PayPal’s decision to stop a planned Charlotte expansion because of House Bill 2 was an economic blow.
But did it really cost Mecklenburg County $285.5 million in economic activity, as the Charlotte Chamber said this week?
PayPal was planning to hire 400 new people for a global operations center, with an average wage of $51,000. That annual payroll would be $20.4 million. Including benefits could push that number higher, perhaps to $30 million.
So how did the chamber arrive at a “missed economic opportunity” estimate that’s nearly 10 times as large?
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The chamber’s estimate was part of a larger report released by the city Tuesday on the impact of HB2. In addition to estimating the impact of PayPal, it showed visits by companies and inquiries are down since the law was passed, and also listed meetings and small conventions that have canceled.
The chamber has been urging Charlotte City Council to repeal its nondiscrimination ordinance to make it easier to reach a deal with the General Assembly.
Economic software used
The chamber said it used economic forecasting software called IMPLAN, which attempts to project the ripple effects of how money moves through the economy.
The idea is that when a business moves to a city, its employees spend their money on new cars, clothes and home furnishings. That money is then spent again by those businesses and their employees. And so on.
“The company itself has to make several purchases that first year – for example, office space, equipment, etc.,” said Chuck McShane, director of research for the Charlotte Chamber. “Relocating employees also have to make a lot of large purchases as well – mortgages, furniture, moving companies.”
McShane said IMPLAN is a “standard model for economic impact analysis used by several universities and federal agencies such as the USDA.”
But IMPLAN forecasts have also been ridiculed by economists, particularly when used to promote a specific project like a new sports stadium.
Economic impact analysis uses what’s known as a “multiplier” to determine how new money ripples through the economy.
In calculating the impact of the $800 billion stimulus program from 2009, the Obama administration used a multiplier of 1.6. Closer to home, the Charlotte Regional Visitors Authority has used multipliers of 1.5 or 2 to determine the economic impact of conventions or major sports events.
If the cost of PayPal’s wages and benefits are included, then a multiplier of nearly 10 would need to be used to reach $285 million.
“I do not know where they would find a multiplier of that level – especially on an ongoing basis,” said Craig Depken, a professor of economics at UNC Charlotte. “Perhaps for the first year if there were substantial construction outlays, etc.”
Another economist, Don Coffin of Indiana University Northwest, said a multiplier that brings a $20 million payroll to $285 million economic impact is “not plausible.”
Spin-off jobs included
In calculating economic impact, the chamber looked at more than PayPal’s 400 jobs.
It estimated those 400 jobs would have created 908 additional jobs in Mecklenburg County and 27 other new jobs elsewhere.
When those additional jobs are included, the multiplier needed to reach $285 million gets smaller.
But would a new job that pays $51,000 a year actually create two additional jobs?
In 2014, the total gross domestic product of the Charlotte metro area was $144 billion. There were about 940,000 full-time jobs in the metro area that year.
Each full-time job was worth $153,000 in economic activity.
McShane said new jobs produce more economic activity because there is more spending associated with starting or expanding a new business.
He compared the change in the region’s economy and jobs from 2010 to 2014, and found that each new job added was worth $273,000 in economic activity.
If that’s true for PayPal, the company’s 400 new jobs would generate $109.2 million in new economic activity.
That’s a lot of money – but far short of $285.5 million.
To reach $285.5 million, every PayPal job, as well as the other 908 jobs has to be included as well.