Job Turnover Suggests Michigan’s Tax Incentives Are Ineffective

Job Turnover Suggests Michigan’s Tax Incentives Are Ineffective
August 15, 2014

Reviewing economic data for the state of Michigan, one can see a surprising amount of churn in the economy. Michigan added 214,000 jobs and lost 194,000 jobs in the fourth quarter of 2013, according to the Bureau of Labor Statistics. In just three months, one out of every 16 jobs was created and one out of every 18 jobs was lost. 

$17 Million, 2,962 jobs

The state already has its own programs to give state tax money to select businesses locating or expanding in Michigan. The most frequently used is the Michigan Business Development Program. As Michigan was adding 214,000 jobs and losing 194,000 jobs, the state offered 22 companies $17 million to produce just 2,962 jobs.

Although MBDP has a better track record at converting announcements into jobs than its predecessor, MEGA, the actual jobs created at these companies do not equal the number of jobs promised. They are unlikely to appear in the same quarter as announced, nor can it be guaranteed these jobs would have located elsewhere without state assistance.

Sliver of Job Gains

Even under the most optimistic assumptions, selecting these companies for special favors accounts for only 1.4 percent of the job gains in the last quarter of 2013. And the $17 million offered to these companies has to come from somewhere, including the struggling companies that shed jobs in the quarter.

The magnitude of job turnover suggests the key to improving a state’s economy is enacting broad-based changes to the state’s business climate. Gov. Rick Snyder's administration has a number of accomplishments in this area, such as eliminating the business tax and enacting right-to-work.

The state should emphasize such policies and forego programs that use tax money to pick winners and losers. 

James M. Hohman (hohman@mackinac.org) is Assistant Director of Fiscal Policy at the Mackinac Center for Public Policy. An earlier version of this article appeared at http://www.mackinac.org/20368. Used with permission.