Costs push companies to move headquarters out of California

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A lot of prominent businesses got their start in California, but over the past few years many businesses have decided that the cost of living and the rise of taxes and real estate prices are enough to make them move their headquarters out of California and to states with easier taxes and where they would not need to pay their workers as much.

Tim Gramling, dean of the Robert K. Jabs School of Business, said these losses are cyclical, due to the constant rise California had been on up until this point, it was bound to come down at
some point.

“California is coming off of what had been a really long, steady growth pattern, predominantly driven by Silicon Valley,” Gramling said. “Because of that, and all the ancillary businesses that grew up in Silicon, San Francisco, San Jose and this whole area, and that spilled over into the rest of the state, there was bound to be something of a drop-off. Those executives and those workers either got to retirement age or have been working for a while and wanting to change the industry, or wanting to step out of the industry. Now you see the effect of the down (portion) of the cycle.”

In August, Stanford University released a study on the sudden increase in businesses moving their headquarters out of California since 2018. 

Joseph Vranich and Lee E. Ohanian, the writers of the study, said in their paper that the headquarters relocation has more than doubled in 2021, and expressed their concerns about if this trend continues.

“Unless policy reforms reverse this course, California will continue to lose businesses, both large established businesses, as well as young, rapidly growing businesses, some of which will become the transformational giants of tomorrow,” Vranich and Ohanian said in their paper.

Joel Bigley, assistant business professor, said he thinks California’s tax policies make it difficult for small businesses to make it, and that loosening those policies could help keep more businesses from moving to states with easier tax policies.

“They could be more friendly towards small businesses from a policy perspective (and) a tax perspective,” Bigley said. “They could (also) do a better job concerning the environment of crime. Companies have extra expenses associated with security and so on, so they could do a better job with that. Of course, crime rates also affect real estate values. In places where there is crime, there are typically lower real estate values than in other places. It is not good for people to live in a state where there is a lot of crime because then their real estate value goes down.”

Gramling pointed out that while there is an increasing number of businesses that are moving out, that number is still nowhere near the number of businesses starting up in California. The state is still gaining businesses, just at a lower rate.

“California still leads all states by a very large margin in the rate of new businesses being started,” Gramling said. “(While) somewhere between 100-200 businesses left, something like 90,000 new businesses will have started.”

Gramling said that although many business headquarters are leaving California, there are still plenty of opportunities for college graduates in the state, especially now that working remotely is increasing in popularity.

“A number of college graduates and families of college graduates are finding it is actually reasonable and tenable for those graduates to just move back home because a lot of them can work remotely,” Gramling said. 

This has been the case for years now, but the COVID-19 pandemic has increased the number of companies who have employees working remotely.

“I am in that situation with my family, with my son who himself has three sons,” Gramling said. “We are finding that it is more effective for him to actually move back in with us because a lot of his work can be done remotely. He is working in another state, but he can still make his livelihood here. As that happens, it becomes less important where the company headquarters actually is.”

Sakai Kelly-Nyx, freshman pre-nursing student, said she thinks working remotely can be the future for many of her peers.

“Technology is very important to everyone’s lives, as much as (some) would hate to admit it,” Kelly-Nyx said. She said she believes working remotely will be more common,
especially now that many companies have been forced to figure out how to do it due to the pandemic.

Now that restrictions are starting to loosen up, people might want to stay close to their families to reunite with them after a year and a half of varying degrees of quarantine and to avoid being quarantined away from them again.

Gramling said he believes college students and graduates should not let the changing business landscape discourage them from staying and living in California.

“California is such a large state with so many opportunities across the board, that there will inevitably be cycles,” Gramling said. “And so the choice to stay or leave a state for an individual is very different than it is for a company. I would encourage graduates to look at all their options. But California, with all the work here, clearly remains a very strong option for college graduates.”

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