STEM workers attraction to small towns draws tech companies

Bigger isn’t always better for cities to attract workers in STEM (science, technology, engineering and math) careers, and economic analysts say small towns can offer resources and unique amenities that big cities can’t.

A recent ranking of the top 10 U.S. cities for STEM workers listed no metropolises, such as New York or Los Angeles, but identified smaller, more pastoral locales such as Richardson, Texas, and Albuquerque, New Mexico.

This would seem counterintuitive, especially as online retail giant Amazon — one of the country’s largest tech-based firms — is searching for a site for its second headquarters among big cities such as Chicago, Atlanta and Dallas.

But smaller cities and suburbs can compete for STEM workers by advertising their family-friendly environs, more affordable homes, easier commutes and proximity to nature.

“Generally, cities that offer lower taxes, a lower cost of living, better accessibility and a larger, relevant workforce will attract companies,” said Antony Davies, an economics professor at Duquesne University and senior affiliated scholar with the Mercatus Center at George Mason University.

Big cities have outspent their rural cousins by putting together special incentive packages with lavish tax exemptions and handouts in the shape of money bags, Mr. Davies said. But cities as small as Gaithersburg, Maryland, and Franklin, Tennessee, are outperforming Silicon Valley in some measures.

The Commerce Department says STEM occupations will continue to be a key driver of the U.S. economy. Over the past decade, employment in STEM fields grew by 24.4 percent, while employment in non-STEM fields grew by only 4 percent. STEM workers earned 29 percent more than their non-STEM counterparts in 2015.

Business leaders, scholars and elected officials have noted a decline in STEM pursuits in higher education and expressed concern about a lack of qualified workers in the future.

Albuquerque, with a population of about 600,000, lands thriving tech companies and piles of U.S. military contracts.

A representative for the city said STEM is a key part of Albuquerque’s economic strategy. Sandia National Laboratories, the University of New Mexico STEM graduates and a hands-off approach to intellectual property allow Albuquerque tech companies to thrive, the representative said in an email.

City planning specialists say that small-town worldview drives success beyond big-city limits.

“It’s the culture of the city,” said Robert Shibley, dean of the school of architecture and planning at the State University of New York at Buffalo.

Mr. Shibley has worked with city planners to revitalize Buffalo’s economy, which took hits in the 1980s and early 2000s when Bethlehem Steel posted losses and went bankrupt.

The revitalization effort has largely succeeded, Mr. Shibley said, because planners capitalized on Buffalo’s comparative advantages — the same way small cities have outpaced Silicon Valley in technology.

“There’s no question that if the businesses you’re trying to attract are STEM-based, and you have a college and university configuration that’s delivering STEM students to the marketplace, you have an advantage if you get your business closer to that labor force,” Mr. Shibley said.

The same goes for Gaithersburg, said Daniel J. Abdun-Nabi, CEO of Emergent BioSolutions.

Emergent BioSolutions’ headquarters is near the District of Columbia but outside the city’s borders. The location helps it reap the best of both worlds: proximity to federal agencies and Congress, and access to Maryland’s resources and preferable policies.

While D.C. policies may drive out business, Mr. Abdun-Nabi said, Montgomery County, which includes Gaithersburg, “understands the importance of early-stage companies,” a sentiment reflected in its tax code. The University of Maryland and Universities at Shady Grove justify the location too, he said in an email.

Montgomery County is one of 20 jurisdictions Amazon is considering for its second headquarters, along with Northern Virginia and the District.

’Head tax’

Mr. Davies, the economics professor, said city policies can make or break the local economy, as his native Pittsburgh has shown.

Like Buffalo, Pittsburgh’s steel empire collapsed in the 1980s. But other industries sprouted: technology, health care and the arts.

“You can’t just go on hoping that the steel mill will open again or that the automobile plant will open again,” said Don Carter, a director of the Remaking Cities Institute at Carnegie Mellon University in Pittsburgh.

Thanks to private enterprise, philanthropy and universities that produced market-ready graduates, Pittsburgh resurged.

Mr. Davies compared it with Detroit. The auto industry faltered during the Great Recession and the federal government bailed it out, he said, but Pittsburgh took a different road.

Today, “Detroit is a wasteland and Pittsburgh is not only a thriving city, but managed to weather the Great Recession almost unscathed” comparatively, he said.

Still, Mr. Shibley said big cities fail to foresee the destruction their policies can wreak. Throwing all their assets at Amazon could backfire as an influx of workers strain existing infrastructure such as roads and sewers.

“Some cities should be careful what they wish for,” he said. “The thing that I would not want to do is to assume that I got Amazon and [the economy is] all fixed.”

Mr. Davies compared the risk to putting all of a worker’s retirement money into one stock.

“So long as that single stock price rises, your retirement savings does well. But if that single stock price tanks, you could lose your shirt,” he said.

The Livability website’s “Best Cities for STEM workers,” list bases its rankings on total STEM jobs and workers’ incomes.

Gaithersburg, with a population under 60,000, owes some thanks to Maryland because the state takes less in taxes on income, businesses, property and sales compared with the District of Columbia, where the citywide minimum wage continues to rise.

“Differences in minimum wages across cities will matter a lot to businesses that employ many minimum-wage workers and to businesses that employ union workers,” Mr. Davies said.

Economists have studied Amazon’s home city, Seattle, since it passed a $15 minimum wage in 2015. The Seattle City Council irked its biggest tax revenue provider in May when it passed a “head tax” that charged large employers such as Amazon and Starbucks hundreds of dollars per employee.

Businesses called it a tax on jobs and threatened to leave. An Amazon executive said the council has a “spending efficiency problem.” The council repealed the tax less than one month later.

Some Silicon Valley cities now are considering a “head tax.” Mountain View, California, will hold a referendum in November, and the Cupertino City Council will hold one next year.

Yet localities in Maryland continue to wield the advantage in tax policy. According to the Tax Foundation, Maryland’s effective business taxes are lower than Delaware’s and West Virginia’s and are nearly the same as Virginia’s.

Tax rates in New York and Pennsylvania are almost twice as high as Maryland’s, and the state will reap the reward: Emergent BioSolutions just announced a $50 million investment and up to 60 new jobs over the next three years.