Another way to get a sense of the costs and benefits of other economic development and employment programs relative to the use of business incentives is to follow a hypothetical example created by Professors Alan Peters and Peter Fisher at the University of Iowa. They reason as follows:
- In a thorough study of state enterprise zones, employing sophisticated methodology, they concluded that there were two ways to use these zones: as a tool for directing additional private investment into economically distressed areas, or as a means of improving the employability of area residents.
- Earlier in their book for the Upjohn Institute for Employment Research, State Enterprise Zones: Have They Worked? – the authors had calculated that only 10% of the gross job growth is attributable to the zone’s tax credits. The other 90% would have occurred regardless.
- This means the following: “. . . for every 100 jobs in the zone each year, the 10 induced jobs would generate a net state-local revenue gain of about $18,200 per job (the average among our 75 cities), or a total of about $182,000. The 90% uninduced jobs would entail a revenue loss of about $7,800 per job (the average incentive cost) or about $702,000 in total. The total loss is $520, 000 or about $52,000 per induced job. (These figures all represent the present value of gains or losses over 20 years.)”
- Continuing, Peters and Fisher estimate how many jobs are filled by zone residents. They take a high figure – one out of two. So, five jobs result, at a cost of $104,000 per job. (This calculation rests on a present value cost of over 20 years, entailing an annual expenditure of $12,200.)
So, what could be bought with this amount of money for an inner city resident needing a job in the suburbs (or for a rural resident seeking employment in nearby county)?
Here are some possibilities: A cheap new car (in 2000, a price between $7,000 and $9,000). Auto insurance for three years—$3,000. Two years of community college would cost a few thousand annually. A $400 per month day care subsidy would cost another $4,800. A state earned income tax credit would put back the state $1,800 to $4,700. Job referral services would be needed as well. It should also be pointed out that, if this person was previously on welfare or UI, there could be some savings too. Obviously, due to timing, more than $12,200 could be expended in the first year or two. But this is 1 nowhere close to the $104,000 in available funds. (The car could be financed in part and coupled with a loan. Or, a used car could be a requirement.)
“The point is this: it is not difficult to imagine a set of alternative programs that would enhance job access and improve incomes, immediately or in the long run, and that would cost less than some incentives strategy.” (p. 233)
1 Alan Peters and Peter Fisher, State Enterprise Zones: Have They Worked? Kalamazoo, MI: Employment Research Institute, 2002).