The following appeared in a memo from the president of Viva-Tech, a manufacturer of high-tech medical equipment.
"In order to reduce costs, we should close some of our existing small assembly plants and build a large central plant. Grandview would be an ideal location for this new plant. First, of the locations that we have considered, Grandview has the largest adult population, so that we will be able to staff our plant quickly and easily. Second, since the average wage earned by workers in Grandview is less than that in the other locations, we should be able to keep production costs low. Last, as an inducement for us to build there, Grandview's town council has offered to allow us to operate for the first three years without paying city taxes."
In this memo the president of Viva-Tech, a high-tech medical equipment firm, recom mends closing its small assembly plants and centralizing its operations at one location--in the city of Grandview. To support this recommendation the president points out certain attractive demographic features, as well as the town's willingness to allow Viva-Tech to operate there without paying property taxes for the first three years. However, careful scrutiny of the evidence reveals that it provides little credible support for the president's recommendation.
To begin with, the fact that Grandview's adult population is larger than that of any other locale under consideration is scant evidence in itself that Grandview would be the best location for Viva-Tech. Perhaps Grandview's adult residents are not skilled to work in the medical equipment industry. Or perhaps a large portion of its residents are retired. Or perhaps virtually all of its residents are already employed in jobs that they would be unwilling or unable to leave to work at Viva-Tech. Without considering and eliminating these and other possible reasons why Viva-Tech might have difficulty finding enough suitable employees in Grandview, the president cannot rely on the fact that Grandview has a large adult population to bolster the recommendation.
Furthermore, the fact that the earnings of the average Grandview worker are comparatively low does not necessarily mean that Viva-Tech could minimize labor costs by employing Grandview residents, as the president suggests. It is entirely possible that this low average wage is attributable to a high percentage of jobs requiring low-level skills. This scenario would be particularly likely if a large portion of Grandview's workers are teenagers and college students. In fact, the low average wage in Grandview is further evidence that Grandview residents do not possess the sorts of high-tech skills that would command a higher wage and which Viva-Tech might require among its work force.
A final problem with the argument involves Grandview's willingness to forego payment of property taxes for the first three years. Admittedly, this evidence lends some measure of support to the recommendation. However, the president ignores the possibility that other cities under consideration would be willing to make similar concessions, or provide other equally attractive financial incentives. The president also overlooks the expense of property taxes over the longer term. Lacking evidence to the contrary, it is entirely possible that Grandview's property-tax rates are otherwise comparatively high, and that in the longer term Viva-Tech's property-tax liability would be greater in Grandview than in other locales. Until the president accounts for these two possibilities, I cannot be persuaded that Grandview is the best location for Viva-Tech from a property-tax stand-point.
In the final analysis, the recommendation of Viva-Tech's president is not well supported. To strengthen it the president must provide detailed demographic evidence showing that a sufficient number of Grandview residents would be able and willing to work in Viva Tech's high-tech environment. A proper evaluation of the recommendation requires more information about Grandview's property-tax rates vis-a-vis those of other locales under consideration, and about the willingness of these other municipalities to provide their own financial or tax incentives to Viva-Tech.
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