from Mark Smith, Advocate, California Builders Alliance
Highly regarded PPIC released its Policy Brief and fuller Policy Report on the question of “Are Company Headquarters Leaving California?”
“Are Company Headquarters Leaving California?” see below for your review.
---------------------------------------------------------
Key Takeaways
In recent years, some high-profile companies, like Tesla and Chevron, have moved their headquarters out of California, making headlines and raising concerns about the state’s economic future. Are these anecdotes indicative of a broader trend? What is the impact on jobs when headquarters leave the state? Do headquarter relocations reveal anything about California’s underlying business climate?
In this report, we study these questions by examining headquarter relocations from California and nationwide using comprehensive data on all business establishments. We find:
- The number of firms whose headquarters have left the state is small. From 2011 to 2021, 1.9 percent (789) of the state’s more than 47,000 headquarters left California on net. The decrease in jobs resulting from these relocations represented 3.7 percent (about 77,600) of all headquarter jobs. Roughly half of the headquarters that left California were in manufacturing, wholesale trade, or business services. →
- The annual number of relocations has trended upwards. About 150 headquarters left California in 2011, compared to over 200 in 2021. Over this time period, headquarter relocations from other states to California declined from almost 140 to just under 70. Headquarters that leave California tend to go to other large states like Texas, New York, and Florida, or to nearby states like Nevada and Arizona. →
- Headquarters that move out of state keep other branches and jobs in California. Further, companies that move headquarters to other states do not appear to shrink non-headquarter employment in the state relative to firms whose headquarters stay in California. Job loss due to relocation appears mostly limited to headquarter jobs. →
- California headquarters that relocate tend to go to states with lower taxes and less regulation. The same pattern is evident among headquarters relocating nationally. Over the period studied, California did not reduce tax and regulatory burden as much as other states—a potential reason behind the uptick in headquarters leaving the state. →
- Relocations are a small fraction of overall headquarter activity. Between 2011 and 2021, far more headquarters launched (7,250, 17% of companies headquartered in California) and closed (12,700, 30%) than moved out of state, with no clear upward or downward trends. Focusing solely on relocations overlooks the range of positive and negative forces driving headquarter activity and can misrepresent businesses’ desire and ability to operate headquarters in California and the broader impact on jobs. →
While California has high taxes and tough regulations, it also boasts a highly educated and innovative workforce, a good climate, and quality-of-life amenities that can both attract and retain businesses. It is too early in our research agenda to make firm policy recommendations, but a broad and simple lesson is that the state should continue to examine ways to maintain or strengthen the features that make it attractive to headquarters (and businesses more generally) while critically evaluating the costs and benefits associated with policies that may be causing headquarters to leave.
---------------------------------------
MARK SMITH
Smith Policy Group
1001 K Street, 6th Floor
Sacramento, CA 95814
(916) 335-5072
mark@smithpolicygroup.com
smithpolicygroup.com