In recent years, some high-profile companies, like Tesla and Chevron, have moved their headquarters out of California, making headlines and raising concerns about the state’s economic future. But companies, headquarters, and branches are always entering and leaving states, as well as opening, closing, growing, or shrinking. Do a handful of prominent relocations actually reflect a change in the state’s ability to attract and sustain headquarter operations?

In this report, we go beyond the anecdotes to study trends in headquarter relocations and the implications for employment using comprehensive data on all business establishments.

Do headlines indicate a broader trend?

We find that the number of firms whose headquarters have left the state is small. Between 2011 and 2021, 1.9 percent (789) of the state’s more than 47,000 headquarters left California on net. Roughly half of the headquarters that left were in manufacturing, wholesale trade, or business services. Most headquarters that left were relatively small companies (fewer than 100 employees), but medium and large companies were more likely to relocate their headquarters.

While the number of headquarter moves is not large, the annual number of relocations has trended upwards. About 150 headquarters left California in 2011, compared to over 200 in 2021. Moreover, the number of relocations from other states to California dropped over the same time frame, from almost 140 to just under 70. Headquarters that left tended to go to other large states like Texas, New York, and Florida, or to nearby states like Nevada and Arizona.

Companies headquartered in California are increasingly moving out of state, and fewer are relocating to California

Number of headquarters relocating

SOURCE: Authors’ analysis from Mergent data, 2010–2021.

NOTES: For each year, we measure moves between the given year (shown in chart) and the prior year in our data; for example, the 2011 data point represents headquarters that moved sometime between 2010 and 2011.

How are jobs affected when headquarters leave?

When headquarters leave the state, the high-paying jobs that tend to be housed at headquarters are most directly affected; this could have implications for state tax revenue, which relies heavily on high-income earners. In addition, headquarter relocations may influence broader business decisions about employment at branches both in and out of California, thereby affecting job growth more generally.

In our assessment, the impact on jobs due to headquarter exits is not negligible, but it also does not reflect a major change in the state’s employment picture. From 2011 to 2021, the decrease in jobs from headquarter relocations represented 3.7 percent (about 77,600) of all headquarter jobs. Further, job loss was mostly limited to headquarter jobs. Headquarters that moved out of state kept other branches and jobs in California, and these companies did not appear to shrink non-headquarter employment in the state relative to firms whose headquarters stay in California.

Do relocations reveal anything about California’s business climate?

Our analysis shows that when headquarters exit California, they tend to go to states with lower taxes and less regulation. The same pattern is evident among headquarters relocating nationally. Over the period studied, California’s tax and regulatory burden was largely unchanged based on widely used measures, while most other states reduced tax and regulatory burdens more, and in some cases substantially—a potential reason behind the uptick in headquarters leaving the state.

However, it is important to keep in mind that relocations are a small fraction of overall headquarter activity. Between 2011 and 2021, far more headquarters launched (7,250, 17% of all headquarters) and closed (12,700, 30%) than moved out of state, with no clear upward or downward trends. Launches and closures have asymmetrical effects on employment: new headquarters are always small, so the initial job gains are relatively low, while closing headquarters tend to be quite large, with considerable job losses.

Looking forward

The worsening trend in headquarter relocations deserves attention. But, in our view, focusing solely on relocations overlooks the range of positive and negative forces driving business activity and can misrepresent businesses’ desire and ability to operate headquarters in California and the broader impact on jobs. Tax and regulatory burdens are key factors for businesses when deciding where to locate their headquarters, and may explain some of the recent trends in headquarter moves. However, these relocations are a relatively small fraction of overall headquarter activity, and there are other signs of California’s appeal for headquarters, such as the number of launches. California also boasts several traits that can both attract and retain businesses, including a highly educated and innovative workforce, a good climate, and quality-of-life amenities.

It is too early in our research agenda to make firm policy recommendations. But a broad and simple lesson is that the state should continue to examine ways to maintain or strengthen the features that make it attractive to headquarters (and businesses more generally) while critically evaluating the costs and benefits associated with policies that may be causing headquarters to leave. Such efforts will require digging beyond the headlines to ultimately identify effective policy options for creating an environment that is conducive to growth and retention of businesses and jobs.

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About the Authors

Sarah Bohn is vice president and director of the PPIC Economic Policy Center and senior fellow at the Public Policy Institute of California, where she holds the John and Louise Bryson chair in policy research. She is also a member of the PPIC Higher Education Center. As the founding director of the PPIC Economic Policy Center, she leads research and engagement to inform California policymaking to support greater opportunity and upward mobility for workers, families, and businesses statewide. A labor economist, her research focuses on the job market, workforce skills, and the role of education and government programs in upward mobility. Her other areas of expertise include immigration policy, poverty measurement, income inequality, and career technical education. Her work has been published in major academic journals, including the American Economic Review, Demography, American Economic Journal: Economic Policy, and The Review of Economics and Statistics. Previously she served as vice president of research at PPIC. She holds a PhD in economics from the University of Maryland, College Park.

David Neumark is distinguished professor of economics and co-director of the Center for Population, Inequality, and Policy at the University of California, Irvine. He has previously held positions at the Federal Reserve Board, the University of Pennsylvania, Michigan State University, and the Public Policy Institute of California, where he currently serves as an adjunct fellow. He is a research associate at the NBER, IZA, and CESifo, a visiting scholar at the Federal Reserve Bank of San Francisco, and a Visiting Fellow at the Hoover Institution. He has made research contributions in numerous areas of labor economics that intersect with important public policy issues. His research on labor market discrimination has opened up new methods of measuring discrimination. He was one of the original contributors to the “new minimum wage research,” helping to pioneer the use of state-level minimum wage variation to estimate minimum wage effects. In related work, he was the first to assemble data and explore methods to study the effects of city living wage laws, as well as contributing to understanding the political economy of these laws. He has also worked in urban economics and public finance, studying the effects of place-based policies such as enterprise zones and opportunity zones, and authoring an extensive survey of these policies in the Handbook of Regional and Urban Economics. He has also done extensive work on hiring credits, including evaluation of new ‘next generation’ economic development incentives. In addition to his research, he is actively engaged with policymakers and the policy community through briefings, op-eds, and legislative testimony.

Zeyu Li is a PhD candidate in economics at the University of California, Irvine. His research focuses on labor economics, the economics of education, and urban economics, with a particular emphasis on policies that shape economic opportunity and mobility. His work includes studies on the effects of international peers in higher education, the impact of housing wealth on school enrollment, and the relationship between agglomeration and productivity. He holds an MS in economics from the University of Wisconsin–Madison and a BA in economics from the Central University of Finance and Economics.

Vicki Hsieh is a senior editor at the Public Policy Institute of California. She works with the research staff to publish clear and compelling reports, briefings, and other documents for a broad audience—including state legislators, policy experts, and the media. Before joining PPIC, she worked at Hanover Research as a project manager and editor in K-12 and higher education research. She holds a PhD in comparative literature from the University of California, Irvine, and BAs in comparative literature and psychology from Cornell University.