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The Neglect Behind "Quality Jobs" Incentives

Author: Robert Ady
04/01/2009

Sometimes it seems that all states and local economic development organizations are reading from the same script. It's the constant drumbeat of the need for "quality jobs" for their constituencies.

Most state and local marketing programs are geared toward creating and retaining "quality jobs." Most target industry programs are focused on this mantra regardless of location, infrastructure, work force characteristics, training capabilities, or a realistic appraisal of existing business clusters. Everyone is targeting the same handful of industries that will create "quality jobs" - bio-something, renewable-something, advanced-something, or tech-something.

Supporting these target industry marketing plans is frequently an incentive program which links tax credits, refunds, and/or abatements to the wage and salary levels proposed for the new jobs created. Although these incentives may vary by form and substance, subliminally they are the same---incent new jobs that pay more than existing jobs. From this springboard, incentive programs are developed which offer benefits to companies that create new jobs paying more than some predetermined existing wage level in the state or community under consideration. My guess is that about half of the states have such programs, as well as literally hundreds of communities. States that come to mind include: Florida, Missouri, Iowa, Maine, Nebraska, Texas, and Washington.

These wage comparisons typically benchmark against state or county average wages, comparable industry averages, or occasionally a more esoteric basis such as a county's identification as "distressed," "least developed," "under developed", or even "developed."

To me, this creates a short-sighted, arbitrary basis for determining which companies receive incentives and which do not. This frequently sets up a conflict in goals for incentives. Is it better for the state or community to incent a new high technology company with 25 employees earning an average of $40,000, or a new company with 200 employees earning an average of $20,000? Looking only at total payroll, the latter offers four times the benefit and this does not even include the multiplier effect.

There is another major benefit to freeing incentives from arbitrary wage restraints. This is the effect they have on employment/unemployment. Are 25 new country club memberships more beneficial to a community than putting people to work or allowing them to start up the wage scale ladder, even if they are paid below $40,000? Those that leave the unemployment roles also "unburden" the county, or state, from a myriad of mandated social programs.

In addition, it is most difficult for many new companies creating hundreds of jobs to start up with average wage levels meeting an arbitrary wage incentive criteria; however, over time, this level can be achieved as the company matures and employees move into "going rate" positions.

It seems to me that it is counterproductive to base incentives on "quality jobs" as defined by an arbitrary comparison between anticipated wage levels and an existing wage criteria whose goal in terms of tradeoffs (projects won versus projects lost) has not been quantifiably determined.

"Quality jobs" should not be defined by average earnings or any other pseudo-benchmark of legitimacy, but rather by new job creation, overall payroll, and economic benefit. To do less discriminates against job creation and equal opportunity for all. Given today's economic climate, let's not kid ourselves - it's jobs that are important, not country club memberships.