Companies Migrate Too
Are Firms Really Leaving California and Moving to Texas?
Update: If you’re coming here from the MotherJones link, welcome! I write a lot about migration. Unfortunately, the graph in Kevin Drum’s MJ article was not explained entirely correctly. California actually loses a lot of people, about 33,000 a year to Texas alone. My point here is not that migration is so small it doesn’t matter: that would be ridiculous, given that I’m a migration-focused blogger, and also false. My point is that workers are more mobile than firms, and when policymakers focus on recruiting specific companies instead of attracting people generally and promoting widely-shared economic growth, they won’t usually get great results. If you came here hoping for a “California doesn’t actually have migration problems!” post, you came to the wrong place. You can see some of my writing about California here and here.
There’s a classic tension in economic development circles between attracting businesses and attracting workers. Some commentators claim that the key to growth is to create a skilled, valuable labor force; companies will show up in response. Others suggest that you need to attract competitive firms, and workers will show up in response. In reality, it’s very rare for a locale to be attractive to workers and not to firms: many of the same things usually attract both firms and workers. Furthermore, there’s ample evidence showing that people migrate for work, and also plenty of anecdotal evidence of firms migrating for workers.
But wait a second. Anecdotal evidence? Is that really good enough? Shouldn’t we, you know, actually look for evidence evidence?
Stories about companies relocating do not constitute proof that firms will move for workers.
Thankfully, there are many sources for data on firm relocation. A fun one I like to use is publicly available at YourEconomy.org. They use an aggregate dataset based on the National Establishment Time Series, which they compile and present for easy use. This dataset is very cool because it tracks tons of business establishments, and because it gives us data on why they hired or fired, opened or close. YourEconomy classifies business actions as “Increases” (New Startups, Expansions of existing firms, ‘Expansion Startups’ meaning spin-off entities, and Move-Ins) and “Decreases” (Closures, Contractions, and Move-Outs). They provide data along these lines at the state, metro, and county level for establishments and employment.
Do Businesses Migrate?
Texas vs. California
There’s been a long animosity, publicly played out in competing ad campaigns and gubernatorial statements, between California and Texas on the issue of business migration. Governor Perry made a point of forcefully arguing that Texas was a big destination for business migration, and that blue states like California were big losers. Blue-state governors for their part pushed back by pointing to incentive packages, high skilled workforces, and other assets.
So who was right? Are businesses fleeing California for Texas? While the data I have can’t show us specific CA-TX bilateral flows, it can give us state aggregates, which should give us an idea of the trend.
Game, set, match Governor Perry, right? Texas had positive net migration, and it got even more positive while he was governor! And look, California had negative net migration. Blue-state governance is bad! A skilled workforce won’t attract firms, but low taxes will!
Well, hold on. That’s net migration of firms. But maybe those are empty firms. Isn’t it possible that they had an on-paper migration of some kind of holding company, but no employees moved? Do establishment numbers even matter?
Do Businesses Migrate?
Migration of Employer-Businesses
I established above that business establishments migrate and the balance varies for Texas and California. But I noted that this might not mean much if no workers are included.
If all the “establishments” migrating are sole-proprietor businesses, or just some kind of zero-employee business, then maybe the economic implications are very small. Maybe we don’t need to care about these migration balances.
Luckily, NETS data provides us with employment data on the migrating firms. Gotta love microdata.
Once again, it’s Texas for the win! Texas gains thousands of jobs through firm migration while California loses thousands. So far, Governor Perry’s claims about Texan appeal to firms seems pretty accurate. That means that maybe firms really do migrate, and maybe they like Texas’ low taxes better than California’s more high-skilled workforce.
Maybe.
But hold on. A net balance of never more than 20,000 workers in a given year. Just how big is that, really?
Do Businesses Migrate?
Firm Migration’s Share of Employment
How might we decide whether the job gains and losses shown above really matter? And furthermore, how can we go from there to answering my central question: which matters more for development, firm or worker mobility?
Well, the simplest way is just to develop a migration rate. First, we’ll look at the size of firm-migration-tied-employment-changes to total employment, then we’ll look at national firm-tied-employment-migration derived from workers to individual-reported labor migration.
At first glance, this chart is nearly identical to the last one. Except the units are different. I divided by total employment (as reported by NETS) in each state. The unit on the left is net migration as a percent of total employment. Net migration isn’t 1% or 2%. It’s plus or minus 0.05% in most cases. Even as a share of total change in employment, migration is massively overwhelmed by employment changes due to local startups and closures, and local expansions and contractions. The truth is, net employment changes due to firm migration are within the rounding error of total employment. Over time they may matter, but overall they’re pretty miniscule.
So sure, Texas gains, California loses, but the overall effect on employment is hardly noticeable.
What if we compare nationwide firm-tied employee migration to reported job migration in 2013? Let’s do it. It’ll be fun.
The blue line is the Current Population Survey’s estimate of migration among people moving to take a new job, transfer in a company, or look for a new job. The green line shows the employment change associated with firm migration. The orange line is the difference between the two.
Migration by workers, on their own, in pursuit of work, vastly outweighs firm-led migration.
Even if we assume that the NETS data is somehow woefully understated, say the real data is 3 times as large, we still arrive at a situation where firm-led migration is substantially smaller than non-firm-led labor migration. The reality is that firms don’t like to move. Many firms are geographically tied (think of oil wells, convenience stores, and public schools), so migration is impossible or damages their interests. For others, it’s just a big, expensive hassle. For the most part, labor relocates to firms, not the other way around.
Plus, most job growth comes from local startups or existing firm expansions, while most job losses come from closures or contractions. Firm migration has a very small total employment effect.
Now, it’s worth noting a caveat. Some firms, instead of “migrating” might simply close an establishment in one location, then launch an “expansion startup” in another. But in this case, they won’t be offering lots of transfer options for former employees, may have different management, and will likely also have different production processes. To be clear, capital may be mobile even if establishments are not.
Do Businesses Migrate?
Conclusion
Businesses do migrate, and these migration flows can lopsidedly favor or disfavor certain states. In the most prominent case, Texas gains businesses while California loses them. However, direct business migration is a very small factor in total employment changes, greatly outweighed by local business dynamics. Policymakers depending on firm relocation for economic success will be waiting a long, long time. Insofar as upskilling local workers or cutting local taxes encourages economic growth, they must do so primarily through promoting local economic prosperity or migration of workers and families, not firms. Capital mobility occurs mostly through “new” investments and closures or abandonment of old investments, not migration, so “firm poaching” is likely to be less successful than just promoting sound economic policy at home. Policies aimed at “firm poaching,” whether through costly worker training programs or tax incentives, are likely to fail at attracting migrant firms, while over-subsidizing corporate recipients.
See my previous post, on slavery and local demography.
See my posts on various policy tools and their impact on migration: taxes, military recruitment, talent programs, and occupational licensing.
Start my series on migration from the beginning.
If you like this post and want to see more research like it, I’d love for you to share it on Twitter or Facebook. Or, just as valuable for me, you can click the recommend button at the bottom of the page. Thanks!
Follow me on Twitter to keep up with what I’m writing and reading. Follow my Medium Collection at In a State of Migration if you want updates when I write new posts. And if you’re writing about migration too, feel free to submit a post to the collection!
I’m a graduate of the George Washington University’s Elliott School with an MA in International Trade and Investment Policy, and an economist at USDA’s Foreign Agricultural Service. I like to learn about migration, the cotton industry, airplanes, trade policy, space, Africa, and faith.
My posts are not endorsed by and do not in any way represent the opinions of the United States government or any branch, department, agency, or division of it. My writing represents exclusively my own opinions. I did not receive any financial support or remuneration from any party for this research. More’s the pity.
