Capital without labor.
Towns hand data centers decades of tax breaks for the promise of a local boom. A new study says the boom doesn't come — and the public bill does. So we checked the promise against the evidence, all of it.
The honest headline isn't “data centers are bad.” It's that the guaranteed-payoff sales pitch rests on evidence that is, at best, split — and one serious new paper says the local ledger comes out negative.
What this page is about
When a hyperscaler comes to town, the pitch is always the same: a giant investment, a bigger tax base, and jobs. Local governments hand over sales-tax exemptions and property-tax deals worth decades of revenue to land one. The catch is in the phrase a new study uses for its title:capital without labor. A data center is a huge capital project that, once built, runs on almost no one — dozens of permanent staff, not the thousands a factory of the same size would employ.
That new paper — “Capital without Labor: Data Centers and the Local Economy” (Chia, Cornaggia, Haushalter, and Wang, dated September 1, 2026) — reviewed counties that got data centers and reported no gain in overall financial health, no rise in local employment or new business formation, higher borrowing costs for local government, slower housing-price growth, and schools forced to squeeze more out of property taxes. Its conclusion: “investment without labor strains public infrastructure without generating widespread agglomeration gains.” But here's the honest part other coverage skips: several other 2026 studies looked at the same question and found the opposite. So the real story is a fight over the evidence — and why the confident sales pitch is running out ahead of it.
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Capital without labor.
Towns hand data centers decades of tax breaks for the promise of a local boom. A new study says the boom doesn't come and the public bill does — but the evidence is split, and that's the real story.
The paper, the pushback, and the part nobody disputes
A new 2026 study reports that data-center counties get the costs without the boom.
FACT'Capital without Labor: Data Centers and the Local Economy' (Liu Ee Chia, Jess Cornaggia, David Haushalter, and Qiang Wang; September 1, 2026) reviewed counties that received data centers and reported: no increase in overall financial health; no rise in local employment or new business formation; higher local-government borrowing costs; slower housing-price growth; and schools drawing more from property tax to make up the difference. The authors conclude that 'investment without labor strains public infrastructure without generating widespread agglomeration gains.' We grade the fact that the paper makes these findings; we cite it as circulated and flag below that we couldn't open the full primary.
- Chia, Cornaggia, Haushalter & Wang (2026), 'Capital without Labor: Data Centers and the Local Economy' (working paper, Sept 1, 2026) — cited as circulated
The academic evidence is genuinely split — other 2026 studies find positive local effects.
FACTThis is the part a one-paper thread leaves out. A National Bureau of Economic Research working paper (w35194, May 2026, 'Data Centers and Local Economies in the Age of AI') used an instrumental-variable design and found positive effects on total employment, construction employment, establishments, house prices, income, and wages after data-center growth. A separate SSRN study ('The Local Economic Effects of Data Center Entry') found that clustering amplifies local economic benefits, and an industry-tracked county study reported private employment rising 4–5% over five to six years. So the literature does not speak with one voice — reasonable economists reading county data are reaching opposite conclusions.
- NBER Working Paper 35194 (May 2026) — 'Data Centers and Local Economies in the Age of AI': IV estimates show positive effects on employment, construction, establishments, house prices, income, and wages
- SSRN — 'The Local Economic Effects of Data Center Entry': clustering amplifies local economic benefits
The one thing nobody disputes: data centers employ almost no one permanently.
PROBABLY TRUEWhichever study you trust on county-wide ripple effects, the structural fact holds: a data center is one of the least labor-intensive large investments there is. A billion-dollar facility can run on a few dozen permanent technicians. That's why the payoff is contested in the first place — there simply isn't much ongoing payroll to spread around. And it's why the tax deals used to land them are a gamble on ripple effects that may or may not exist. Our own reporting on the giveaway math shows Georgia's state evaluator put the forgone revenue at $474.2 million and estimated about 70% of the activity would have happened anyway.
The sales pitch has outrun the proof — and towns are betting decades of revenue on it.
PROBABLY TRUEPut the two halves together: local governments are trading away decades of tax revenue for a local boom that the best evidence describes, at most, as contested — and that at least one serious new study says turns negative once you count borrowing costs, school funding, and housing. That's a bad way to spend public money even before you decide which paper is right. We grade this PROBABLY TRUE because it's the reasonable reading of a split literature plus the undisputed jobs math, not a single measurement — the honest verdict is 'unproven bet,' not 'proven disaster.'
How to hold a split literature honestly
- Don't let one paper become gospel — either direction. The viral version of this story treats “Capital without Labor” as the final word. It isn't. Multiple 2026 studies find positive local effects. The intellectually honest move is to report the disagreement, not pick the paper that fits the mood.
- We cite the new paper as circulated. We saw the paper's cover, authors, date, and its stated conclusion, and the authors are real finance academics — but we could not open the full text to check its methods at the time of writing. So we grade “the paper reports this,” not “this is proven.” If the primary turns out to say something narrower, we'll update.
- Data centers are not nothing. They bring construction jobs, a property-tax base, and grid investment. The argument isn't that they're worthless — it's about the ratio: enormous public subsidies and resource demands against a tiny permanent workforce and contested ripple effects.
- The costs are more certain than the benefits. Electricity and water demand, grid strain, and — per the new paper — higher municipal borrowing costs and squeezed school budgets are concrete. The promised agglomeration boom is the uncertain part. That asymmetry is the whole problem.
The subsidy is guaranteed. The payoff is a maybe.
The AI build-out is pouring hundreds of billions into data centers, and every one of them is shopping for the best tax deal. That gives a handful of the largest companies on earth enormous leverage over small county governments — and the case they make is a promise of local prosperity that, as this page shows, the evidence hasn't settled. That is the core of The Data-Center Giveaway: the subsidy is locked in up front, the payoff is left to faith. The resource side of the same bargain — power and water — is in Data Centers, Cows, and Water.
It belongs in Return on Investment because it's the same question that runs through the hub — who actually gets the return when the public puts up the money — and in The Austerity Myth, because towns that say they can't afford to fund schools or services somehow always find room to forgo decades of revenue for a server farm. When the same public money could go to things whose payoff is proven, a contested bet is a choice, not a necessity.
Questions worth taking seriously
So do data centers help local economies or not?
The honest answer is: it's contested. Construction phases clearly add jobs, and there's a real tax base. But the studies looking at longer-run, county-wide effects disagree — some find gains in employment and income, and a serious new one finds the opposite plus higher public costs. What's not contested is that permanent employment is tiny. So the safe conclusion is that the “guaranteed local boom” pitch used to justify the tax breaks is not supported by settled evidence.
Isn't more tax base always good for a town?
You'd think so, and that's the intuition the deals rely on. But the new paper's most striking claim is that even the fiscal picture can go the wrong way: local-government borrowing costs rose, housing-price growth slowed, and schools ended up pulling more from property taxes. If that holds up, a data center can add assessed value while leaving the town's finances no better — or worse. That's exactly the claim the competing studies dispute, which is why we grade the fight, not a winner.
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The record
- Chia, Cornaggia, Haushalter & Wang (2026) — “Capital without Labor: Data Centers and the Local Economy” (working paper, September 1, 2026); cited as circulated, primary not independently opened at time of writing.
- NBER Working Paper 35194 (May 2026) — “Data Centers and Local Economies in the Age of AI: A Shift-Share Approach” (finds positive local effects)
- SSRN — “The Local Economic Effects of Data Center Entry” (clustering amplifies benefits)
- Black Book Audit — The Data-Center Giveaway (the subsidy math)
- Black Book Audit — Data Centers, Cows, and Water (the resource costs)