John Locke Update / Research Brief

Corporate Welfare Creates Headlines, Not Jobs as Promised

posted on in City & County Government, Economic Growth & Development, Fiscal Insight, Spending & Taxes
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WRAL reporter Tyler Dukes has examined job creation promises from North Carolina economic-development incentives programs and found them falling far, far short. Dukes assessed job creation from projects under the Job Development Investment Grant (JDIG) program and One North Carolina (OneNC) fund from 2009 to 2016.

A summary of Dukes’ findings follow:

  • About 37 percent of the projects failed to create even one single job
  • Just over half the promised jobs were actually created
  • Only 42,600 jobs out of announced 81,800 jobs were actually created
  • Because of that, only about $200 million of the nearly $900 million in announced grants were awarded

Those results are sobering. Well north of a third of the incentivized projects didn’t even bring a single job? The state realized only a little more than half the promised jobs?

That last bullet point is a consolation, at least. Companies must meet hiring, retention, and investment benchmarks to qualify for some of the grant funds. Still, returns were so paltry that less than one-fourth of the announced grant amounts were even awarded?

These findings, spanning the administrations of two governors, one from each political party (Democrat Bev Perdue and Republican Pat McCrory), provide further evidence of what economists warn about regarding government incentives:

Economists point out – and Commerce officials fully acknowledge – that incentives are far from the primary driver for companies making decisions about their growth. That’s why state recruiters regularly tout factors like the quality of North Carolina’s workforce, its tax climate and quality of life in their efforts to woo businesses.

“All economic decisions are made on the margins,” Jon Sanders, director of regulatory studies at the John Locke Foundation, said. “Only in a few cases are incentives going to be a marginal benefit that changes a ‘no’ to a ‘yes.'”

But figuring out how many companies would have hired in the state regardless of the incentives is a hard thing to measure.

Tim Bartik, an economist at the W.E. Upjohn Institute for Employment Research, studied that question specifically for incentive programs across the country. His 2018 paper showed the vast majority of the jobs attributed to incentives in a given state – somewhere between 75 to 98 percent – would have been created there without the subsidies.

In a nutshell: Businesses make business decisions for business reasons. If they can get “free money” from politicians wanting to look good in press releases and photo ops, great, but it’s rarely a deciding factor. (It’s also not free money.)

Meanwhile, last year Gov. Roy Cooper approved $146 million in corporate giveaways under the Job Development Investment Grant (JDIG) program and One North Carolina (OneNC) fund.

Research from Kennesaw State University economist John Charles Bradbury on film incentives found no association between the incentives and a state’s economic performance. As Bradbury argued, that finding applied to all incentives programs, not just film incentives:

The results indicate that neither MPIs [motion picture incentives] in general, nor specific types or levels of tax credits, are associated with overall state economic performance. There is a weak association between low-level non-resident labor tax credits and growth of the film industry in states; thus, any gains that MPIs may have appear to be limited to the film industry and do not spill over into the overall economy. In addition to providing policy guidance regarding MPIs, this study’s findings are applicable to other types of development tax credits that states may use in the attempt to foster economic development.

Research published in 2015 in Economic Development Quarterly looked at economic development incentives in North Carolina under the now-ended William S. Lee Act. Researchers G. Jason Jolley, Mandee Foushee Lancaster, and Jiang Gao surveyed executives from 150 companies that received economic development incentives from North Carolina and 465 companies that did not.

What they found highlighted how marginal the incentives were. Most executives (seven out of 10) didn’t even know their companies were getting incentives: “29.3 percent were aware the company had received an incentive, 61.8 percent did not believe the company had received an incentive, and 8.9 percent were unsure.”

Executives listed not one, not ten, but 14 factors above incentives as important to a state’s business climate. Top items were skilled labor, low regulations, low taxes, low costs of living, and good transportation infrastructure.

It is for these reasons and more that we at the John Locke Foundation promote economic growth policies, not “economic development” incentives, and want better thinking on corporate welfare.

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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