Anderson Economic Group Work

Updated: The Anderson Economic Group HQ2 Index

The Anderson Economic Group HQ2 Index, released October 2nd, 2017, was strikingly accurate in predicting which cities would be selected to move onto the next round in the site selection process for Amazon’s next headquarters.

The AEG HQ2 Index captures a city’s measurable advantage in attracting Amazon’s HQ2. The index takes into account data on a range of metrics that will be pivotal in determining the location of Amazon’s next headquarters, according to specific details outlined in Amazon’s request for proposals for HQ2.

Here’s how the AEG HQ2 Index measured up:

  • 16 of the 20 cities selected by Amazon are located in the top 21 (out of 35) metro areas on the AEG HQ2 Index.
  • The top 8 metro areas on the HQ2 Index accounted for an amazing 11 selections on the Amazon shortlist (the Washington, DC and New York metro areas both had multiple proposals selected to be finalists).
  • None of the 10 metro areas ranked lowest on the AEG HQ2 Index were selected

Using the same methodology and ranking as the first release, Anderson Economic Group also added Columbus and Pittsburgh to its HQ2 Index, two cities that made Amazon’s shortlist. These cities were previously left out of the ranking because they did not meet the expectations listed in the RFP. An updated map including them is pictured below.

In Amazon’s request for proposals (RFP), they emphasized the following items, among others:

  • Metropolitan area with more than one million people
  • A stable and business-friendly environment and tax structure
  • Potential to attract and retain strong technical talent
  • A highly educated labor pool and a strong university system
  • Proximity to international airport, major highways, and mass transit
  • Competitive incentives
  • Recreational opportunities, educational opportunities, and high quality of life

Using measureable factors from the lists above, we compiled the AEG HQ2 index, which captured a city’s measurable advantage in attracting Amazon’s HQ2. For the 35 cities in the United States that met specific requirements from the RFP, we estimated their performance using 11 total metrics across three broad categories:

  • Access to Labor and Services, including four indicators: degrees granted in relevant fields of study by colleges; employment of workers in specific occupational categories; size of the business services industry; and the number of migrants with bachelor’s degrees from other counties, states, and countries.
  • Ease of Transportation, including two indicators: hours of delay due to traffic congestion, and per-capita use of public transit systems.
  • Cost of Doing Business, including five indicators: state and local business taxes (using Anderson Economic Group’s Business Tax Burden studies); rental costs for commercial real estate; and unit cost of labor in 3 occupations important to Amazon. Note that this measure of labor costs takes into account worker productivity, meaning that more productive workers can be ranked higher even if their wages are also higher.

The AEG HQ2 index is the average of the values for each category. For each category, a higher value is better than a lower value (e.g. a lower cost of doing business translate into a higher index).

Check out the originial interactive map and table below to see how we had ranked the 35 qualifying cities.

The 35 metro areas that we included in our original analysis all have a population over one million people and an international airport with at least some nonstop flights to Seattle, New York, San Francisco, and Washington, DC. These are requirements from Amazon’s RFP.

By taking an average across the three categories, we didn’t attempt to predict which categories Amazon might favor over others. Also, there are many factors not included in this index that can come into play in Amazon’s decision. Many of these are difficult to quantify and predict. For example, we did not speculate about the nature and size of potential incentive packages. We do not directly capture the “quality of life” in these cities, though quality of life does indirectly impact some of the metrics we include. In order to compete with those at the top, cities that fall further down this list will need to either show Amazon how their particular strengths are important or offer more ambitious plans and generous benefits to overcome their performance on these measurable factors.

For a detailed methodology, click here

Anderson Economic Group has advised both international and U.S. companies on location and site selection, and assisted institutions seeking major investments in assessing their competitive advantages and the economic benefits of a successful project. More information about our market entry consulting services can be found here. Examples of this work include:

The Economic Impact of the Obama Presidential Library in Chicago

Facility for Rare Isotope Beams (FRIB) Economic Impact Michigan State University, U.S. Department of Energy

Market Entry for Turkish Exporters’ Assembly (TIM)

Anderson Economic Group has pioneered objective metrics on high-tech industries, business tax burdens, and other important local and state economic indicators. Examples of this work include:

Automation Alley Technology Industry Report

Review of Kentucky’s Economic Development Incentives

The Economic Impact of Business Tax Credits in Tennessee

Effectiveness of Michigan’s Key Business Tax Incentives