Amazon Shows Us Why Tech Talent—Not Big Incentives—Draws Development

An empty office building in Crystal City, the future site of Amazon HQ2

An empty office building in Crystal City, the future site of Amazon HQ2 Joseph Gruber / Shutterstock.com

 

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COMMENTARY | "We might not see another competition like Amazon’s HQ2 search for a long time. And for cities trying to become the next tech hub, that’s OK."

Last year, Amazon captivated cities across the nation. The cause of this spectacle? A high-stakes 14-month hunt for its second headquarters location.

We all know how this ended. The tech behemoth turned down billions of dollars in tax breaks and incentives from competing metropolitan areas and, instead, set its sights on New York City and Arlington, Virginia. While Amazon has since pulled the plug on its Queens campus—citing lack of cooperation from certain government officials—its reasoning for landing on New York still stands.

These two cities were the only ones capable of providing Amazon with one of its most crucial requirements: a highly educated, tech-savvy workforce to fill a combined 50,000 jobs. Underdog cities barely stood a chance. This is especially true for heartland cities, which had only a fraction of the technology workers Amazon desired.

How Tech Talent Attracts Development

Cities such as Columbus, Ohio; Atlanta, Georgia; and Philadelphia, Pennsylvania all offered incentive packages that individually reached or broke the billion-dollar threshold, yet none secured HQ2. This means incentive packages didn’t matter to Amazon as much as these cities had predicted. In fact, many cities that lost out on HQ2 actually offered incentive packages that stacked up with the two winning areas.

In the end, each area’s workforce played a much larger role in bringing the trillion-dollar company to two of the East Coast’s (and the nation’s) biggest pre-existing tech hubs.

We might not see another competition like Amazon’s HQ2 search for a long time. And for cities trying to become the next tech hub, that’s OK. Rather than focus on attracting one massive company, hopeful cities can double-down on creating a workforce capable of supporting the ever-growing tech sector.

Where Incentives Fall Short

Although strong incentive packages might be the deciding factor for a big firm or industry already attracted to a city, they shouldn’t be the main draw.

A recent study found that instead of spurring broad economic growth, incentive packages generally provide benefits limited to the privileged company. Investments like these trigger economic growth within the firm, but targeted incentive packages also take away money that could’ve been used to serve the public. Additionally, these kinds of subsidies often make the business less accountable and efficient in terms of consumer demand.

Researchers found that broad-based programs meant to improve areas such as workforce development bring about more economic freedom. This was also closely associated with upward-moving economies.

Building Up a Talent Pool

Only two metro areas boast a software workforce of at least 100,000: the New York City and San Francisco Bay areas. In general, developed metro areas tend to benefit from a stronger network of universities that feed fresh talent into the local tech workforce. Established hubs also tend to offer higher wages due, in part, to their highly competitive job markets.

For cities that have yet to grow their tech talent, the best option is to invest in growing or retraining their workforce. The overwhelming majority of business leaders consider labor costs and skilled labor availability important to relocation decisions. This is why Silicon Valley is Silicon Valley and why Amazon originally selected New York and the Washington, D.C. area for HQ2.

Instead of spending millions on incentives and allocating resources toward business proposals, cities should invest in education and workforce development programs that address the needs of today and tomorrow. When cities focus on cultivating homegrown talent pipelines, companies will gravitate toward those areas naturally.

Here are three effective ways to do this:

1. Accelerate tech-oriented training programs. To work with the constantly changing tech sector, cities should ensure that workforce development programs are as accelerated as possible. Traditional, more time-intensive training programs could mean students learn outdated skills. Keeping programs agile helps cities teach highly relevant skills in a shorter amount of time.

There’s a market for this kind of training, too: 87 percent of workers believe they’ll require more training and job skills to keep up with a shifting work environment.

2. Create programs that scale. The current demand for tech jobs is high—and it’ll only continue to grow. According to McKinsey & Co., the number of workers who will lose their jobs because they lack technological skills will double over the next decade. Cities can meet this challenge head-on with programs that scale up to serve entire communities without compromising quality.

We can look to California’s online-only community college as an example. When Jerry Brown, former governor of California, envisioned the college, he hoped it would provide an option for what he called “stranded workers,” or the millions of young Californians without a college education. One of the college’s first tracks includes information technology—where there’s still a shortage of skilled workers.

My organization’s own programs operate on a flipped classroom. Students spend six hours a week in the classroom and an additional 10-15 hours a week working on curriculum outside of the classroom. Because we hire a lead instructor and source teaching assistants and mentors from local companies, recreating this model in other cities is relatively simple.

3. Ensure programs are accessible. When it comes to meeting the demand for a highly skilled, digitally literate workforce, most cities are already behind. This is evident in Amazon’s initial HQ2 decision not only to land in big-time tech hubs, but also to split its headquarters between two cities.

The estimated annual spending on workforce development programs for individuals not attending four-year colleges is at least $300 billion. With the amount of money municipalities pour into retraining efforts, it’s vital to ensure retraining programs are centrally coordinated and accessible to as many people as possible.

One of the biggest barriers to retraining programs is cost. If cities can’t make programs free to attend, they should work to make them as affordable as possible. LaunchCode’s flagship programs, for instance, are free for students and held in the evenings at locations near public transportation routes. With the growing demand for specialized labor, cities can’t afford to exclude anyone who wants to learn in-demand skills.

Jeff Mazur is Executive Director of LaunchCode.

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