New Research on Development Subsidies, Labor Force Attachment, Occupational Licensing, and Regulatory Analysis

New Mercatus research from the week of November 18th

The Economics of a Targeted Economic Development Subsidy

Matthew Mitchell, Michael Farren, Olivia Gonzalez, and Jeremy Horpedahl | Research Paper

In an effort to spur economic growth and to burnish their job-creation bona fides, policymakers at the federal, state, and local levels often dispense targeted economic development subsidies. These selective incentives include targeted tax relief, targeted regulatory relief, cash subsidies, and in-kind donations of land and other valuable goods and services. The weight of economic theory suggests that these subsidies do not work and may even depress economic activity. In this paper, we review the economic case for and against targeted economic development subsidies, using Wisconsin’s $1.2 billion to $3.6 billion subsidy to Foxconn to illustrate these points. This research paper shows that under realistic scenarios the subsidy may depress state economic activity by tens of billions of dollars over the next 15 years.

Policy Disincentives in Maintaining Labor Force Attachment

Veronique de Rugy | Testimony before the Joint Economic Committee

Polices that ensure American workers can stay attached to the labor market are worth pursuing. Unfortunately, government policies at the federal, state, and local levels today make it harder for some workers to tap into particular markets in which workers are paid higher wages and are most productive. In her testimony before the Joint Economic Committee, de Rugy argues that: 1) the labor market and the state of American workers are better than commonly suggested; 2) a small but sizeable segment of working-age Americans have not shared in that progress, as they have been permanently disconnected from the labor force; and 3) government policies such as land use regulation, occupational licensing, and Social Security disability insurance (SSDI) are some of the barriers that may induce some workers to work less or not at all.

Wisconsin Occupational Licensing: Barriers to Opportunity and Prospects for Reform

Matthew Mitchell | State Testimony

In his testimony before the Wisconsin state legislature, Mitchell argues that: 1) licensing is a substantial barrier to employment, particularly for certain populations such as lower-income Americans or the spouses of active-duty military personnel; 2) licensing does little to enhance either consumer safety or the quality of services; it does, however, increase prices for consumers; and 3) successful reform is difficult, but not impossible. Policymakers must be able to cast conspicuous votes in the general interest while special interest power must be limited.

The DOE Should Clarify Model Uncertainty and Strengthen Cost and Benefit Comparisons in Its Analyses

James Broughel | Public Comment to the US Department of Energy

The National Academies of Sciences, Engineering, and Medicine have organized a committee to peer-review the analytical methods used by the US Department of Energy (DOE) in setting “standards regulations” for the performance of buildings and associated equipment and products. This short comment makes recommendations to the committee about ways in which DOE technical support documents (TSDs) can be improved. Broughel provides two main recommendations. First, the DOE should clarify issues of model uncertainty in its analysis. Second, DOE TSDs try to inappropriately compare or add benefits and costs that are not directly comparable to one another. DOE should carefully distinguish those benefits and costs that come in the form of investment, such as some compliance costs or operating cost savings, from those that come in the form of consumption, such as the benefits associated with reducing carbon dioxide emissions.