The Coming Great US Economic Migration

A “great migration” is generally considered to be a migration of people that has an important impact on the course of history. These types of great migrations – often the result of economic drivers – have occurred throughout human history. Over the past 200 years or so, these migrations have included, among many others, the migration of up to two million Irish citizens to other countries (mostly to the United States) as a result of the potato famine between 1845 and 1850, the California Gold Rush from 1848 to 1850 that brought roughly 300,000 fortune-seekers to California (more than tripling the state’s population), and the Dust Bowl that brought up to 400,000 people to California.

In the United States, we will be seeing another economic migration, this time driven in large part by the wide variety of different governments’ responses to the COVID-19 pandemic. For example, the response to the COVID-19 crisis in Kentucky was a stay-at-home order issued on March 26th, while South Dakota never issued one and imposed significantly fewer restrictions on economic activity than most other states. Not coincidentally, South Dakota has had a dramatically lower rate of unemployment through April compared to Kentucky and most other states (and a much lower death rate from COVID-19 as of this writing).

The variety and severity of responses to the COVID-19 crisis are undoubtedly being followed closely by many business decision makers as they make longer term plans for the expansion of their companies – and possibly a move of their companies to states that have responded with less-stringent measures to address the pandemic. And it makes sense for them to do so – if, during the next pandemic, a company will be locked down for four months in their current location or for two months in another, why wouldn’t they include that as a decision point in determining where to expand their operations?

The first major shot across the bow in this regard came from Tesla CEO Elon Musk who tweeted on May 9th, “Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen [sic] on how Tesla is treated in the future. Tesla is the last carmaker left in CA.” While that may have been an off-the-cuff response from a CEO who has a reputation for being a bit brash at times, it’s likely indicative of how many business leaders are feeling these days.

That said, it would be inaccurate to believe that the pandemic alone will motivate companies to seek greener economic pastures. The migration of companies to more economically advantageous locations has been happening for some time as business leaders seek lower taxes, less regulation, less unionization, a lower cost of living for their employees, and easier building permitting. For example, JP Morgan is considering moving its headquarters out of New York City, Honeywell moved its headquarters from New Jersey to North Carolina, and General Electric moved out of Connecticut. In just 2016, 1,800 businesses left California for other states.

However, what makes the response to the COVID-19 pandemic a key factor in future migrations is that many of the states that businesses were already considering leaving are those that have imposed some of the most stringent restrictions on business activity in response to the pandemic. California, for example, was the first state to impose a stay-at-home order and it shows little sign of letting up anytime soon: Los Angeles County, with roughly one-quarter of California’s population, will be shut down through at least July. The continuation of strict stay-at-home, shelter-in-place and similar types of orders will likely be important, motivating factors for thousands of businesses large and small to seek locations where the next pandemic may be met with fewer restrictions on their business activity.

In short, the SARS-CoV-2 virus will have important long-term impacts on business activity, and the economic health of different states, long after it has faded into obscurity.