I have a blogged about a some of my recent research projects examining the use of financial incentives to attract firms. My co-authors and I have written that politicians use these incentives to claim credit for investment, but these incentives have very little impact on job creation.

With the support for the Ewing Marion Kauffman Foundation, I have been examining incentive policies in the Kanas City region. As part of this project I surveyed all of the recipients of the Promoting Employment Across Kansas (PEAK) program, the flagship Kansas economic development program.  I have used observational data to compare incentive recipients to non-incentive recipients.

I also conducted a survey of recipients on how incentives affected their employment plans. Using data from a Freedom of Information request I identified 105 PEAK incentive applicants. For all 105 firms, the managers received a recruitment email and a link to an online Qualtrics survey asking a battery of questions about their company’s involvement with the PEAK program. I received a total of 25 responses for a response rate of 23%.

What are the findings?  Incentives are popular with companies and they are ineffective in creating employment.

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When asked about the program, the vast majority of respondents had a positive experience with the PEAK program and would recommend this program to other firms. A striking 71% of respondents indicated that the program was either “very efficient” or “somewhat efficient” and 92% of respondents would “definitely recommend” or “probably recommend” this program to other firms.

What was the purpose of these incentives? The majority of firms (58%) indicated they were applying for PEAK incentives for expansion, while 42% and 25% indicated this was for relocation and retention.[1]

For the firms that received competing offers from other locations (63% of the firms), 67% of respondents indicated that the PEAK incentives where more generous than the competitor offers. Only 13% of respondents indicated that the PEAK program was less generous.

The program is efficient and generous.  What is not to like?

But are the incentives effective in helping create Kansas jobs? The key set of questions are the counterfactural on what would the firms had done without the PEAK incentive. I asked two direct questions to managers. First U asked if the firm would have left the state of Kansas without a PEAK incentive, providing three possible answers.

1) Without the PEAK incentive would your company have left the state of Kansas?

Next, I asked about the firm’s expected employment without a PEAK incentive:

2) Without the PEAK incentive would you have company hired less employees or the same number of employees?

In response to question 1, only 22% of respondents indicated that they would have left the State of Kansas without the PEAK incentive program while 48% indicated they would have not have left the state. 30% of respondents indicated they were unsure. This question on relocation is a difficult one, since some of the firms were applying for PEAK incentives for expansion.

The second question is a more comparable measure of the impact of PEAK incentives. 67% of firms claimed that they would have hired the same number of workers without the PEAK incentives, while 29% of firms indicated that they would have hired fewer workers.[2]

Thus for most firms, employment decisions were independent of the incentives.

The final question asked about a specific policy. The Missouri State Legislature introduced a bill that proposed limiting incentive competition in the Kanas City area. I asked the respondents if they had heard of the bill (50% had) and if they supported this legislation. The largest percentage of respondents “neither supported nor opposed” the legislation (42%) with a smattering of responses in the supported or opposed followed by 21% of respondents indicating “don’t know”.[3] Thus there is only limited support, and limited opposition, for ending a very specific type of incentive competition in the region.

In summary, firms tend to like this program. Taxpayers probably should not.

[1] Note that these categories aren’t mutually exclusive. Respondents had the option to check more than one.

[2] 4% of respondents were unsure.

[3] The distribution is as follows: Strongly support (0%), Support (8%), Neither support nor oppose (42%), Oppose (17%), Strongly oppose (13%), and Don’t know (21%).