According to a new paper produced by an SGIS faculty member and her students, the governmental incentives often touted as engines for jobs may do too little to directly target employment growth and may not be well assessed for actual economic impact. That’s among the findings of the study co-authored by Sarah Bauerle Danzman, assistant professor of international studies in the IU School of Global and International Studies, and 9 of her students and presented to Smart Incentives, an economic development policy consultancy based in Arlington, VA.
The company has published the paper on its web site, and elaborated on the paper’s findings in a blog post. The co-authors with Bauerle Danzman are Jacqueline Bauman, Michael Holmberg, Jonathan Hreha, Karis Neufeld, Anna Piskunova, Alec Resch, Jamie Spitz, Jocelyn Wallace, and Anna Williams.
The students and Bauerle Danzman conducted research as a part of her course “Harnessing Foreign Investment for Development,” which examines factors that affect multinational corporations. The students examined how states, international development organizations, and transnational social justice networks can harness the positive potential of these corporations while minimizing exploitation.
To get at these issues, Bauerle Danzman’s students performed a descriptive analysis across U.S. states regarding how states incentivize manufacturing investment. Bauerle Danzman said such an analysis is particularly important given that more and more of U.S. manufacturing is automated, so investment incentives aren’t necessarily leading to many new jobs.
“The students worked together and with me to code a data set of all manufacturing-targeted investment incentive programs at the state level in the U.S.,” Bauerle Danzman said. “We worked together to analyze the data, create case studies on particularly interesting incentive approaches and programs, and to write the report.”
While Bauerle Danzman’s course focuses on efforts made across the world to attract investment and stimulate jobs, analysis of U.S. state investment provided a good parallel to what is happening across the globe. “The report sought to provide descriptive analysis of the sorts of programs local governments are using to try to attract globally mobile investment in manufacturing, especially given the increasing automation of the sector in the U.S.,” Bauerle Danzman said. “It is a timely analysis into the sorts of pressures that technological advancement and globalization have placed on the middle class in advanced industrial economies. Of course, this project is also very timely to U.S. national politics as well as anti-globalization sentiments in Europe.”
The paper concluded that tax incentives are overwhelmingly what states use as incentive: 70 percent of programs studied. Although such programs are often touted as investments in job creation, the primary rationale cited by most states for the programs is capital formation, meaning many incentive deals target large investments that often help automate factory production and therefore do not support large increases in employment on shop floors. Additionally, the research found that training programs are rare as part of these incentive programs, despite the fact high tech manufacturers frequently cite “skills mismatch” as a problem for hiring. Out of the 210 programs examined, there were only 11 training programs.
The research also raises issues about how well states are examining these incentives. Less than 6 percent have clearly defined impact assessment criteria or “easily identifiable evaluation programs available to the public.”
The full paper is available online. More about Smart Incentives is available on the company’s web site.