June 15, 2022
Distressed places, those with stubbornly low employment rates, need help. Their problems – including increases in substance abuse, crime, and family breakups – spill over their borders. Distressed places undermine the community and state tax base, and welfare and crime costs strain local and state budgets.
It’s in states’ interests to help these places, but state leaders often misunderstand the problem and respond with ineffective policies. In part, that’s because the distressed places’ problem is really two separate problems — call them the “Bakersfield problem” and the “Northside problem” — which need different solutions.
The Bakersfield, California, metro area makes up a local labor market, defined as one or more counties that encompass most commutes. Even when the overall U.S. economy is at a business cycle peak, some distressed local labor markets lack sufficient jobs.
Northside is a neighborhood in the city of Kalamazoo, Michigan. Even when the local labor market is doing well overall, many residents in distressed neighborhoods such as Northside will be unemployed or in bad jobs.
What to do? For neighborhoods, throwing tax incentives at businesses to locate in distressed areas does not address residents’ job problems: most jobs in a neighborhood aren’t filled by residents of that neighborhood. Subsidizing business investment in distressed neighborhoods, by itself, is a subsidy for gentrification, not a way to get residents into good jobs.
What neighborhood residents need is help in accessing jobs throughout the local economy, inside and outside their neighborhood. Residents need better job information, and they need job training. They need transit passes, or, where communities have inadequate public transit, help in getting reliable personal or shared vehicles. They need dependable child care.
Second, states need to recognize that distressed local labor markets do need more jobs, but that current state job creation policies are poorly designed. If a metro area or a rural commuting zone lacks jobs, more jobs will help boost residents’ employment and wages. But current state job creation policies, which emphasize business tax incentives to encourage large corporations to locate or expand branch plants, are not cost-effective. Most of these plant location or expansion decisions would have occurred anyway. As a result, the cost per job that is truly due to the incentive is high.
Rather than just throwing money at large businesses to encourage job creation, we need broader policies, that address the real problems impeding local job creation. To be cost effective, job creation policies need to include small businesses as well as large businesses, and provide businesses with the key inputs they need: land, labor, and advice on adopting the latest technology and finding new markets. Business parks and brownfield redevelopment are more effective than business subsidies. A community college training workers for a business’s needs is more valuable per dollar than a job creation tax credit. A well-run small business development center or manufacturing extension office, which advises small and medium sized businesses on how to improve their operations and find new customers, will create more jobs per dollar than a property tax abatement.
States have the power to improve under-employed places, but not with micromanagement from the state Capitol. The money states currently pay for ineffective business incentives can fund a 10-year block grant program flexible enough to fund local solutions to local problems, both for distressed neighborhoods and distressed local labor markets.
Every place’s residents deserve the chance to get a good job. My decades of research on local economic development show we can make this happen. I lay out the details in a new report: How State Governments Can Target Job Opportunities to Distressed Places.