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9. Locality Matters: How Economic Development Benefits Vary in Diverse Local Economies
- W.E. Upjohn Institute
- Chapter
- Additional Information
267 9 Locality Matters How Economic Development Benefits Vary in Diverse Local Economies In this book, up until now, the analysis has focused on economic development benefits for a typical state. For example, consider my statement that high-quality universal pre-K education produces $2.78 in economic development benefits per dollar of costs. That statement is true for an “average U.S. state.” In an average U.S. state, high-quality universal pre-K would increase the present value of state residents’ per-capita earnings by $2.78 per dollar of program costs. Consider also my statement that high-quality business incentives produce economic development benefits of $3.14 per dollar of costs. That statement, too, is true in an “average U.S. state”: in an average U.S. state, high-quality business incentives will increase the present value of state residents’ per-capita earnings by $3.14 per dollar of incentive costs. But states differ. These differences may affect economic development benefits. I show in this chapter that economic development benefits of pre-K education differ somewhat across U.S. states. However, in all states, pre-K education has economic development benefits that considerably exceed program costs. Furthermore, economic development benefits for a typical state may differ from economic development benefits for a typical metropolitan area. This is important because public policy toward early childhood programs and business incentives is not solely the prerogative of state governments. Local policymakers also make decisions about investing in early childhood programs, or in business incentives. I show in this chapter that for a typical metropolitan area, compared to a typical state, the ratio of economic development benefits to program costs of early childhood programs is reduced. However, this reduction is small enough that these programs still make sense from a metropolitan area’s perspective. Even if local governments in a metropolitan area pay all the costs of pre-K, this investment can still pay off 268 Bartik in producing economic development benefits for the metropolitan-area economy. Local economic development benefits may also vary because of the size and growth rate of the metropolitan area. I show in this chapter that the economic development benefits of early childhood programs will be smaller in smaller metropolitan areas, or in slower-growing metropolitan areas. However, these effects of metro-area size and growth on the returns to early childhood programs are modest. Even in small and slow-growing metropolitan areas, early childhood programs still have local economic development benefits exceeding costs. I also show that the local economic development benefits of business incentives may be significantly lower in fast-growing metropolitan areas. In metropolitan areas that already have rapidly growing labor demand, policies to add even more jobs have lower benefits. These benefits may be insufficient to justify incentives’ costs. Therefore, local economic development strategy should vary with the local area’s growth trends. Areas with plenty of jobs may not benefit much from business incentives. These high-growth areas should instead focus on early childhood programs and other programs to give local residents the skills needed for available jobs. Low-growth areas may benefit more from business incentives. However, low-growth areas will also benefit from early childhood programs and other skill-building programs. The purpose, then, of this chapter is to explain how locality matters to economic development benefits. This includes quantifying how much it matters. WHAT THIS CHAPTER IS AND ISN’T This chapter focuses on characteristics of state and local areas that affect the benefits of early childhood programs or business incentive programs, holding constant who participates in these programs. As previous chapters have explored, benefits of early childhood programs may vary with the income mix of families participating. Benefits of business incentive programs may vary with the wage rates of businesses receiving incentives. [34.237.245.80] Project MUSE (2024-03-19 07:23 GMT) Locality Matters 269 The types of families participating in early childhood programs may tend to vary with a locality’s socioeconomic makeup. The types of businesses receiving incentives may tend to vary with a locality’s business mix. But who participates in these programs also depends upon program design and administration. The locality’s socioeconomic mix and business mix do not completely determine program participation. This chapter considers how benefits would vary if we had the same mix of participants but were in a different state or local area. For early childhood programs, even with the same income mix of family participants , how...