What Drives Business Location Decisions

Classical location theory with its foundations in the work of German economists such as Alfred Weber (1909), August Lösch (1940), Johann Heinrich von Thünen (1826) emphasized cost minimization and profit maximization as the most important drivers of where businesses choose to locate. Transportation costs, in particular, figured prominently among the traditional business location factors thought to be critical. Simply stated, the idea is that businesses facing high shipping and transport costs for raw material inputs will tend to locate closer to those input sources. Firms with high transport costs for their end products will seek to lower those costs by being proximate to markets and end-users.[1] According to the classical view, the optimal business location balances trade-offs among the costs of transporting raw material inputs and end-product outputs relative to labor costs. The cost savings and other advantages (e.g., specialized labor pools, supplier networks, knowledge spillovers, etc.) that firms enjoy by locating near each other due to agglomeration effects are another aspect of early location theory.[2]       

Extensions of traditional location theory have incorporated additional factors into the contemporary business location equation such as the cost and availability of labor, land, buildings, financial capital, utilities, and public services as well as qualitative aspects like quality-of-life amenities and business climate.[3] Financial considerations related to state and local taxes and business incentives also play a role in varying degrees.

Traditional location factors such as production costs continue to matter, especially for certain types of firms, sectors and product lines. It is also true that other factors have increased in relative importance in recent years as the U.S. economy has shifted to services and technology-intensive industries. The challenge is to understand what location factors matter most for which types of businesses and where in the site selection process they carry the most weight.             

The Site Selection Process

Site selection is the systematic process companies use to find an optimal location for a new or expanding facility, plant, headquarters, distribution hub, or other operations. The corporate location decision is an important one that seeks to match a firm’s strategic objectives, operational issues, and financial considerations with state and local/community factors. The reasons for initiating a location search may be related to new product lines or services, market expansion, business climate, facility/building capacity, and/or workforce/talent needs. Each location/expansion project is somewhat unique and will vary with respect to its requirements for a site, building, transportation access, utilities, workforce, operating costs, and financing.[4] In many instances, a company will conduct the location search on its own with a team of in-house executives. For other major industrial or headquarters projects, a larger corporation may hire a site selection consultant to conduct the search on its behalf. Site selection consultancy and location advisory services have evolved into an influential and specialized niche with providers operating in exclusive boutique enterprises, major accounting firms, and some large law, construction, and commercial real estate firms.           

A typical site selection project plays out in three phases.[5] In the first phase, the company or consultant will review the responses to the request for information (RFI) from communities in the designated search areas (countries, states, regions) to identify locations that meet the project criteria and eliminate those that do not. Phase 1 may start with hundreds of communities under consideration and may end with 10-15 or so that remain viable after screening for macro factors such as business climate, labor market characteristics, proximity to markets, and transportation access, etc. and other project requirements. In the second phase, the remaining locations undergo a more detailed review with a focus on community level data (workforce, utilities, taxes, etc.) and the specific criteria for a site and building. Phase 2 of the process often involves a comparative analysis of locations/sites, financial modeling of operating and capital costs, and site visits to narrow the candidate locations even further resulting in 3-5 finalists. In the third phase, the company seeks to close the deal with one of the finalist locations based on additional cost modeling and return-on-investment (ROI) analysis. During Phase 3, incentive negotiations occur as the company makes a final location decision.       

What Location Factors Matter Most

The term site selection is somewhat of a misnomer as the process involves multiple rounds of elimination to pare down the list of candidate locations. As such, it helps to understand the relative importance of the various locations factors that get considered in the site selection process. Area Development conducts annual surveys of both site selection consultants and corporate executives that provide interesting insights about which location factors matter most.

Area Development’s 21^st Annual Consultant’s Survey includes responses for the full year 2024 in retrospect. The top location factors that site selection consultants rated as either very important or important are (See Table 1 for complete results):

• Skilled labor (100%)
• Available land (98%)
• Responsive state and local government (98%)
• State and local incentives (98%)
• Energy availability (97.9%)

Other high priority factors for consultants include energy costs (93.9%), proximity to suppliers (89.9%), highway access (89.8%), labor costs (87.8%), environmental regulations (85.7%) and water availability (85.7%). Consultants cited proximity to markets (83.7%), expedited permitting (81.6%), and available buildings (81.6%) as being moderately important. 

The 2024 results from Area Development’s 39^th Annual Corporate Survey show that executive decision makers within companies rated the following location factors as being most important (See Table 2 for complete results):

• Energy availability (100%)
• Quality of life (98%)
• IT/Communications infrastructure (98%)
• Construction costs (98%)
• Labor costs (97.9%)

The next highest priority issues for corporate executives are: responsive state and local government (93.9%), skilled labor (89.8%), property tax (89.8%), state and local incentives (87.8%), highway access (85.7%), and available buildings (85.7%). Corporate tax rate (83.7%), energy costs (81.6%), and available land (81.6%) are moderately important concerns for corporate decision makers.

The 2024 survey results reveal some similarities and discrepancies in the perspectives of site selection consultants and corporate executives about what matters most in business location decisions. Consultants and corporate executives alike place a premium on the availability of energy infrastructure. This may reflect the growing demand for AI data center projects and the desire for enhanced power grid reliability. Both groups of survey respondents view the role of government as being vital in terms of responsiveness and incentives though consultants rated these somewhat higher than corporate executives did. As previously noted, incentives are a focal point in Phase 3 of the site selection process and can help sway the final decision at that stage. A skilled workforce is the single most important location factor for consultants. Corporate decision makers also rated it as a high priority, though not to the same degree. Consistent with location theory, cost factors (construction and labor) are top of mind for corporate executives while energy costs are a major concern for consultants.

The most significant area of divergence between the perspectives of site selection consultants and corporate executives has to do with IT/broadband infrastructure. While 98 percent of corporate survey respondents cited that location factor as a top priority, only 55 percent of consultants did so. Another substantial perception gap is apparent with respect to quality of life—98 percent of corporate respondents rated it as very important or important compared to only 59 percent of consultants. Proximity to suppliers ranked much higher in relative importance for the 2024 consultant survey respondents (89.8%) than it did for corporate survey respondents (58.4%). Site selection consultants also placed greater weight on proximity to markets (83.7%) as a location factor when compared to corporate executives (63.3%).                

Looking Ahead

More research and analysis are needed to ascertain why site selection consultants and corporate executives may differ to some extent in what they perceive to be the most important factors driving business location decisions. It remains to be seen how the major federal policy changes currently underway in the U.S. will alter the site selection calculus going forward. Trends in post-pandemic remote working arrangements, the pace of AI adoption in various sectors, and corporate prioritization of issues such as climate resilience and global risk mitigation need to be closely monitored. It may be possible that a paradigm shift is occurring in site selection such that:

“Today, companies are looking beyond cost. They are prioritizing capability—the ability of a location to support innovation, resilience, digital infrastructure, sustainability, and long-term talent development. The shift is not merely cosmetic. It reflects a broader transformation in how companies align location strategy with business strategy in a fast-changing global environment.”[6]         

Table 1.

21^st Annual Consultants Survey, 2024

(Percent Rating Very Important or Important)

Source: Area Development, 21^st Annual Consultants Survey.

Table 2.

39^th Annual Corporate Survey, 2024

(Percent Rating Very Important or Important)

Source: Area Development, 39^th Annual Corporate Survey.

[1] John P. Blair and Michael C. Carroll. Local Economic Development: Analysis, Practices, and Globalization, SAGE Publications, Incorporated, 2009 p. 43.

[2] Edgar M. Hoover. The Location of Economic Activity. McGraw-Hill, 1948.

[3] Emil E. Malizia, Edward Feser, Henry Renski, and Joshua Drucker. Understanding Local Economic Development. Routledge, 2021, p. 138.

[4] Mark L. Williams. Corporate Site Selection and Economic Development: A 30-Year Perspective. 2021, pp. 69-75.

[5] Pittman, Robert H. “Location, Location, Location: Winning Site Selection Proposals.” Management Quarterly 47, no. 1 (Spring, 2006): 12-25

[6] From Cost to Capability: The Evolving Metrics Driving Site Selection in 2025.

In December of 2024, Congress formally reauthorized the U.S. Economic Development Administration (EDA) with strong bipartisan support. The EDA reauthorization (S. 3891), the first in 20 years, is included as part of the Water Resources Development Act (S. 4367). The Economic Development Reauthorization Act of 2024 updates and modernizes the federal government’s approach to economic development in light of the major changes in industry sectors, technology, labor markets, and global commerce that have occurred over the last two decades.

EDA is a federal agency within the U.S. Department of Commerce that supports state and local efforts to promote private investment and job creation, especially in distressed communities, through grant funding, planning, and technical assistance. EDA plays a vital role in administering federal funding and assistance for disaster recovery, long-term planning, and resiliency efforts related to extreme weather and other hazardous events.

The agency awarded $3 billion in American Rescue Plan (ARP) grants to help regions “build back better,” create “good jobs,” and shore up travel, tourism and outdoor recreation sectors that were hard hit by the COVID-10 pandemic. With funding to date of more than $700 million through the CHIPS and Science Act of 2022, EDA has awarded implementation grants to 18 Regional Technology and Innovation Hubs (Tech Hubs) around the country. The Tech Hubs program seeks to help grow emerging innovation ecosystems in less prominent technology regions such that they become globally competitive in critical sectors such as artificial intelligence, biotechnology, semi-conductors, quantum computing, robotics, clean energy, and advanced manufacturing within a decade.

Core EDA grant programs include those focused on public infrastructure, business development, economic resilience, regional innovation and competitiveness, and disaster recovery:

Public Works – helps distressed communities construct, expand, and improve various types of physical infrastructure needed to support economic development such as water and sewer system upgrades, multi-tenant manufacturing facilities, business/industrial parks, port and harbor expansions, business incubators, workforce training facilities, and brownfield redevelopment.

Economic Adjustment Assistance – helps regions and communities respond to the effects of sudden and ongoing economic shocks due to major disruptions such as the loss of a major employer, industrial transition, a military base closing, or severe natural disaster. Grant funding can be used for market and environmental studies, planning, infrastructure improvements, site acquisition and preparation, construction and equipping of facilities, and revolving loan funds for small businesses.

Planning and Technical Assistance – supports the short-term planning and longer-term strategy formation efforts of organizations within designated Economic Development Districts (EDDs), states, local governments, sub-state planning regions, institutions of higher education, federally recognized tribal organizations, and other eligible entities. Planning activities related devising, implementing, and updating a Comprehensive Economic Development Strategy (CEDS) are eligible for funding. EDA provides technical assistance to distressed regions and communities through its support of feasibility studies and designated University Centers (UCs) around the U.S.

Disaster Recovery Supplemental Funding – helps pay for economic recovery, rebuilding, and resiliency planning in areas affected by disasters like hurricanes, floods, and wildfires with supplemental appropriations from Congress.

Across its various grant programs, EDA made 175 awards in North Carolina totaling more than $203 million from 2018 to early 2024. The state currently has 14 EDA Economic Development Districts (EDDs) that are administered by regional councils of government or other multi-county planning/development commissions. These EDDs facilitate Comprehensive Economic Development Strategies (CEDS) and coordinate regional efforts to promote prosperity through job creation and private investment. Currently, two EDA University Centers operate in North Carolina: one at Fayetteville State University and another at UNC-Chapel Hill.

The Economic Development Reauthorization Act of 2024 (S. 3891) amends the Public Works and Economic Development Act of 1965 to make significant reforms and updates to federal economic development programs, with key changes across multiple areas including:

Coordination and Capacity Building

• Authorizes EDA to fund capacity building activities at the local level defined as “all activities associated with early stage community-based project formation and conceptualization, prior to project pre-development activity” such as community outreach and engagement, research, and mentorship support.

• Allows grants to cover administrative expenses related to various planning processes and pre-development activities needed prior to implementing a project to include: community asset mapping, training, technical assistance, organizational development, feasibility and market studies, and demonstration projects.

• Formalizes the relationship and promotes greater coordination between EDA and regional commissions such as the Appalachian Regional Commission (ARC), which includes 31 North Carolina counties.

• Codifies the State Capacity Building Grant Program authorizing regional commissions to award grants in their service areas to support business retention/expansion, job creation, workforce development, university partnerships to assist distressed counties, and the implementation of “new or innovative economic development practices that will better position eligible counties to compete in the global economy.”

• Allows regional commissions to make grants for the planning, construction, equipment, and operation of demonstration health, nutrition, and childcare projects in distressed communities in order to “demonstrate the value of adequate health facilities and services to the economic development of the region.”

• Creates new regional commissions for counties in mid-Atlantic states (Delaware, Maryland, and Pennsylvania) and southern New England states (Connecticut, Massachusetts, and Rhode Island). Reauthorizes funding for the Alaska Denali Commission, Delta Regional Authority and Northern Great Plains Regional Authority and the others established under Subtitle V of Title 40 U.S.C.

• Establishes a new Office of Tribal Economic Development within EDA to coordinate all Commerce Department Tribal economic development efforts, help Tribal communities access EDA programs, and make connections with other federal agencies.

• Updates and specifies the roles of EDA University Centers to include supporting “local and regional capacity building,” assisting communities and regions with “data collection and analysis and other research relating to economic conditions and vulnerabilities that can inform economic development and adjustment strategies” along with providing “technical assistance, business development, and technology transfer services to businesses.”

Sectoral Partnerships for Workforce Development

• Authorizes EDA grants for the creation and expansion of innovative workforce training partnerships in key industry sectors. Grant funds can be used for planning, technical assistance, training, sector partnership formation, program design, and implementation.

• Creates a State Grant Pilot program to help states: 1) identify growing industry sectors that are experiencing challenges in filling certain positions and 2) implement a program to recruit and train individuals for such jobs using subsidies for tuition and stipends.

Infrastructure

• Authorizes EDA grants to fund physical infrastructure for workforce development programs (e.g., land acquisition and improvements, construction of training facilities, property rehabilitation, machinery, and equipment).

• Defines the eligible activities for high-speed broadband deployment projects to include planning, technical assistance, training, land acquisition, and real property improvements. Enables greater flexibility with grants for high-speed broadband projects by allowing communities to form public-private partnerships or consortia to undertake such projects.

• Authorizes grants under the Critical Supply Chain Site Development program to make sites ready for manufacturing projects that benefit distressed communities; align with regional economic development plans; prioritize workforce development; and support “industries determined to be of strategic importance to the national or economic security of the United States.” Grant funds may be used for investments in site utility infrastructure, site readiness (e.g., land assembly, environmental reviews, zoning, design, engineering, permitting, etc.), workforce development and sustainability programs, and efforts to “ensure disadvantaged communities have access to on-site jobs.”

Access to Grant Funding

• Clarifies eligibility and expands support under the Economic Adjustment grant program to include communities affected by contractions and economic disruptions in industries like coal, steel, and agriculture and those adversely impacted by water shortages due to drought or extreme heart or being located near a nuclear power plant.

• Increases federal cost-sharing from 50 percent to 60 percent for most projects, with up to 100 percent available for small communities with fewer than 10,000 residents.

• Allows certain regional commission funds to be used as the non-federal match for projects under certain circumstances.

• Modifies eligibility criteria for grant programs to allow consideration of additional distress indicators related to 1) severe unemployment, underemployment, or economic adjustment problems; 2) low median household income; 3) low labor force participation; or 4) energy industry transitions.

Disaster Recovery, Resilience, and Sustainability

• Establishes a new Office of Disaster Recovery & Resilience to streamline and coordinate federal recovery efforts in partnership with states, EDDs, University Centers, and other agencies.

• Authorizes grants for renewable energy technology projects to locate on brownfield sites.

• Allows for consideration of the extent to which projects awarded Public Works grants mitigate the impacts of extreme weather events, support outdoor recreation, and promote blue economy activities.

The legislation authorizes funding for EDA programs through fiscal year 2029 contingent on the availability of Congressional appropriations. It streamlines environmental reviews, updates the criteria for defining distressed communities, and requires the Government Accountability Office (GAO) to evaluate the programs administered by EDA and the regional commissions and report its findings to Congress.

In a recently released report, my co-authors and I examine what we know about how the fields of economic development and workforce development have affected outcomes for low-wage workers. The full research report and shorter summary brief were published in May 2024 by WorkRise, which is a research-to-action network on jobs, workers, and mobility hosted by the Urban Institute. Our research was informed by practical insights gained through convenings of more than 20 economic development and workforce development professionals from nine communities across the U.S during the second half of 2023. The practitioner convenings were a part of the Advancing Worker Equity (AWE) initiative facilitated by New Growth Innovation Network (NGIN)—a knowledge hub for inclusive growth strategies. Analysts from the Federal Reserve Bank of Atlanta presented findings from the Worker Voices Project during the AWE convenings that also shaped our research and understanding of the issues.

Despite having some overlapping and complementary goals, economic development and workforce development tend to operate in their respective silos. This functional disconnect makes both fields less effective than they might otherwise be especially for improving outcomes among low-wage workers. The WorkRise report reviews the literature and examines: (1) traditional levers, which broadly reflect the status quo of the two fields, and show mixed results for effectiveness with only a minimal focus on equity; and (2) innovations or newer approaches that, while more likely to explicitly emphasize equity, have a more limited evidence base about their effectiveness in expanding economic opportunity for historically marginalized groups.

Traditional levers. These are widely used and standard practice, despite mixed research evidence about their effectiveness. Some of the traditional policy tools have been structured in ways that exacerbate inequities. Teasing out program and policy effects from contextual factors, and understanding who benefits, is difficult. Efforts to better incorporate equity into traditional programs are relatively new and, to date, there is limited evidence as to their effectiveness in that regard. The traditional levers we examined in the report include:

• State and local business incentives
• Federal place-based programs
• Small business development and entrepreneurship supports

Innovations. These initiatives reflect a combination of both older and more novel approaches that aim to integrate economic and workforce development activities and calibrate them to local conditions. Equity concerns tend to feature explicitly in the theories of change underpinning these efforts. Still, there is limited research available about the impacts of such efforts on people and places. The innovations we examined in the report include:

• Good jobs, worker voice, and community benefits
• Apprenticeship, mentorship, and small business support models
• Decoupling workforce innovations from employers
• Sectoral strategies

In the report, we make recommendations about how to better align and integrate economic and workforce development systems in ways that improve outcomes for low-wage workers in terms of enhanced access, opportunity, inclusion, and mobility. The themes underlying our recommendations are as follows:

• Implementation and policy/program diffusion – Understanding how the particularities of place affect program success, with special attention to the role of local economic and workforce development ecosystems.
• Worker voice and empowerment – Engaging workers in program design and implementation can identify challenges and resources that can be targeted to create more equitable systems.
• Targeting support – Using ongoing program monitoring and tracking to ensure resources are targeted to workers and communities that need them and remaining nimble enough to course correct when needed.
• Identifying who benefits – Tracking whether existing residents or new workers are benefiting from policies and programs and building programs that ensure existing workers and communities are not excluded or harmed.
• Workforce and economic engagement – Cultivating closer ties between the economic development and workforce development fields to identify target areas for alignment.
• Career pathways – Looking beyond short-term entry-level job opportunities to identify longer-term career progression for low-wage workers that boosts their economic mobility.

Translating this research into practice to better align the fields of economic development and workforce development for the benefit of low-wage workers will require clarifying roles and building the scaffolding needed to promote collaborative local systems. It also means encouraging more communication and deeper ties between the two practices to identify opportunities and challenges. Promising examples of this sort of engagement and collaboration between the two ecosystems are emerging in communities and regions across the U.S. that will require connective organizational infrastructures and robust social capital to be sustained.

Organizations submit entries to be considered for awards in various categories including promotional materials, internet and new media, programs, and partnerships.  Judges apply specific criteria in reviewing the submissions to select gold, silver, and bronze level winners for each category based on the size of the population served.

IEDC announced the 2017 award recipients in September at its Annual Conference in Toronto.  Two North Carolina organizations were recognized this year.  Electricities of North Carolina, Inc. is the silver winner in the General Purpose Print Promotion category (population greater than 500,000) for its NC Public Power Calendar.  The calendar uses journalistic photos and short stories to highlight distinctive businesses, destinations, and community leaders in the Electricities service area.  The Town of Fuquay-Varina is the silver winner in the Video/Multimedia Promotion category (population 25,000-200,000) for its State of the Town Address video, which communicates the town’s economic development and community achievements.

The Program Awards category includes multi-year programming, business retention and expansion, entrepreneurship, neighborhood development, human capital, sustainable and green development, and real estate redevelopment/reuse.  The numerous award winners in this category constitute a database that is worth mining for examples of best practice and promising strategy.  A few of the notable 2017 winners include:

• Charleston (SC) Regional Development Alliance – Opportunity Next: Building a Globally Competitive Economy for Charleston
• York County, VA – Home-Based Business Assistance Program
• Howard County (MD) Economic Development Authority – Ellicott City Flash Flood Response and Recovery
• City of Norfolk, VA – Norfolk-Works Waterside Week Hiring Event
• Prince William County, VA – Prince William Science Accelerator
• Paducah (KY) Economic Development – Historic Coca-Cola Bottling Plant Redevelopment
• Northeast Tennessee Regional Economic Partnership – Farmers Exchange Building Redevelopment

So, what is new and noteworthy in the latest NLC guide for local elected officials? For one, the new guide underscores the value of strategic planning and outlines the core economic development strategies to include: business retention and expansion, marketing and attraction, entrepreneurial and small business development, workforce development, real estate development and reuse, and neighborhood redevelopment.  Annapolis, MD, Glendale, CA, and New Braunfels, TX are profiled in order to illustrate the types of  goals and strategies communities are prioritizing in their economic development efforts.  The guide also notes the importance of working to build economic resiliency, which “means the local economy is diverse, sustainable, and can weather the impacts of an economic crisis or a natural disaster ” (p. 5).  Brian Dabson discusses the concept of economic resilience in a previous post on this Blog.

Reflecting a broader trend in economic development, the new guide incorporates a section on equity and suggests some ways to expand economic opportunity for all residents and communities, particularly those most in need.  Portland’s efforts to promote inclusive economic development with respect to boosting minority entrepreneurship and increasing diversity in the local technology sector are included as an example. For additional discussion of equity and economic development, see a previous post I wrote on the topic.

A section on the various funding sources available to support local economic development activities is an additional feature of the new guide.  It mentions local, state, and federal funding sources along with public-private partnerships.  The Massachusetts Economic Development Fund, Ohio Enterprise Zone Program, and Wisconsin Fast Forward are included in this section as examples.   Proponents of accountability in economic development will be pleased to see the section on performance management.  This section emphasizes the need to measure program impacts and collect and assess appropriate metrics.  It also references the 2015 GASB guidelines for disclosure of tax abatement agreements that governments are expected to follow.

The NLC guide concludes with a delineation of several possible roles for local elected officials in the process of economic development:

• Student
• Convener
• Listener
• Policymaker
• Salesperson
• Ambassador

While not an entirely new phenomenon, the extent of economic disparity and income inequality in the U.S. has been better documented in recent years.   For in-depth data analysis see studies conducted by the Economic Policy Institute, Center on Budget and Policy Priorities, and Federal Reserve Bank of Atlanta.   A major take-away from this research is that income and wealth are increasingly concentrated among the richest five percent of households.  An analysis prepared by the Urban Institute examines some of the factors that are thought to perpetuate wealth inequality.  It is important to note, that much of the research and policy analysis on inequality is done by progressive think tanks and advocacy groups.  Conservative organizations and analysts tend to be much more skeptical about the extent and effects of inequality as well as the possible remedies.  A sampling of this viewpoint is reflected in articles and blog posts written by analysts at the American Enterprise Institute, Hoover Institution, and John Locke Foundation.

In a recent essay, Silicon Valley startup investor Paul Graham readily acknowledges the marked rise in economic inequality in the U.S., but argues that it has both good and bad attributes.  According to Graham, it is completely fine, even desirable for the rich to get richer and for wealth to be concentrated in the hands of a few when that outcome is driven by wealth creation rather than being a product of excessive rent seeking, cronyism, exploiting the poor, or some other zero-sum activity.  For Graham, the latter leads to bad inequality, for example, in which kids are born into an endless cycle of poverty with very little chance of realizing their potential.  His point is that policy solutions should focus on the bad behaviors that result in rising economic inequality and the root causes such as poverty and lack of social mobility. He is concerned that attempting to eradicate inequality broadly without making this distinction could discourage wealth creating behaviors such as launching a high-growth start-up that benefits society.   In essence, even though a proliferation of high tech startups may increase inequality, all is good, in Graham’s nuanced view, because wealth is created; not taken or transferred from others.

Despite some differences of opinion about the causes and severity of inequality and what, if anything, should be done to make it better, it is fairly evident that economic disparities along racial and ethnic lines are especially pronounced and got notably worse during the Great Recession.  Post-recession, the income gap between whites and non-whites is sizeable, but the racial/ethnic wealth gap is off-the-charts.  According to a Pew Research Center analysis, in 2013 the median net worth of white households ($141,900) was 13 times that of black households ($11,000) and more than 10 times the median net worth of Hispanic households ($13,700).  A National Bureau of Economic Research (NBER) working paper also found evidence of a growing disparity in wealth holdings by race and ethnicity in the aftermath of the Great Recession, with Hispanic households, in particular, losing ground.  The trajectory of trends for these racial ethnic wealth disparities divide looks troubling.  A recent report produced by CFED and the Institute for Policy Studies forecasts that the wealth gap between white families and black and Hispanic families will double by the year 2043.

Black workers were hit especially hard by the Great Recession and, according to a Brookings Institution analysis, experienced much greater erosion in their wages than did white and Hispanic workers.  The Brookings analysis shows significant wage declines for black workers from 2009 to 2014 in 25 of the largest 100 U.S. metropolitan areas including four in North Carolina: Winston-Salem (-21.2%), Raleigh (-17.4%), Charlotte (-15.2%), and Greensboro (-15.2%).   The author suggests that a possible explanation for this is that during the recovery many black workers moved from middle-wage sales and office jobs to low-wage food service occupations.

Why is rising inequality and economic disparity potentially problematic from an economic development perspective?  One concern is that persistent inequality and economic disparity make it difficult for large segments of the population to realize their potential and more fully contribute to the economy.  In other words, high levels of income inequality and economic disparity have the effect of “short-changing” the economy in many respects.  Greater economic equity enables more people to engage at a higher level and add value in ways that help the economy perform better overall.  On this point, a report produced by the Altarum Institute and Kellogg Foundation makes the Business Case for Racial Equity and cites several tangible economic and fiscal benefits we can expect to see by closing the earnings and wealth gaps between whites and racial/ethnic minorities.  These include:

• higher total earnings across the board
• significant boosts to long-term economic growth (GDP)
• a better skilled and more productive workforce
• increased tax revenues to support Federal entitlement programs
• fewer people needing social safety net programs resulting in lower expenditures

Income inequality and economic disparity are big, complex issues with many dimensions and possible causes.  So then, what role can economic development efforts play in mitigating and possibly reversing the trends thereby promoting a more equitable prosperity?  Amy Liu of the Brookings Institution argues that nothing short of Remaking Economic Development is necessary in order to make lasting progress on this front.  The idea is to fundamentally redefine economic development such that inclusion and shared prosperity become core goals.  Christiana McFarland of the National League of Cities asserts that the New Equity Imperative for Local Economic Development has both a moral and economic rationale and requires communities to “strengthen untapped and underutilized assets and deliberately rectify disparities by race, place and income”.  McFarland discusses how Austin, TX plans to promote economic equity and inclusion by using the Einstein Challenge to incentivize the city’s high-tech companies to help prepare 40,000 poor kids for opportunities in STEM fields.

Placing equity at the center of economic development can be facilitated by employing more of what PolicyLink analysts Sarah Treuhaft and Victor Rubin refer to as economic inclusion: “strategies that explicitly connect vulnerable groups to new jobs and economic activity and ensure that new jobs offer family-supporting wages, benefits, and growth opportunities”.  Economic inclusion strategies and tools being used in various places around the U.S. are shown below:

Source: Sarah Treuhaft and Victor Rubin, Economic Inclusion: Advancing an Equity-Driven Growth Model. Big Ideas for Jobs, 2013.

Treuhaft and Rubin recommend four ways to promote “inclusive job creation” and embed economic inclusion into major economic development efforts: 1) grow “high-opportunity” industry sectors; 2) leverage the economic power of anchor institutions; 3) start and expand minority-owned businesses; and 4) maximize job creation through public investments.  In a previous post, I discuss sector-based employment strategies, which is related to the first recommendation about growing targeted industry sectors.

Update: The IEDC report mentioned above, Opportunity for All: Strategies for Inclusive Economic Development, is now available for download (free for IEDC members) here. The executive summary is available here.

As more and more communities look to leverage local food systems  for economic development, it becomes increasingly important to measure and quantify how this approach actually affects local economies.  According to at least one researcher, “There has been a lot of hope, but little evidence, that local food systems can be an engine of economic growth in communities.”  As such, we are getting to the point where we need defensible answers to the following questions:

1. What are the concrete economic and fiscal impacts of local food systems?
2. To what extent do local food systems produce desirable economic outcomes such as job creation, new private investment, new business enterprises, and increased tax revenues for local governments?
3. How do local food systems contribute to other sectors of a local/regional economy?

I have written previously about the various methods and models available to estimate the economic and fiscal impacts of economic development projects.  A recently released toolkit produced by the USDA Agricultural Marketing Service demonstrates how some of the analytical tools I discussed can be used to determine the linkages and contribution of local food systems to local economies.  In particular, the new toolkit, titled The Economics of Local Food Systems,  explains how input-output analysis  and economic multipliers provide a framework for quantifying the economic benefits and value of local foods to a community’s or region’s broader economy.

A local foods approach to economic development has a certain appeal for many communities.  Public officials, community leaders, and economic developers rightly want to know more about how targeted investments in local food systems can be expected to produce tangible economic outcomes that will boost prosperity.  The new USDA Toolkit not only offers guidance in using analytical methods and models to quantify economic impacts, but it also suggests ways to:

• Frame the process of conducting a community economic assessment
• Define the parameters of a local food system
• Use secondary data sources and generate primary data
• Engage the community with the assessment process and data

For a long time, analysts and policy makers thought that the problem was the formula used to designate a county’s tier status. Many local officials were inevitably unhappy with their county’s respective tier designation in any given year. The thinking was that if we could just get the right distress metrics in the formula, then the policy would work. As a result, the precise composition of the distress formula has been modified and tweaked incrementally multiple times since 1996. New distress indicators would be added and others would be dropped. Still there was always, and continues to be, concern that any particular iteration of the tier formula may not be capturing important aspects of economic distress for some counties.

The current formula used to designate economic development tiers is calculated based on four distress indicators:

• Average unemployment rate for most recent 12 months
• Median household income for most recent 12 months
• Percentage growth in population for most recent 36 months
• Adjusted assessed property value per capita in most recent year available

Each county is assigned a ranking from 1-100 based on the sum of these indicators. The 40 counties with the worst rankings receive a Tier 1 designation, the next 40 are Tier 2, and the 20 best performers are Tier 3.

In the latest attempt to fix the tiers formula, the NC Commerce Department has proposed some new changes. These include reducing the number of distress factors from four to three, eliminating the adjustment for population size and poverty, and eventually moving to an index with no actual tier designations.

An analysis conducted by the Program Evaluation Division of the North Carolina General Assembly casts doubt on whether the changes proposed by the Commerce Department will enhance the formula’s ability to measure chronic economic distress. The report released in December 2015, makes three core findings regarding the way North Carolina has used the tiers system. The first is that using the tiers system to distribute state funding has not helped the state’s most distressed counties as intended. Though originally created specifically for economic development tax credits, several non-economic development programs now use the tier designations in distributing state dollars. Despite the adoption of the tiers by other state programs, it is apparent that Tier 1 counties are not benefiting the most.

In its second key finding, the Program Evaluation Division report notes some possible ways the existing tier formula may distort our interpretation of economic distress. For example, the formula’s population adjustments assume that being small in size is an automatic marker of distress. Of course, that is not always the case. In addition, using a county-based tiers system may not reveal pockets of localized distress given the substantial variation in economic conditions that exists within some counties.  For a related discussion, see a previous post by Professor Maureen Berner.

A third finding suggests that North Carolina’s approach to measuring economic distress and assisting lagging communities may be outdated since the Generally Assembly has not taken up the issue in any comprehensive manner since the 1980s. Policies and programs have changed. Over time, the state has shifted the emphasis in its economic development policy away from statutory tax credits in favor of discretionary grant programs. In fact, the business tax credits for which the tiers system was created to implement ended in 2014.

Based on its extensive analysis of the history, evolution, and current application of the economic development tiers in North Carolina, the Program Evaluation Division report recommends that the General Assembly do the following:

1. Eliminate the use of the economic development tiers system for all non-economic development programs by July 1, 2017.
2. Terminate use of the tiers system for all economic development programs by July 1, 2018.
3. Establish a commission to reexamine the North Carolina’s strategy for identifying and assisting chronically distressed communities.

A certified industrial site is one that has undergone a thorough pre-qualification process to determine how ready the site is for development. While the specific site readiness criteria may vary from program to program, they typically address the following:

• Land survey with clearly defined property boundaries
• Evidence of clear title and deed
• Water and sewer capacity
• Transportation access
• Sales price for property
• Buildable acres information
• Development constraints related to easements, right-of-ways, judgments, liens, restrictive covenants, etc.
• Environmental assessment (Phase 1)
• Wetlands determination and mitigation
• Soil assessment
• Development plan
• Flood plain map
• Zoning information
• Electric and gas utilities
• Telecommunications infrastructure

This lengthy checklist represents an extensive review process that will take some time and resources to complete. The idea is that putting a site through this certification process will demonstrate that it is more “shovel ready” than other possible sites that are not formally certified. Site certification can benefit economic development professionals by providing them with an inventory of pre-qualified industrial sites for which accurate and detailed information is readily available to share with prospective businesses. This makes it easier to pitch certain industrial sites and match them to the specific needs and site requirements of a project. An obvious advantage to a prospective business are the reductions in costs and time made possible due to an expedited site search. An article in Area Development makes this point and illustrates how certified sites decrease uncertainty and can serve as a significant incentive for businesses. The certification process also enables companies to compare and assess multiple sites using standardized site readiness criteria. (See this earlier post for a discussion of the role of certification in the assembling of industrial “mega sites”.)

Many states have site certification programs in place. Some use staff experts to conduct the site assessments while others rely on teams of site selection consultants and technical professionals. North Carolina created its Certified Sites Program in 2001. The details of the NC site certification process can be found here. A search of the AccessNC database will produce a current list of certified industrial sites throughout the state. In addition to the NC Certified Sites Program, which is administered by the NC Department of Commerce, two energy utilities have launched efforts to increase the number of shovel-ready industrial sites in the state. Duke Energy created its Site Readiness Program in 2005 and ElectriCities started the Smart Sites (S²) shovel ready site qualification program in 2014.

The NC Certified Sites Program and the Duke Energy Site Readiness Program have been included in Southern Business & Development’s list of Ten Superior Site Certification Programs.

A recent policy brief produced by Harry Holzer, a Visiting Fellow at The Brookings Institution, discusses some of the big issues affecting workforce development in the U.S. Holzer notes key trends such as the decline in certain mid-skill jobs that had been held by workers with a high school diploma or less, and the rise of new middle level jobs that require post-secondary education and/or training. This shift in the education and skill requirements for mid-level jobs has placed higher education, particularly community colleges, at the center of workforce development. The problem is that college completion rates are low for many disadvantaged students and the labor market outcomes and earnings for some graduates entering middle tier occupations can be disappointing.

Holzer mentions some of the newer approaches to workforce development that involve greater collaboration between institutions of higher education and industry to improve labor market outcomes for workers and employers. One is sector-based job training, which I discussed briefly in an earlier post. Another promising approach is to delineate career pathways that enable workers to take a sequence of courses and earn credentials that would qualify them for increasingly higher skill jobs across employers within an industry sector. While Holzer points to some evidence for the success of these approaches, he raises concerns about the scale and quality of the programs and wonders whether many disadvantaged workers are academically prepared to acquire higher level technical skills. He also questions the logic of over-emphasizing sector-specific job training in the context of a rapidly changing global economy.

According to Holzer, these innovative approaches to workforce development can be strengthened by: 1) increased funding for colleges that serve disadvantaged students and stronger incentives for those institutions to improve labor market outcomes for students; 2) a renewed focus on career and technical education and work-based learning; and 3) promoting the creation higher quality jobs. Holzer sums it up as follows:

” What we need, overall, are policies to help fund or incentivize colleges to improve the student skill attainments at the sub-BA and BA levels that the labor market rewards, as well as efforts to improve the numbers of middle-wage jobs they would be needed to fill. “