The Mackinac Center’s new study, “Economic Development? State Handouts and Jobs: A New Look at the Evidence in Michigan” examined thousands of incentive deals offered to state enterprises and tracked the employment at them over time. As part of our examination, we studied the performance of the state’s Michigan Business Development Program from two different directions. Neither yielded evidence that the program was worth keeping.
The Michigan Business Development Program is a business subsidy program created during the administration of Gov. Rick Snyder and was designed to replace the failed Michigan Economic Growth Authority incentive program. While it improved on MEGA’s transparency and offered smaller incentives, we believe the preponderance of evidence shows the program is ineffective.
For our first examination, we tracked 230 publicly announced MBDP incentive deals, looking at employment at the recipient firms. The employment figures were found in a database known as National Establishment Times Series, or NETS. The NETS is effectively a census of American business, and our data ran from 1990 through 2015.
We found that the program did lead to additional jobs at firms receiving an incentive, but at a cost of $29,400 in incentives offered per job per year. Even if each job created paid $100,000 each, the new personal income tax generated by all those jobs wouldn’t approach covering the program’s costs. New jobs aren’t the only potential benefit from the subsidy, but it is still unlikely, given our findings, that its other potential benefits would help do so.
After this analysis, we created a fresh, though much smaller, database of 58 deals from 2012. This served as our “treatment” group (the firms who had earned an incentive), and we compared it to a control group of 39 firms. This control group had been funneled toward the program, but the firms did not receive a subsidy. In some cases, the firm may have bailed or been pushed out of the program. In others, firms may have been approved for an award but ultimately did not earn it.
In this way we could compare the job creating performances of firms that had been declared eligible for an award (and failed to collect) with those firms that had actually received a subsidy. This technique showed that “MBDP awards did not have an effect on establishment employment relative to the control group.”
These analyses were not the first performed by the Mackinac Center for Public Policy. In our 2018 study of the program — which used a different measuring technique — we found that for every $500,000 in subsidies paid out to MBDP firms, there was a corresponding decline of some 600 jobs in the counties in which projects were located. We also found at that time about one-third of MBDP deals had been or were in some stage of default or had been dismissed.
Our new analyses are not the only word on the efficacy of the program. By using NETS data, however, we were able to directly track employment changes at recipient firms. We found that the MBDP did create jobs, but it did so at a very high cost of incentive offered per job per year.
For decades representatives of the state’s jobs agencies have repeatedly argued in favor of the value and necessity of the programs they operate. Our new study casts doubt on their effectiveness.
We looked at thousands of deals across many programs and found either negative or no effects. Where we found positive employment impacts, those often came with very large costs in terms of incentives offered per job and per year. The Michigan Business Development Program is a case in point. At more than $29,000 per job, the state might be better off dedicating MBDP resources to higher priorities, be they some tax cuts or support of other spending, such as on Michigan roads.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited. Permission to reprint any comments below is granted only for those comments written by Mackinac Center policy staff.
Get insightful commentary and the most reliable research on Michigan issues sent straight to your inbox.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.
Donate | About | Blog | Pressroom | Publications | Careers | Site Map | Email Signup | Contact