Do companies hire workers in response to tax breaks? In the midst of the Minnesota gubernatorial debate, where tax policy is a major theme, it seems a timely question.
Minnesota’s own recent experience with Job Opportunity Building Zone (JOBZ) had “little impact” on county-level economic growth in its first three years, two economists from the University of Minnesota concluded in a study published in spring in the Economic Development Quarterly.
Launched by Gov. Tim Pawlenty in 2003 as a cornerstone of his rural economic development program, the JOBZ record is mixed at best, according to Laura Kalambokidis associate professor of applied economics at the Twin cities campus, and co-author Tonya J. Hansen, assistant professor at Minnesota State University-Moorhead.
They concluded that more reliable determinants of economic growth were such factors as the age and educational level of the workforce, availability of transportation and technology infrastructure, and amenities that make communities attractive places to live.
The authors discussed their findings in an extended interview (PDF) appearing in the Federal Reserve Bank of Minneapolis fedgazette.
Kalambokidis suggested that a more effective economic development role for the state would be providing “those services and … investments that make the state a place where people really want to live and work, and businesses can easily start up and thrive.”
The JOBZ program offers tax exemptions for manufacturing or service businesses (excluding retail) that locate or expand within 10 identified job zones across 325 communities around Minnesota.
While the JOBZ program has attracted its share of critics, in the seven years since it launched, it is credited with creating nearly 7,000 jobs in Minnesota paying an average of $16.68 an hour plus benefits, according to the Department of Employment and Economic Development (DEED). This exceeds the initial goal of about 4,700 new jobs at $11.92 an hour plus benefits. The combination of state and local tax benefits provided to business has totaled more than $100 million over that time.
The researchers acknowledged weaknesses in their research because of data limitations. They only looked at county-level data, which might not reveal benefits at a smaller community level. They also noted that no research has been done to look at a control group of similar communities that did not participate in the JOBZ zones.
“We’re still looking at the possibility of finding a ‘control group’ and firms that we could follow over time. Our study is really looking at correlation, not necessarily causation,” Kalambokidis added. “This [JOBZ] program and our study are consistent with what others have found. If we had found some dramatic positive effect, this study would look like an outlier,” she added.
Communities participate in economic development tax incentive programs, despite a lack of conclusive evidence that they grow jobs, because they “fear being left behind if a neighboring community … is offering the program,” Hansen said. “I can match incentive by incentive for nearly all of the 50 states. Has any state gained any leverage in the process? Probably not.”
Asked to respond to the study, Monte Hanson, DEED spokesperson said: “We think the numbers speak for themselves in terms of the success of the program. Many, if not most, of those 7,000 jobs would not exist in Minnesota today if not for the incentives offered by JOBZ.”
Hanson pointed to JOBZ recipient SAGE Electrochromics Inc., which is building a $110 million manufacturing facility with 160 full-time jobs in Faribault that will produce electronically tintable architectural glass. “SAGE was courted by many states, but the company chose to build its factory in Faribault, partly because of the tax incentives offered by JOBZ,” Hanson said in an email. “JOBZ wasn’t the only reason that SAGE decided to put the facility in Faribault, but it certainly was a major factor.”