Future of Houston #4: Would Fortune 500 Companies Stay in Houston?

Here we continue our series which asks: "what will happen to Houston, the energy capital of the world, if the response to climate change requires us to move away from oil and gas".  In previous posts, we took seriously the claim that Houston could end up like Cleveland, a once booming industrial city whose population has been on a downward spiral for several decades.  One question was why would major companies leave a metro area taking jobs with them, like with Cleveland?  Here we explore this question in detail. 

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Let’s assume oil and gas declines as a proportion of energy consumption globally over time.  What will happen to the major companies that extracted, refined, and distributed it for so long?  As of 2022, Houston is home to about 25 “Fortune 500” companies.  About half of those are in the oil and gas business.  In total about 5,000 energy firms are in Houston and about 31% of all US jobs in oil and gas are there as well.  The port itself maintains nearly 40% of the country’s capacity for petrochemicals.  This is to say that Houston’s place as the oil and gas capital of the US is currently without equal.  

But who is to say that if the oil and gas industry declines, those same major companies will stay located in Houston?  Standard Oil, the largest oil company in history, was located in Cleveland, connecting the earliest American oilfields in Pennsylvania and Ohio to the great lakes.  It moved to New York City.  Entire industries have moved locations as well, firing locals and rehiring people for the same positions in different places.  Without significant flows of oil and gas moving to refineries in Houston, why would major energy companies stay in the area?  And what could allure them to different cities?

Without getting into the specifics, it's first important to ask what research exists regarding corporate relocations.  Research out of Spain’s prestigious University of Navarra analyzed characteristics of corporate headquarters themselves, assessing over 30,000 headquarters in the US.  Here is a visual of their economic model -

Citation:  Strauss-Kahn, Vanessa, and Xavier Vives. "Why and where do headquarters move?." Regional Science and Urban Economics 39.2 (2009): 168-186.

They note several important factors for corporate relocations: good airports, low taxes, low wages, high business services, industry specialization, and similar company headquarters.  They also noted that relocations are fairly common (1 in 20 companies per year) and that bigger and younger companies move more often.  A review of survey responses shows a number of other anecdotal reasons as well (such as to increase profits, to be near major labor/financial markets, due to an acquisition, and even symbolic or reputational reasons).

How does Houston fare when considering these factors?  

• Airports: A review of JD Power’s ranking of customer satisfaction among US airports puts Houston’s George Bush above average.  There may be better statistics than airport satisfaction, but it is a decent start for the mass amounts of travel required for large corporations.
  
  
• Taxes: CNN’s analysis of ‘city-by-city tax burden’ puts Houston at 46 of 51 states in terms of total tax impact, which means the tax burden operating within Houston is incredibly low.  What isn’t considered in this calculation however is Texas’s corporate tax, which isn’t a corporate tax at all.  It is a tax on sales called a ‘gross receipts tax’.  Apparently the tax is highly complicated, expensive to comply with, and subject to considerable efforts in the Texas state congress to reform.
  
  
• Wages: Unionization rates were of particular concern for businesses, of which Houston persists as largely union-scarce.  Consistent with almost all other metro areas in Texas, Houston ranks as 49 of the 53 largest metro areas for union representation, per unionstats.com.  With regards to costs to employers to hire workers, the costs in Houston have stayed persistently low-growing for the better part of a decade.  Reviewing the past 10 years of the Bureau of Labor Statistics’ “Changing Compensation Costs in the Houston Metropolitan Area” report, we see that of the top metro areas, Houston ranked 7/15 in 2022, 15/15 (2021), 12/15 (2020), 14/15 (2019), 14/15 (2018), 15/15 (2017), 3/15 (2016), 14/15 (2015), and 9/15 (2014).
  
  
• Business services: a somewhat difficult statistic to generate data for, access to business services can be broken up in any number of ways.  Wallethub, for example, in their ranking of the best cities to start a business, designated a similar category as “Access to Resources”, which includes factors like financing, talent, and population.  As a result, they rank Houston 59 of 100 for this category.
  
  
• Industry specialization: in the paper we cite above (Strauss-Kahn and Xavier, 2009), the authors specify that by reviewing the number of companies tied to a specific industry specialization, you can gain a sense of a very strong factor for corporate headquarters moving.  Persistent claims exist regarding Houston’s dominance both locally and maybe even globally, but the available comparative statistics are difficult to come by making this a potential future research question - “where exactly does Houston stand among the most significant oil and gas cities in the world?”  It is likely that Houston is among the most significant cities in this field, but the extent to which is worth a second look another time.
  
  
• Similar headquarters: industry specialization leads to the opposite question of Industry Specialization… what cities are available that could provide energy alternatives?  This too is a more complex economic question, one that starts with interpreting which energy alternatives are likely to consume market share from oil and gas, and which cities are competitively placed to provide them.  This remains open.

Therefore of the above 6 factors, 3 (Taxes, Wages, and Industry Specialization) bode well, 2 are middling (Airports and Business Services), and 1 is relatively unknown (Similar Headquarters).  Each could use additional research, but for now these factors are relatively well-placed for Houston to maintain its large corporate presence.  The only threat would be if another industry or energy source grew to extraordinary proportions.  Time will tell if or where that threat could exist.