Amazon’s HQ2 expansions will help other cities, like Philadelphia, too

Amazon's expansion of its headquarters to New York City and suburban Washington, made public just a week after Google's announcement of a planned expansion in Manhattan, shows that the rich are getting richer: That is, only well-developed urban areas are benefiting from the growth of the tech industry.

Right? Not exactly. As well-compensated employees drive up costs in these cities, they will create incentives for workers and companies who can't afford San Francisco rents or Google salaries. "Trickle-down economic development" will create winners out of the cities that aren't landing new tech jobs or headquarters.

First, it's noteworthy that tech companies are looking outside of the Bay Area and Seattle to begin with. This suggests that, as costs and competition for talent escalate, there are limits to expansion in any one metro area.

What's less apparent are the second-order effects that will be set in motion by Amazon and Google's expansion plans. Higher costs and congestion brought about by all these new tech workers in Northeast hubs will inevitably lead to some other workers and companies deciding against moving to New York and Washington. The costs might even prompt existing workers and companies to start searching for cheaper pastures.

Some may move to similar metro areas such as Boston, Philadelphia, or Chicago, while others may go to smaller areas such as Raleigh, Nashville, or Atlanta. Perhaps the $150,000 tech jobs will go to the richest cities. But the $90,000 tech jobs, unable to compete on cost, will have to go somewhere cheaper. The ripple effects will spread prosperity to more metro areas.

There's an analogy here with higher education. As the number of high school graduates and educational attainment rates have increased, the number of spots at elite colleges and universities has been relatively flat. Many more talented and capable students apply to Harvard than will be accepted, and those rejected students bring their talents to less prestigious universities and communities. And their presence, in turn, raises the quality and prestige of these colleges.

The University of Georgia system shows how this works as it manages enrollment growth across its campuses. A decade ago, the system explicitly decided to increase capacity in the metro Atlanta area, both to better serve its growing population and as an economic development strategy. Since 2008, the main campus of the University of Georgia in Athens has seen its student body grow by just 12.8 percent. Enrollment at Georgia State in downtown Atlanta, meanwhile, has grown by 87 percent, and Kennesaw State, to the northwest of the city, has grown by 65 percent.

One could argue that this "displacement effect" was visible in last week's midterm elections. Democrats flipped House districts in the wealthy suburbs of Atlanta and Houston, places that tend to attract people priced out of New York and California.

Economic development, unlike politics, is not always a binary choice. Communities don't need an Amazon headquarters to succeed. As wealth moves in, costs will rise, congestion will increase, and incentives will change. Then growth and development really will spread throughout the country.