Upjohn Press Upjohn Research home page 1-1-1991 Who Benefits from State and Local Economic Development Policies? Timothy J. Bartik W.E. Upjohn Institute for Employment Research, [email protected] Upjohn Author(s) ORCID Identifier: https://orcid.org/0000-0002-6238-8181 Follow this and additional works at: https://research.upjohn.org/up_press Part of the Growth and Development Commons, Labor Economics Commons, Regional Economics Commons, and the Taxation Commons Citation Bartik, Timothy J. 1991. Who Benefits from State and Local Economic Development Policies?. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/ 9780585223940 This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License. This title is brought to you by the Upjohn Institute. For more information, please contact [email protected]. "i A/7T Economic Development Policies? Who Benefits From State and Local Economic Development Policies? Timothy J. Bartik 1991 W. E. UPJOHN INSTITUTE for Employment Research Kalamazoo, Michigan Library of Congress Cataloging-in-Publication Data Bartik, Timothy J. Who benefits from state and local economic development policies? / Timothy J. Bartik. p. cm. Includes bibliographical references and index. ISBN 0-88099-113-5 (alk. paper) - ISBN 0-88099-114-3 (pbk. : alk. paper) 1. Economic development. 2. Economic policy. I. Title. HD75.B367 1991 338.9-dc20 91-27375 CIP Copyright 1991 W. E. Upjohn Institute for Employment Research 300 S. Westnedge Avenue Kalamazoo, Michigan 49007-4686 THE INSTITUTE, a nonprofit research organization, was established on July 1, 1945. It is an activity of the W. E. Upjohn Unemployment Trustee Corporation, which was formed in 1932 to administer a fund set aside by the late Dr. W. E. Upjohn for the purpose of carrying on "research into the causes and effects of unemployment and measures for the alleviation of unemployment." The facts presented in this study and the observations and viewpoints expressed are the sole responsibility of the author. They do not necessarily represent positions of the W. E. Upjohn Institute for Employment Research. Cover design by J.R. Underbill Index prepared by Shirley Kessel Printed in the United States of America ACKNOWLEDGMENTS I benefitted greatly from the extensive reviews of earlier versions of this manuscript by Peter Eisinger, Michael Luger, Robert Schwab, George Erickcek, Susan Houseman, and Allan Hunt. Each of these reviewers spent a great deal of time with my draft manuscript, and I thank them for their ef forts. I also received helpful comments on portions of this research project from Ann Bowman, Richard Burkhauser, Shelby Gerking, Malcolm Getz, Janice Madden, Clifford Russell, and Robert Spiegelman. Helpful comments on this research were also provided by seminar participants at the University of Illinois, Michigan State University, the University of Pennsylvania, Vander- bilt University, and the annual meetings of the Association for Public Policy Analysis and Management and the Regional Science Association. The publications staff of the Upjohn Institute did an excellent job with this large and complex manuscript. I thank Judy Gentry for her editing, Natalie Lagoni for turning the manuscript into camera-ready copy, and Sue McMur- ray for her work in publicizing the book. Leslie Lance and Ellen Maloney helped produce the figures in the book. Finally, Claire Vogelsong provided her usual excellent secretarial assistance throughout the many drafts of this manuscript. Research assistance for this book was provided by James Vester and Mar tha Buckner, and I thank them for their help. The support of the Upjohn Institute was essential to the initiation and com pletion of this research project. I appreciate the initial grant I received from the Institute for this project, before I joined the Institute staff, and the con tinued support after I became a staff member. I particularly appreciate the pa tience of the Institute©s Executive Director, Robert Spiegelman, as I under took the lengthy process of expanding a more narrowly focused research project into a book. I would also like to thank the various influential teachers and mentors I have had over the years: Patricia Reifsnyder, Thomas Pangle, Sar Levitan, Eugene Smolensky, George Tolley, and V. Kerry Smith. I owe a great deal to each of them. Finally, I am grateful for the support of my family: Deb Wickman, Alex Bartik, and Jonathan Bartik. THE AUTHOR Dr. Bartik received his PhD in Economics from the University of Wisconsin Madison in 1982. He was Assistant Professor of Economics at Vanderbilt University and joined the Upjohn Institute as a senior economist in 1989. He conducts research on regional economic development, focusing on issues of national interest as well as those of special concern to Michigan. He is cur rently studying the effects of industrial and regional change on growth of the urban underclass. He has studied economic development in West Michigan metropolitan areas using an econometric model. Dr. Bartik©s recent publications include "The Effects of Property Taxes and Other Local Public Policies on the Intermetropolitan Pattern of Business Loca tion," in Industry Location and Public Policy, and "Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States" in Southern Economic Journal. IV CONTENTS 1 Boon or Boondoggle? The Debate Over State and Local Economic Development Policies .................................. 1 Focus on Local Economies ....................................... 2 What is Economic Development Policy? ............................ 3 Jobs Versus Other Goals of Economic Development Policies........... 6 Do State and Local Economic Development Policies Affect Growth? .... 7 Does Local Growth Help the Unemployed and Lower-Income Households? ................................. 9 Can State and Local Economic Development Policies Benefit the National Economy?.................................. 12 Is the Glass Half-Full or Half-Empty? ............................. 14 Organization of the Book ........................................ 14 Notes......................................................... 15 2 Can State and Local Policies Affect Economic Development? ......... 17 Evaluations of Specific Programs 18 Survey Evidence on the Influence of State and Local Policies .......... 26 The Case Study Approach ....................................... 28 Econometric Studies of State and Local Policies and Business Growth ... 30 Methodological and Data Issues in Business Location Modeling ...... 30 Taxes....................................................... 36 Public Services ............................................... 44 Wages ...................................................... 49 Unionization ................................................. 52 Environmental Regulations ..................................... 54 Capital Market Imperfections ................................... 57 Conclusion .................................................... 57 Notes......................................................... 58 3 Theoretical Analysis of the Distributional Effects of Local Job Growth............................................ 63 Immobility of Labor ............................................ 64 Short-Run Effects of Local Job Growth ............................ 66 Long-Run Effects of Growth ..................................... 71 Long-Run Costs of Growth ...................................... 73 Hysteresis Effects of Local Job Growth ............................ 76 Conclusion .................................................... 78 Notes......................................................... 79 4 Effects of Local Job Growth on Unemployment, Labor Force Participation, and Weekly Hours ................................. 81 Previous Research on Local Growth and Unemployment .............. 81 New Estimates of the Effects of Local Job Growth ................... 88 Effects of Growth Shocks in Slow- and Fast-Growth Areas ............ 97 Effects of Local Job Growth on Different Groups .................... 98 Job Growth Versus Other Policies ................................. 103 Some Speculative Extensions to the Research Findings ................ 107 Conclusion .................................................... 108 Notes......................................................... 108 5 Effects of Local Job Growth on Housing Prices and Other Prices ..... 113 How Local Growth Affects Prices ................................. 114 Review of Previous Empirical Research ............................ 114 Effects of GM©s Announcement of the Saturn Plant on Land Prices ..... 118 New Econometric Research on Local Growth and Housing Prices ...... 119 Effects of Local Growth on Nonhousing Prices ...................... 129 Are Effects on Housing and Land Prices Large? ..................... 131 Conclusion .................................................... 132 Notes......................................................... 133 6 Effects of Local Job Growth on Real Wages ........................ 137 Real Wage Definitions and Growth ................................ 137 Previous Studies of Growth and Wages ............................ 140 Model and Data Used in this Chapter .............................. 142 New Estimates of the Effects of Growth on Real Wages .............. 146 Growth Effects on Real Wages Across Different Groups .............. 153 Conclusion .................................................... 153