This article first appeared in the Fayetteville Observer on June 21.
It’s easy to understand why Jane would be so excited about the new economic development project in her town.
She is unemployed. Luckily, Jane’s husband still has his job, but his income is not enough to support them and their two young children. Jane has desperately been looking for work for five months, and is wondering whether she will ever again be gainfully employed.
Then one morning while helping her children prepare for school, Jane hears some encouraging news on the radio. A large business is going to be moving its headquarters to Jane’s town, and according to the radio report will be hiring hundreds of people. “This great opportunity was made possible in part due to a Job Development Investment Grant,” says the voice on the radio.
The Job Development Investment Grant program is one of many “economic incentive” programs offered by the state. These programs typically provide taxpayer subsidies or special tax credits to specific companies in exchange for a certain amount of investment and/or job creation by the company.
As Jane rejoices over the potential to return to work, she quietly says, “Thank goodness for that economic incentives program. Finally, some real opportunities for a job!”
A month later, there is a big ribbon-cutting ceremony at the new headquarters. Company executives, local politicians and the governor are all in attendance. The gathered crowd – including a lot of media – are treated to big smiles and self-congratulatory speeches about how the new headquarters has “created hundreds of new jobs” for the struggling town.
As Jane approaches the shiny office building, she can hear the cheers of excitement from the crowd. But the cheers then fade away as Jane drives past the joyful ceremony to … the unemployment office once again.
Indeed, the line there seems as long as it’s ever been. How can this be? What about those hundreds of jobs “created”?
There’s a catch
For the answer, we need to look beyond the hoopla, and instead think about the individuals who would actually be hired at the new headquarters.
The new company will not just go to the local “unemployed worker” store and order 300 employees. The labor force is not a homogenous blob. It consists of unique, flesh-and-blood humans with very specific skills and experiences. Chances are that the majority of people in Jane’s town who possess the specific skills and experience the new company needs are already working elsewhere.
Thus, rather than noticeably reducing the number of unemployed people in Jane’s town, the new headquarters will mostly just be hiring a lot of people away from other companies. Few new jobs will actually be “created,” and the hiring will largely just shuffle workers around from one employer to another.
So it is quite disingenuous when the governor and media parrot the line that hundreds of “new jobs” are being “created.” In reality, the number of people employed in Jane’s town may remain virtually unchanged.
Sadly, however, North Carolina’s numerous “economic incentives” programs fail to take this reality into account. Many of these programs feature generous tax credits or direct taxpayer subsidies awarded to companies that hire a pre-determined number of additional workers. But the incentivized company merely reports the number of people they hire, and they all count the same whether they are given to a jobless applicant or hired away from another company. The public is sold these programs as creating jobs, when the reality is no net new jobs may be created at all.
This need not be the case. Hardworking North Carolina taxpayers deserve greater accountability from these economic incentive programs.
Change the game
The state’s Department of Commerce should alter the methodology of crediting incentivized companies with job creation. If an incentivized company hires someone currently employed elsewhere, that should not count toward the company’s job creation goal. After all, these programs are supposed to “create jobs,” not just move workers from one office to another.
There are far too many stories like Jane’s across North Carolina. The state owes it to people like her to at least be honest when reporting “job creation” numbers resulting from government-run economic incentive schemes. That would be a first step toward accurately assessing economic development.
The ultimate goal, however, remains ending the practice of politicians and bureaucrats dispensing political privileges to their cronies, and instead allow for an economic climate in which all businesses play by the same rules. Then Jane will have a much better chance not of hearing about “jobs created,” but rather in seeing a “Help Wanted” sign that will be for a genuinely new job that she can fill.
Brian Balfour is director of policy for the Civitas Institute in Raleigh (nccivitas.org).