State Job Creation Strategies Often Off Base

Source: Michael Mazerov, Michael Leachman, February 3, 2016

From the summary:
To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ― not on cutting taxes and trying to lure businesses from other states. That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:
– The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. ….
– During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs. …..

State economic development policies that ignore these fundamental realities about job creation are bound to fail. A good example is the deep income tax cuts many states have enacted or are proposing. Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income. And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require. Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.

It is too soon to know what strategies will work best, as many states and localities experiment with various ways to boost the number and success rates of startups and young, fast-growing firms. In the meantime, policymakers should reject major income tax cuts and new corporate relocation subsidies, and reconsider those already enacted. Public investments that help build a skilled workforce and improve the quality of life for local residents are better bets ― successful entrepreneurs report these factors are key to where they founded their companies. …..