Economist: Amazon offers Austin no guarantees of its long-term success

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Economists suggest if the Austin region wins the international bid for Amazon’s HQ2 proposal—which is expected to bring 50,000 workers to the area over the next decade and beyond—the long-term growth impact would be significant, but would ultimately depend on how the technology company is able to live up to promises for expansion.

“A lot of that [growth]hinges on Amazon’s success,” said Eric Krause, a staff economist at Applied Economics Consulting Group in Austin. “They haven’t necessarily been hyper profitable like an Apple or other competing technology companies. It wasn’t really until Amazon Web Services came along and really started boosting their profitability.”

Krause said Amazon is in a hyper growth phase right now, pointing to the acquisition of Whole Foods and eventual acquisitions of service delivery companies.

“Amazon has to continue to sustain that success and profitability to forge aggressive and ambitious expansion,” he said.

Slow and steady wins the race

Amazon HQ’s arrival in Austin would not happen all at once. Broken down over the longer term, the math paints a less daunting picture, said Bruce Kellison, director at the Bureau of Business Research, a University of Texas entity that performs economic impact analyses on tools such as tax incentives. The Bureau is under the umbrella of IC2, a think tank related to economic development through technology commercialization.

Kellison said Austin’s MSA employment is at about a million (non-farm) workers. He said IC2 research shows one in five of those workers is employed in the tech industry, fully or part-time.

“If you think about it in the terms Amazon has set forth, over 15 years that’s only an increase of 3,300 workers a year,” Kellison said. “In the context of Austin’s labor force, it’s a drop in the bucket.”

After subtracting headquarters-based support staff at Amazon—legal, engineering, software, accounting and administrative—Kellison calculates the net add of direct workers to Austin’s tech economy would be 1.4 percent a year, below current sector growth of around 2 percent.

“[Over time] you might be talking about a significant growth in the tech sector,” he said. “That’s a big win. For the overall diverse MSA economy, the effect is rather minimal.”

Multiplier effects

However, Kellison said what regions like about attracting technology and knowledge economy jobs is that the multiplier effects are larger.

“Not only are salaries higher, it attracts a young, educated demographic that builds on assets that Austin already has,” he said. “We’re retaining young people coming out of our universities. Amazon has to want to be in that mix.”

If Austin makes it to a final top 5 or 10 list for Amazon’s HQ2, it would be a feather in the city’s economic cap, said Kellison. But not winning the bid will not raise a red flag on the city’s growth, he said.

“Austin’s already a technology center,” Kellison said. “We’re going to continue growing with or without Amazon. The question is, do they want to come along and take advantage of the great things we’ve got going here?”

The incentive game: what we have learned as a city

Krause said despite Austin’s young, educated workforce and its location, Amazon may not receive a carte blanche from city hall and would have to potentially deal with ‘roadblocks’ that would make a move here more challenging than Houston or Dallas.

“Austin still has some people in positions of power and influence especially on the city council who aren’t necessarily [going to]bow down to the corporate interests,” he said. “In their mind, they view it as selling out Austin’s soul for getting these jobs. There are a few [elected officials]that are still against the idea of incentives. There are a lot of competing interests at play that keep Austin from being a perfectly unified [bid].”

The Greater Austin Chamber of Commerce turned in its bid by the Thursday deadline. Most experts anticipate it contains some kind of incentive package. Kellison warned if an incentive package is too big, it could crimp the overall health of the region’s economy.

“Any net benefits to the economy would be muted by the package that is offered,” Kellison said, adding that he has no insight into the actual deal the chamber put forward this week. “It could range from a mix of state and local tax rebates that are going to affect the whole area.”

Kellison pointed out many corporate incentive agreements nowadays have claw back clauses based on a company’s performance and making good on promises.

“If you’re building a tax incentive package, how do you build on the things you’re already doing well without giving away the store?” he said.

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Rob is a seasoned journalist, having enjoyed a successful career in radio and television news before joining the world of print and Community Impact in September 2017 as editor of the Lake Travis - Westlake edition. In his spare time, Rob enjoys tasting local craft beer and can be found climbing area rock walls. He lives in Cedar Park with his wife and daughters.

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