California Program Offers Glimmer of Job-Creating Success

April 27, 2021 Updated: April 28, 2021

Commentary

A California-sponsored program to help companies fund employees has helped create 124,000 new jobs since the program began in 2013.

Furthermore, the “multiplier effect” of those primary jobs led to about 1.7 times that amount in additional positions within the same geographic areas, totaling about 338,000 extra jobs.

Through the California Competes Tax Credit (CCTC) program, the state gave employers $1.23 billion in tax credits (reduced taxes, or cash back when employers file tax returns) in return for a verifiable promise to create 124,000 new jobs.

Creating those 124,000 positions cost the state about $9,000 each.

However, the average cost to the state of creating all the jobs—directly and indirectly through the multiplier effect—was slightly less than $4,000 per new job created.

A just-published “working paper” submitted to the National Bureau of Economic Research by a team of rigorous researchers using cutting-edge econometric analysis showed that the state’s CCTC program has actually done a good job in incenting employers to create new jobs.

The success of California’s program is in sharp contrast to the experience of other state and local authorities’ attempts to incentivize private payroll growth.

Other academic research has shown that much of the $45 billion in other state and local tax incentives meant to retain or grow employment in a given location is typically given to employers who had already hired workers. In those other programs, employers were just taking advantage of the government hand-out for hires they’d already made.

University of California–Irvine professors Matthew Freedman and David Neumark co-authored the paper with UCI student Shantanu Khanna.

One of their key findings is that the best job strategy, from the vantage point of trying to create the maximum number of jobs, is to fund jobs in the services sector that support international trade. Think industries such as transportation and logistics. Their rationale is that such jobs won’t displace competitors trying to sell to a limited number of local buyers.

The authors point to three main reasons the California program has succeeded where others throughout the country and even previous programs within the state have not.

The first is that the CCTC program offers tax credits, not cash. Tax credits can be revoked if the employer doesn’t meet the promised job hiring goals.

Also, the CCTC program combines a strict set of criteria with some discretion, which is open to review and transparency to the public. It also allows the program administrators to choose which employers are likely to provide the most new job gains in the targeted areas.

Finally, goals provided by employers are annual, making monitoring and oversight easier to manage.

Details of the program, as well as some typical suggestions and cautions regarding application, were included in the paper.

Of the approximately 2.7 jobs created (one directly and 1.7 indirectly) through each employer using the program, 1.6 were in higher-income areas and 1.1 were in lower-income areas; this indicates that some adjustments might need to be made to further direct job gains into economically disadvantaged areas.

Furthermore, of the total number of jobs created, one-third were in places where the population has proportionately fewer college graduates than the overall state-wide population. The remaining jobs were created in places where a disproportionate number of people have completed their college degree.

If one of the purposes of the program is to incentivize job creation toward people who need a hand up, it seems maybe some further refinements might be in order.

The economists who wrote the study also noted that there is no way, using their methodologies, to know how long the jobs lasted.

Given that the federal government has already spent some $6 trillion to support the economy since the beginning of the pandemic a year ago, and there’s a proposal to spend another $2.3 trillion—one-quarter on traditional infrastructure and three-quarters on industrial policy and social infrastructure—the sort of work done by these UCI economists could have a real impact in how policymakers seek to maximize the benefit of any future programs.

Tim Shaler is a professional investor and economist based in Southern California. He is a regular columnist for The Epoch Times, where he exclusively provides some of his original economic analysis.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.