Now that Donald Trump has taken office as the 45th President of the United State, the business-community (and the electorate at-large) will now watch as he sets forth on his plans to reform Washington and “Make America Great Again.”One of Trump’s top commitments is to bring job relief to distressed American workers who have lost their jobs at the hands of de-industrialization and outsourcing. Prior to taking office, Trump pledged that Carrier—a Connecticut-based manufacturer of heaters and air conditioners with headquarters in Charlotte and Indianapolis—would receive $7 million in state financial assistance to keep its Indianapolis facility doors open, a move that could add roughly 800 jobs. According to Vice Present Mike Pence (former governor of Indiana), the deal exemplified the kind of agreements that Trump will make “on a day-by-day basis” to keep American jobs from moving abroad.
While Trump’s deal with Carrier may have been a case of good, relatable politics, how viable is his approach? Liautaud Graduate School of Business Professor Bob Chirinko was recently interview by the Washington Post for an article examining the use of subsidies to lure businesses from state to state, and how that practice could play out internationally.
For decades, states have used various incentives—property tax waivers, credits, or one-time payments—as ways to recruit and keep businesses. Experts say the arms race has intensified in recent years as states vie for increasingly valuable manufacturing jobs.
The incentives tend to go to the largest companies: Boeing, General Motors, Alcoa and Toyota have all accrued state and local subsidies exceeding $1 billion, according to data from Good Jobs First, a think tank that tracks incentives and is typically critical of the practice.
In most cases, states bid against one another rather than against lower-cost nations. Inducements would have to skyrocket were states to routinely try to keep jobs from, say, Mexico, said Greg LeRoy, executive director of Good Jobs First. Firms that locate overseas typically rely on low-skilled labor in production, and the savings in reduced wages often dwarf any inducements a state can offer.
“Taxes tend not to be a big deal in these decisions,” said Bob Chirinko, an economist at the University of Illinois at Chicago.
You can read the entire Washington Post article here.