro areas that have:

  • at least one million residents
  • excellent institutions of higher education
  • mass transit infrastructure
  • quality Internet infrastructure
  • access to an international airport
  • an HQ2 location near major highways
  • an attractive financial incentive (e.g. tax cuts, relocation grants, fee reductions)

HQ2 EconomiesThe population and infrastructure make sense in terms of Amazon’s need to populate HQ2 with top talent. They also need to be able to attract outside talent that would need to relocate. Plus, they would need such infrastructure for smooth operations. The last two requirements is just because they can. It’s almost an unspoken corporate expansion rule, but Amazon is also a top-level company that cities all over the country are swooning over. Fortune ranks Amazon as the second World’s Most Admired Companies. Amazon placed first on The Harris Poll’s Corporate Reputation survey. LinkedIn says it is the second most desirable company in the US.

Amazon has received many a mayor over the past month, but the excitement of politicians should not distract from the obvious risks of inviting HQ2.

Not Enough Talent

To date, Amazon already employs tens of thousands at their Seattle headquarters. They are currently looking for 3,000 more in the fields of solutions architecture and software development alone. If HQ2 is going to be a full equal, as Amazon says, this means a search for 50,000 top-level talents, a.k.a. a talent drain. There just aren’t enough computer engineers to go around. Amazon is an attractive place to work, and if it can’t find the people it needs, that leaves even fewer people for other businesses.

HQ2 talentThis lack of talent takes a lot out of the current employees as well, who need to fill the gaps. Amazon headhunts all over the world, but the US places a cap on the number of overseas workers intending to relocate stateside. Only 65,000 H1-B visas are available each year for all companies in the country.

This dilemma does present an opportunity for the winning city to light a fire under the education sector. It remains unlikely, however, that even the top universities in the area would be able to produce the thousands of IT graduates that the retail monster needs to take in.

Taxpayers Beware

City governments contending for HQ2 are focused on the economic infusion that Amazon can provide. The little people are more concerned about the long-term effects on taxpayers. As each city piles on financial perks to entice Amazon, the burden for taxpayers grows heavier. It seems that in their excitement to present 50,000 new jobs to their constituents, these politicians are forgetting that they are negotiating with a renowned master backed by tens of billions worth of resources.

HQ2 taxesTo illustrate, Amazon has certainly boosted Seattle’s economy, but other considerations can have a huge impact as well. The people and small businesses of Seattle have suffered increased traffic congestion, soaring housing costs and pressure to conform the city to a completely middle-class area.

There is no reason today to doubt that Amazon will continue growing. The HQ2 built-out could take 15 years, however. City governments need to be aware that anything can happen during this time.

 

The deadline is approaching and there are several strong contenders for HQ2 despite the negatives. Cities like Austin (Texas), New York, Boston, Chicago, Washington/Baltimore, Atlanta, Denver, Ottawa and Toronto are vying hard for the chance to house HQ2. So far, Denver seems like the top contender, but the media is highly aware of the risks and warns against giving away the store.

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