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Research Findings Relevant to Proposed Make It In Michigan Fund — Tim Bartik, W.E. Upjohn Institute

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Testimony by Tim Bartik of the W.E. Upjohn Institute for Employment Research to the Michigan House Committee on Economic Development and Small Business, October 24, 2023, titled Research Findings Relevant to Proposed Make It In Michigan Fund. It presents three research findings, including that shifting incentives toward customized business services has key advantages and that benefits of job creation projects are much higher in distressed counties. A chart lists cost per direct job created as $509,000 for business tax incentives and $96,000 for customized job training. The testimony recommends a 20% requirement for services and a budget constraint set as a percent of gross business tax revenue.

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“Research Findings Relevant to Proposed Make It In Michigan Fund — Tim Bartik, W.E. Upjohn Institute.” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-10-24-testimony-hecon-2023-upjohn-institute-39320-93012e1dd6/, SHA-256 d0e7a7bd761021a3e2c4cb1699454b030a5c2f91e2ddf81189f1725e505679dd.

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Research Findings Relevant to Proposed
Make It In Michigan Fund

Tim Bartik
W.E. Upjohn Institute for Employment Research

Testimony to Michigan House Committee on Economic Development and
Small Business
October 24, 2023
Research finding 1: Shifting a state’s mix of incentives towards customized business services, and
relying less on cash incentives has key advantages: (1) services more cost-effective; (2) services have
automatic clawback; (3) customized training can get more needy workers into hiring queue.

               Cost per direct job created
                                                               Therefore, proposed Make It In
   BUSINESS TAX INCENTIVES                   $509,000          Michigan Fund requirement that 20%
                                                               of funds go to services is likely to
                                                               make incentives both more effective
           INFRASTRUCTURE    $181,000                          and more inclusive.
                                                               In long run, Michigan should support
                                                               such customized services even if not
   CUSTOMIZED JOB TRAINING   $96,000                           tied to large projects. But these
                                                               reforms move us in that direction.

 MANUFACTURING EXTENSION     $90,000
Research finding 2: Benefits of job creation projects much higher if in distressed counties, or if
projects coordinate with local training & support services for workers


                                                                 Therefore, provisions in proposed Make
        45%                                                      It In Michigan Fund to favor high
                                                                 unemployment areas, or projects with
                                                                 ties to job training, make sense.
                                                                 “State economic impact” in project
                              26%                                selection should be defined not as boost
                                                                 in state personal income or earnings, but
                                                                 boost in income or earnings per capita.

                                                    10%


 DISTRESSED COUNTIES    AVERAGE COUNTIES      BOOMING COUNTIES
           % OF JOBS THAT BOOST LOCAL EMPLOYMENT RATES
Research finding 3: Incentive programs should be subject to
budget constraint, ideally % of gross business taxes
• Why budget constraint: Incentives should not squeeze out key public services that
  support economic development, such as public schools, universities, and early childhood
  programs.
• Why % of business tax revenues: Although well-designed incentives also benefit general
  public, immediate beneficiary is business sector. Net business tax revenues should make
  some contribution to supporting state public services.

• Therefore, over long-term, any state incentive fund – including proposed Make It In
  Michigan Fund – should be part of overall state incentive budget that is % of gross
  business tax revenue.
.
Summary: research-based reforms
• Put more resources into customized services to support economic
  development, starting with 20% requirement.
• Target unemployed or under-employed in job creation programs, either by
  targeting distressed places, or coordinating with local workforce programs
  that can get the unemployed to get and keep jobs.
• Economic development incentives should have budget constraint of some
  % of gross state business tax revenue.

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