Data Centers

Why data centers fail to bring new jobs to small towns

Apple, Amazon, Google, and Microsoft continue building large data centers in rural areas, but most do not create jobs for local residents. Here's what you need to know.

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Image: iStockphoto/cybrain

The data center industry is booming, due in part to massive growth of cloud computing and its associated vendors. But while these data centers may bring the tech industry to more rural towns, they fail to provide many jobs or greatly enhance the local economy, experts say.

Data centers are a multi-billion dollar industry worldwide, driven by data growth for individuals and businesses, said Mehdi Paryavi, chairman of the International Data Center Authority (IDCA).

"The data center industry is at the very beginning of really defining its future," Paryavi said. "It's still not recognized as a standalone industry by itself, though it's probably one of the most lucrative industries in the world today."

Tech giants such as Microsoft, Apple, Google, and Amazon lead the industry in terms of the quantity, quality, and size of the facilities and clouds they operate, Paryavi said.

SEE: Download: IT Data Center Green Energy Policy (Tech Pro Research)

In Boydton, VA, recently profiled in the New York Times, Microsoft recently built a large data center housing thousands of computer servers.

"People thought when Microsoft came in it would create jobs, but that's just not the case," said E.W. Gregory, the head of the local International Brotherhood of Electrical Workers union. Instead, they brought in outside technicians to do most of the work, he added. About 25 local residents got jobs, primarily as administrative assistants or janitorial staff, Gregory said.

Hundreds of Boydton residents lost jobs in recent years, as several factories and a prison closed. Gregory said he believes Microsoft chose the town for a data center primarily because "land was cheap."

"It helps the community to a point, because restaurants, gas stations, and hotels are getting more business," Gregory said. "The people are nice and hard working, but there is no industry for them to work in."

Local incentives

While typical company headquarters can have between 200 and 1,000 jobs on site, the number of jobs at an average data center is usually capped at 30, according to a 2014 report from CBRE.

Large companies often select data center locations based on how much geographic area they can cover with the right kind of low latency. Recently, Amazon built large data centers in Columbus, OH, and Dulles, VA, while Microsoft has centers in Wyoming and Iowa. Google began building in Oregon, near the inexpensive hydroelectric power of the Columbia River. And Apple built a 500,000 square foot data center in Maiden, NC, in 2010, with plans to invest more than $1 billion over 10 years in the data center campus.

"The data centers have been a natural fit in the foothills of North Carolina," said Todd L. Cherry, director of the Center for Economic Research and Policy Analysis at Appalachian State University. "As the textile and furniture industries left, there was considerable electricity capacity to serve the data centers."

The underlying issue is that the state and local governments provide incentives such as tax breaks, land, infrastructure, and services, usually in a competitive bidding process with other governments trying to land the data center, Cherry said.

"The incentive packages can be quite outlandish—far exceeding any reasonable economic justification," Cherry said. "This is a form of what we call 'the winner's curse.' When governments engage in a competitive bidding process over an uncertain benefit, the one that wins is the one that overestimates the benefit."

This kind of competitive bidding to attract companies often becomes more of a political game than an economic development strategy, Cherry said. Instead of spending resources to fight for an existing company, a better economic development approach is to create new economic activity by investing in things like education, infrastructure, and research and development, Cherry said.

Paryavi said he agreed that data centers often do not generate much economic growth for residents of rural towns where they are built. "But it does provide a cleaner environment, and a more quality job profile for those qualified to take it," he said. One data center can also be an anchor for others to join. "The aggregate of those could turn your town into a digital hub," Paryavi added.

It makes financial sense for large companies to recruit local tech workers when possible, instead of paying their own staff to visit the area, Paryavi said. But, if there is a lack of local tech talent, they will have to search elsewhere, he said.

Supporting schools

With the motto "good land, good living, good people," Shelby County, KY is home to data centers owned by Eaton Corporation, EON Energy, and Humana Insurance.

The county attracts data centers due to its proximity to major metro areas, the low cost of utilities, and the mild climate that is not prone to flooding, earthquakes, or storms, according to Shelby County Judge Executive Rob Rothenburger. In the event of a storm, the companies have several backup systems to keep data safe.

In 2011, Eaton Corporation spent $80 million to build a 55,000 square foot data center in Shelby County's town of Simpsonville, KY. An additional $80 million went toward an identical data center in Louisville, KY.

Shelby County offered Eaton Corporation several incentives, including an industrial revenue bond, to build in the area. The company also receives tax benefits through the Kentucky Enterprise Initiative Act, which allows it to recover state sales and use tax on construction costs, building fixtures, and research and development materials.

While Eaton's Simpsonville data center has only created about 15 jobs for local residents, these jobs are high paying, Rothenburger said. "They want to attract the brightest individuals from the local community, but they also brought in some internal personnel, especially at the start," Rothenburger said. As people are trained, and the internal people cycle to other areas, more jobs will open up, he added.

The average data processing, hosting, and related services salary was $38.21 per hour as of July 2016, according to the Bureau of Labor Statistics, or about $76,100 per year.

Despite the lack of new jobs, Eaton Corporation does make payments to local schools as part of its local assessment. In some ways, this is more beneficial, because the schools have more funds to improve without the student population growth that would occur if more jobs were offered in the area, Rothenburger said. The company also partnered with the city of Simpsonville to rebuild a community park and baseball field.

"Their contribution to schools has been a tremendous asset to our community," Rothenburger said. "If we could attract more data centers, we would at this point."

Industry growth

Data center growth shows no signs of slowing down: The industry is expected to double by 2021, due to massive acceleration of enterprise cloud adoption, according to a recent JLL report. And data center providers continue to spread locations geographically for greater reliability and speed, the report stated.

To remain competitive, cloud providers will have to account for coming changes to the industry. A July Gartner report predicted that "by 2021, more than 90% of large data centers will revise their strategies due to major global socioeconomic and environmental trends." Digitalization, demographic and social change, urbanization, climate change, and resource scarcity are the trends driving the change, the report found. IT leaders must develop a data center strategy that takes these trends into account, or risk a weak infrastructure or a failed business.

"America is no longer leading the world in manufacturing," Paryavi said. "But we are leading with our ideas, patents, designs, and data. Nowadays our clouds are making a bigger impact than our manufacturing could ever do."

The 3 big takeaways for TechRepublic readers

  1. The data center industry is growing rapidly, with tech giants including Apple, Amazon, Google, and Microsoft building large data centers across the nation in recent years to keep up with cloud computing demand.
  2. Large companies often build these data centers in rural areas with inexpensive land and utilities, but do not usually bring large numbers of jobs to these areas, as some residents expect they will.
  3. Data centers are expected to double in number by 2021, due to more and more individuals and businesses moving operations to the cloud.

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About Alison DeNisco Rayome

Alison DeNisco Rayome is a Staff Writer for TechRepublic. She covers CXO, cybersecurity, and the convergence of tech and the workplace.

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