Job Market Paper

Evaluating the Effect of Firm-specific Incentives on Local Labor Market Outcomes

Abstract: I examine the effects on local labor markets when local jurisdictions offer firm-specific incentives. Analyzing 117 state incentive programs awarded between 2000 and 2013, I find that, while counties offering incentives experience a boost in industry employment following the arrival of incented establishments, the magnitude of job creation is short of the jobs that firms promise to create. There is also evidence of employment spillovers to county employment, particularly to industries that are economically connected to recipient firms’ own industries. Overall, the estimated spillover effects are small, which is partly reflected in the small increase in firm entries and lack of impact on wage earnings. I also find a positive in-migration response and marginal effects on the employment-to -population ratio. Assuming firms receive full amount of incentives, firm-specific incentives on average cost state and local governments about $218,000 per job annually after accounting for county employment spillovers. The findings suggest that the employment gains in local labor markets based on offering large incentives to firms are limited, implying that the most surplus generated by incentives is likely to be captured by firms.

Research Work in Progress

The Effect of Reduced Unemployment Benefits on Labor Market Outcomes: the Case of Florida

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