Lecture questions development policies

Senior economist Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research spoke in the Sherwood Room of Levering Hall Monday afternoon as the first lecture in the Social Policy Seminar series , hosted by the Johns Hopkins Institute for Policy Studies.

His lecture -- "Local Economic Development Policies in the United States: How Can They Be Improved" -- was delivered to an audience of roughly 40 students, faculty and community members.

The topics covered included: defining economic development; social benefits of economic development; evaluating such development; and local, regional and national perspectives.

Bartik defined local economic development (LED) as "an increase in the local economy's capacity to create wealth for local residents," and he highlighted the issue of whether this should be accomplished by creating more jobs or providing higher wage jobs.

Policy for such development either focuses on assistance to individualized business to encourage greater economic activity, or on revision of local and state taxes, spending and regulatory policies to promote LED. Both strategies have drawbacks, he cautioned. The customized assistance offered to individual businesses falls prey to the "reverse potato chip rule," in which policy-makers "can't hand out just one incentive" because many businesses expect the same treatment as long as they meet the same criteria as the original target business.

Possible social benefits of LED outlined by Bartik include: increase in land values; increase in profits tied to other locally-oriented capital assets, like newspapers, local banks, etc.; increase in overall local employment; R&D spillovers; capital market imperfections; and benefits to local residents who gain employment from such development in the forms of self-confidence, job skills, and reputation with employers, all of which can increase employability in the long-run.

Evidence suggests that a one percent increase in local jobs increases local employment-to-population ratios by 0.2%; Bartik claimed these effects were "very persistent" and could be seen for as many as 20 years after the initial increase in jobs.

Bartik paraphrased John Logan (SUNY-Albany) and Harvey Molotech (UC-Santa Barbara), who have said that LED "is just a way to make money for people who hold assets in the local economy."

Bartik then presented data on the distributional effects of LED policies and said, "On the whole, evidence suggests LED produces modestly progressive effects in income distribution." More specifically, LED has stronger progressive effects for the less-educated and racial minorities.

He noted, however, that these effects were not as progressive as welfare spending. In examining business tax cuts financed by reducing welfare spending, the net effect on the lowest income quintile was very negative; this suggests that welfare cuts to assist business will do more harm than good for the lowest income residents.

In evaluating LED policy, Bartik stated that it is important to clarify the goals of the policy. For example, if increasing the employment-to-population ratio was seen as the key goal, the results would be: evaluation models would focus more on measuring labor market effects; LED policies would target firms more likely to employ local residents; and these policies would be coordinated with local training policies.

Bartik majored in political philosophy at Yale University, and received his PhD in economics from the University of Wisconsin-Madison. He worked on Capitol Hill and as an assistant professor of economics at Vanderbilt University before joining the W.E. Upjohn Institute in 1989.