In the context of our American Growth Project, we at the Kenan Institute are analyzing the broad swath of microeconomies that exist beneath the national banner of the United States. We examine these very different areas across a variety of metrics, but our primary goal is understanding the diverse levels of economic growth we observe at a subnational level. However, while we firmly believe in the power of economic growth as a mechanism for societal betterment, economic growth is not without its potential downsides – growing pains, as it were. Economic growth can also mean an increased cost of living, greater traffic and congestion, and potential displacement of local business by larger corporate entities.
Economic growth often entails the arrival of new, large employers, who can potentially displace or negatively disrupt the economic ecosystem.
A recent report from the institute-affiliated center NCGrowth speaks specifically to that last issue. Economic growth often entails the arrival of new, large employers, who can potentially displace or negatively disrupt the economic ecosystem. Large chains can outcompete local businesses not only by undercutting them on price but also by offering higher wages and better benefits, thus controlling the local supply of labor. With Toyota’s recent announcement of an electric vehicle battery plant in Randolph County, North Carolina, many small communities there are asking difficult questions about how this will affect them and how they can prepare. The report delves more deeply into these issues and focuses on understanding how local businesses interact with large employers that move into a given region – as well as how the gains from economic growth can be distributed more equitably.
The findings can be broadly summarized as follows: Local chambers of commerce should work with the incoming employer, as well as school systems, to design effective workforce development programs as well as strengthen and diversify supply chain networks. Additionally, community benefits agreements and early warning systems can be effective safeguards that protect the voice and rights of the community in question.
2022 was a record year for new jobs and investment in North Carolina. The state’s economy added 190,000 new jobs, and more than 180 new development projects – representing more than $19 billion in capital investment – were announced. Moreover, the year was far from an anomaly.
The University of North Carolina at Chapel Hill’s Carolina Population Center reports that the state’s adult population grew by more than 12% in the 2010s.1 The population influx has accompanied moves by a number of large employers to the state. Perhaps the most notable example has been the Japanese car company Toyota, which announced in December 2021 that it planned to invest $1.29 billion in a new plant for electric vehicle battery manufacturing at the Greensboro-Randolph Megasite. In August 2022, Toyota announced an additional $2.5 billion would be allocated to the project, resulting in a net increase of roughly 2,100 jobs.
Taken at face value, a multibillion-dollar investment from a multinational corporation might seem to be a purely positive event for the Greensboro region. Yet, as the report mentions, it is often difficult to parse out exactly who will benefit from this growth. Will the economic benefits accrue to the newcomers, leaving existing residents and businesses in the same position – or perhaps even worse off than they were before? The report cites Ghosh and Chifos (2017), one of the few studies to examine the economic impacts in this manner, who found that only urban parts of the region observe any benefit. Similarly, a 2021 working paper from UNC Kenan-Flagler Business School Assistant Professor Franklin Qian and co-author Rose Tan examines residential patterns after a large, high-skilled firm arrives.2 The authors find that while the overall impact of a new firm arrival is positive, the benefits mostly go to high-skilled homeowners; by contrast, low-skilled renters observe notable reductions in their living standards. These findings indicate that one cannot merely assume that the rising tide of an incoming large firm lifts all boats; subsequently, specific mechanisms and strategies are necessary to ensure that the gains from growth are distributed to all.
To that end, the report provides a number of recommended strategies for ensuring inclusive, equitable growth that benefits existing residents. These strategies are based on case studies of communities across the United States that are host to large original equipment manufacturers, including the cities of Chicago, Philadelphia and Greer, South Carolina, and the West Alabama region.
Local and regional chambers of commerce, who tend to prioritize developing existing talent in the community through workforce development programs, are an important tool for ensuring inclusive growth. The strongest recommendation from the report is that these chambers develop a symbiotic relationship with the incoming large employer, which allows for more effective alignment of the goals and needs of each. Localities can tailor workforce development programs appropriately, such that the large new firm increases the employment prospects for existing residents. Similarly, this communication allows the large employer to understand its total impact, as well as how its resources can benefit the broader community by developing supply chain relationships with existing local firms.
A second recommendation from the report also discusses workforce development, emphasizing that if workforce development programs focus on education, they should work closely with local school systems to do so. Large employers can provide resources and apprenticeship opportunities to local school districts, as well as offer certification programs (in, for example, manufacturing fields) that create an easy on-ramp to the workforce.
Finally, community benefits agreements, or CBAs, and an early warning network can be effective tools for the local community to voice concerns, fight pushback and provide equity. CBAs set forth a contractually binding set of community benefits that a developer agrees to provide; these benefits can include mandatory living wage requirements, the construction of parks and recreational facilities, and the construction of affordable housing. CBAs can also create a legal basis that prevents state legislatures from preempting local legislation in the community receiving the large employer.
By contrast, early warning networks gather data on specific companies to understand problems encountered by specific local businesses, thus allowing for such issues to be addressed before they become insurmountable. In the Chicago case study detailed in the report, many local manufacturing businesses were facing closure issues because of difficulties in finding a successor once the owner was nearing retirement; this problem disproportionately affected minority-owned businesses, posing challenges to diversity in the manufacturing ecosystem. Early warning networks allow communities to head off potential problems that can accumulate downstream and cause deep-seated, structural inequity.
While economic growth does not guarantee that the welfare of all will increase, specific strategies for managing economic expansion and its effects can ensure a more equitable outcome.
The takeaways from NCGrowth’s report offer potential pathways for how rapid economic growth – and the arrival of large, potentially multinational firms – need not contradict ideals of inclusion and equity. Collaborative relationships and effective communication between local entities (e.g., chambers of commerce, educational systems) and incoming employers can ameliorate negative impacts of the new employer’s arrival, creating a system in which all residents can benefit. These findings thus speak to a paradigm that goes beyond the simple dichotomy of growth vs. equity. While economic growth does not guarantee that the welfare of all will increase, specific strategies for managing economic expansion and its effects can ensure a more equitable outcome.
Read Report Economic Development Strategies
Read more about NCGrowth
Kenan Institute Technical Business Writer Thomas Nath wrote this insight.
1 Tippit, R. (2021, August 16). NC growth over last decade entirely from adult population. Carolina Population Center. https://www.ncdemography.org/2021/08/16/nc-growth-over-last-decade-entirely-from-adult-population/
2 Qian, F., & Tan, R. (2021). The Effects of High-skilled Firm Entry on Incumbent Residents. Stanford Institute for Economic Policy Research (SIEPR) Working Paper 21-039. http://dx.doi.org/10.2139/ssrn.3982760