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Economic Development Incentives Not Creating Jobs Promised

This week, JLF’s Jon Sanders wrote a research brief examining a recently released WRAL report by Tyler Dukes. The report examined the number of jobs created from North Carolina’s Job Development Investment Grant (JDIG) program and the One North Carolina (OneNC) fund from 2009 to 2016.

Sanders summarizes the report’s findings:

  • About 37 percent of the projects failed to create even one single job
  • Just over half the promised jobs were actually created
  • Only 42,600 jobs out of announced 81,800 jobs were actually created
  • Because of that, only about $200 million of the nearly $900 million in announced grants were awarded

Sander’s comments:

Those results are sobering. Well north of a third of the incentivized projects didn’t even bring a single job? The state realized only a little more than half the promised jobs?

That last bullet point is a consolation, at least. Companies must meet hiring, retention, and investment benchmarks to qualify for some of the grant funds. Still, returns were so paltry that less than one-fourth of the announced grant amounts were even awarded?

What is worse, these incentives cannot even take credit for many of the jobs that were created. Sanders quotes:

Economists point out – and Commerce officials fully acknowledge – that incentives are far from the primary driver for companies making decisions about their growth. That’s why state recruiters regularly tout factors like the quality of North Carolina’s workforce, its tax climate and quality of life in their efforts to woo businesses.

“All economic decisions are made on the margins,” Jon Sanders, director of regulatory studies at the John Locke Foundation, said. “Only in a few cases are incentives going to be a marginal benefit that changes a ‘no’ to a ‘yes.’”

But figuring out how many companies would have hired in the state regardless of the incentives is a hard thing to measure.

What’s more, company executives likely do not even know that their company is receiving these incentives. That is how little they affect job business decisions. Sander’s cites research published in the Economic Development Quarterly from 2015:

What they found highlighted how marginal the incentives were. Most executives (seven out of 10) didn’t even know their companies were getting incentives: “29.3 percent were aware the company had received an incentive, 61.8 percent did not believe the company had received an incentive, and 8.9 percent were unsure.”

Executives listed not one, not ten, but 14 factors above incentives as important to a state’s business climate. Top items were skilled labor, low regulations, low taxes, low costs of living, and good transportation infrastructure.

Bottom line, economic incentive programs are not creating the jobs they promised, but they are spending a lot of taxpayer money. Maybe it is time to reconsider these economic development incentives altogether.

Read the full brief here. Learn more about economic growth and development in North Carolina here.

Brenee Goforth / Marketing and Communications Associate

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