The choice matters for what it reveals about business attraction activity – and what actually affects business location decisions in 21st century.
To attract the kind of high-paying, high-tech manufacturing jobs, cities and states need an abundant supply of college graduates, a steady stream of fresh graduates, and communities in which those workers will want to live. It’s a sobering lesson for states like neighboring Indiana, which can rival — even beat — Ohio on tax breaks, tax rates, and the regulatory environment, but lack the quality of life and level of education.
The most public element of Intel’s INTC,
choices are the tax incentives offered by Ohio. It’s an initial $1 billion infrastructure outlay for the Licking County site, just east of Columbus. The second incentive is more obscure. To land that $20 billion factory and 3,000 expected workers, the Ohio legislature doubled its business activity tax incentive deadline by 15 years. This tax is assessed on a business’s income, and the incentive now gives employers a 30-year tax break.
For Intel, the incentive, based on targeted employment and potential revenue from that plant, would be an annual tax credit of nearly $30 million per year. In terms of present value, the total incentive program is worth between $1.3 billion and $1.5 billion over 30 years. This translates into incentives ranging from $430,000 to $500,000 per job.
On the face of it, this is a deal that compares to the Foxconn incentive program debacle in Wisconsin. But there are several key differences. First, unlike Foxconn, Intel has never backed out of development deals with local governments. Second, Intel jobs will pay an average of $125,000 in salary and benefits, more than double those at Foxconn.
Finally, the Foxconn factory never, ever made economic sense. Offshoring the production of a product that could be made for the fraction of the cost overseas has always called Foxconn a dodgy business. By contrast, Intel’s semiconductor plant can be economically justified for several reasons.
COVID-19 supply chain disruptions make a strong case for North American manufacturing companies to diversify their semiconductor supplier locations. The demand for semiconductors will only grow, as anything that uses electricity and is more complex than a toaster or a 1970s lamp needs it.
Ohio vs. Indiana
This plant is a 25-minute drive from The Ohio State University College of Engineering and near some of the fastest growing neighborhoods in the Columbus metro area. The entire metro area has absorbed some 130% of the state’s population growth since 2000.
Salary levels also suggest that the workforce at this plant will be mostly college graduates. Ohio workers in the semiconductor industry earned $65,490 a year in the last 12 months before the COVID downturn. To be profitable, this factory will be much more than the clean room production facilities of a traditional semiconductor factory. I suspect this site will involve considerable product development and testing.
This evidence indicates that the need for a large number of university graduates is a determining factor in Intel’s decision. Nearly a dozen major engineering schools are within a five-hour drive. These include Purdue University, University of Michigan, Michigan State University, Carnegie Mellon University, University of Kentucky and of course the State of ‘Ohio.
The only other Midwest location that could boast the same geographic focus would be Indianapolis. The fact that Indiana was not chosen in this case offers a harsh lesson to states that rely on incentives rather than an educated workforce as an economic development strategy. It’s the same lesson that the deal with Amazon headquarters has provided to state policymakers across the country.
The Indianapolis and Columbus metropolitan areas are similar in size and have absorbed all of their state’s population growth this century. Both were finalists in the Amazon HQ competition and were also courted by Foxconn. Purdue has an objectively better-ranked engineering school, and taxes in Indiana are lower than in Ohio. Indiana’s use of tax abatements and credits suggests it would have offered a similarly sized package.
So why is Intel going to Ohio and not Indiana?
The short story is the abundance of educated workers in Ohio. The Columbus metro area is already rich in college graduates, but it also has a local environment that can attract more.
A recent Brookings Metro study measured quality of life in every county in the Midwest and then compared that measure to population growth.
Licking County ranks high on the quality of life measure and has experienced significant population growth this century. In Indiana, no county with a higher quality of life measure has a higher share of adults with college degrees than Licking County. Several Hoosier counties ranked well on quality of life, but none offered the number of potential college graduates as central Ohio did.
Statewide, Ohio fares much better than Indiana when it comes to educational attainment.
In 2020, 29.6% of adults in Ohio had a college degree; in Indiana, it was 26.9%. It may seem like a modest difference, but it puts Indiana in the bottom 10 states for both college graduates and those with college degrees. Ohio ranks in the middle third on both measures.
Most troubling, however, is that the share of adults with a college degree in Indiana has been declining since 2018, a factor that would immediately remove it from the long list of candidates for an advanced semiconductor factory.
The problem is not the brain drain. A recent study by the United States Senate places Indiana and Ohio among the states losing the least in university graduates due to emigration. The problem for Indiana is that it attracts too few college graduates from out of state and suffers from a low proportion of students heading straight to college. Ohio has steadily increased its share and was two percentage points higher than Indiana in 2018, the latest year for which data is available. Again, this may seem like a modest difference, but it translates to 3,600 more students per year heading to college in Ohio than in Indiana. That matters when you’re looking to fill 3,000 new jobs by 2025.
Although Ohio barely spends huge amounts on schools, it has allocated $3 billion more to education than Indiana over the past decade. Ohio continues to spend a larger share of its GDP on schooling of all types. Ohio spends nearly 20% more per child on education, or about $1,500 per child ages 0-24 than Indiana. These additional expenses paid off.
Admittedly, we can’t know all the details among the slots that Intel is considering. But Indiana’s governor is a far better spokesperson and advocate than Ohio’s, and a recent study has awarded Indiana’s state economic development officials much higher accolades than those of Ohio. Other than education, it’s hard to conjure up any real difference between Indiana’s and Ohio’s suitability for this plant.
The only significant difference between these two states is the availability of well-trained workers. Fortunately for Ohio, it was almost certainly the engine of the nation’s most consequential industrial expansion in that century.
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Michael J. Hicks is the George and Frances Ball Professor Emeritus of Economics and Director of the Center for Business and Economic Research at Ball State University in Muncie, Indiana. Follow him on Twitter @HicksCBER.