Wednesday, January 5, 2011

Producing Jobs and Helping the Minnesota Economy

Jobs, jobs, jobs. This is the mantra of Governor Dayton and the Republican majority as the new legislative session begins. Both want to jump start the economy, make Minnesota more competitive, and produce new jobs now.

Short term, there is not much they can do, however there is a lot wrong that they can do and which should be avoided. In making policy and spending money on economic development, emphasis should be placed on what research shows that works, not on theory or what some hope will happen.

First, the state can do little immediately to increase employment unless it wants to do direct hiring. Short of that, tax incentives and cuts will have minimal impact encouraging new private employment. Research shows taxes are a secondary factor affecting business investment and hiring decisions. They come behind product demand, workforce quality, access to markets and suppliers, and transportation costs. Taxes are not unimportant; they provide marginal incentives to hire, but only if there is a demand for a product or service and other factors affecting production make sense.

Second, a bonding bill as presently proposed by Dayton will have mixed results for immediate job production. It will generate short-term construction jobs, but the real need is targeting those with little education, people of color, and the many white collar jobs lost in the recession. A bonding bill will have a multiplier affect on the economy, but it may not help many of those outside of construction. Also, looking to building a new Vikings stadium as a jobs program is foolish. Overwhelming evidence demonstrates public subsidies for sports are inefficient when compared to other investments in the economy.

Third, significant weakness in the Minnesota economy is tied to problems with the national economy and the collapse of the residential real estate markets. Minnesota can do little about either, thereby making it again difficult to revive the economy and employment quickly.

Short term, there are a couple of things the state can do. One might be an accelerated depreciation for business capital investments in new equipment. Second, any tax cuts should be targeted for job creation. This would be giving tax cuts to employers who hire now and retain workers for a certain period of time. Third, increase and accelerate the Minnesota Working Family Tax credit to give more money to low and moderate income workers. Fourth, restructure the bonding bill to place a more balanced emphasis on job production and retention beyond construction.

While short term that little can be done to help produce jobs, the state can make things worse. It faces a $6.2 billion budget deficit. Simply cutting state spending and services makes things worse. Cuts mean people lose their jobs, such as teachers or health care workers, and that hurts the economy. Cutting back state services at the same time more people are vulnerable and needing help also seems cruel. The state has to balance its budget, but in a way that is economically smarter than slash and burn and does not do long term damage.

Longer term, the state may be able to do more to help the economy. Simplifying the business permitting process as the Republicans propose is a good idea. Minnesota’s competitive advantage historically has been its educated workforce. Investments in education, including early childhood, workforce development, and training, should be enhanced. Infrastructure development including wireless capacity in greater Minnesota is needed. These factors will do more for the long term economic competitiveness of the state than simply cutting taxes and spending.

The reality is that the state’s ability to revive the economy is constrained both by the budget deficit and broader economic forces affecting Minnesota. No one quick and easy fix exists. Choices need to be made in light of what economically makes sense based on realities and evidence, and not on hope and ideology.

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