Health Care Crossroads

Coal Severance Trust Fund a Good Idea

Kentucky Job Growth Continues To Be Too Slow

Kentucky added only 700 net jobs in June, again failing to produce enough jobs to make a real dent in the employment gap created by the recession. Kentucky needs to be adding 3,500 jobs a month in order to return to pre-recession unemployment rates within three years. Over the last three months, the state has been adding only 1,700 jobs a month on average.

There are clear ways for Congress to jumpstart employment growth if the will to act were there. It should be providing expanded aid to state and local governments to address deep budget cuts; continuing the payroll tax cut and extended unemployment benefits; and increasing investment in needed infrastructure improvements. Read more about how and why here.

 deficit

Source: Economic Policy Institute analysis of Bureau of Labor Statistics data

Kentucky Spent $1.29 Billion On Economic Development Incentives Over Last Decade

Report Attacks Public Pension “Myths”

Study Says Gap Between Private, Public Sectors Not Wide

Report’s Findings Suggest Kentucky’s Business Tax Incentives Not Very Cost-Effective Way to Create Jobs

Put into context, the findings of a consulting group report to the Kentucky legislature suggest that state economic development incentive programs are not a very cost-effective way to create jobs—a result that is in line with other studies on this topic.

The report is the outgrowth of House Joint Resolution 5 in the 2011 Kentucky General Assembly, which required a study of the state’s incentives to attract business. Anderson Economic Group produced the report under contract with the legislature.

A challenge in determining whether incentive programs are cost-effective is the “but for” question—which site locations wouldn’t have happened “but for” the incentives? This question is essential because other factors are considered much more important than tax breaks in business location and investment decisions—including access to markets, suppliers and related businesses; skills of the workforce; and quality of the physical and support infrastructure. Incentives can just reward companies for choices they would have made anyway.

However, answering the “but for” question definitively is difficult to impossible—in part because companies are unlikely to be completely honest about their reasons for choosing a location.

Anderson’s approach to this question is to ask what share of the new jobs created would have to be caused by the tax incentives in order for them to be more effective at creating jobs than an alternative use of the funds. The alternative use Anderson chose was an across-the-board tax reduction for all businesses. The report finds that more than 35 percent of the jobs associated with the tax incentive programs would have to be caused by the incentives for them to be more cost-effective than the alternative.

While Anderson says that a result of greater than 35 percent is “certainly plausible,” the report is not conclusive on the question of whether the state’s tax incentives are more effective than reducing business taxes across-the-board.

That finding is troubling, and is even more disturbing once you consider that general business tax cuts themselves are not a very effective way to create jobs.

In a summary of research on that issue, University of Iowa economist Peter Fisher says that claims of a strong relationship between business taxes and economic growth “are vastly overblown and sometimes completely misleading.” He notes that business taxes are a very small part of the cost of doing business in a state—about 1.8 percent of total business costs on average for all states. Such taxes also differ little from state to state—especially compared to the differences in other factors that affect businesses’ cost, productivity and sales. As we have reviewed elsewhere, the research shows that the reductions in public services that result from business tax cuts can be more harmful to a state economy than any modest economic gains from the tax cuts.

A 2007 University of Kentucky study cited in Anderson’s report also examined the cost-effectiveness of Kentucky’s tax incentive programs and found that they were expensive for the resulting impact. The researchers estimated that the state spends about $26,775 per job created through its tax incentive programs compared to only $2,510 per job created on a job training program.

Economist Timothy Bartik, a leading expert on state economic development, says that financial incentives are one of the most expensive ways to create jobs. In his paper “What Works in State Economic Development” he identifies which alternative economic development strategies have stronger evidence of cost-effectiveness.

Among the strategies Bartik identifies are:

New business development

Bartik says that providing entrepreneurship training “has the most rigorous evidence for effectiveness of any economic development strategy.” He also positively cites programs that provide small business advice and support—such as Small Business Development Centers and business incubators.

Customized job training

Bartik says that the provision of training tied to business needs can be 10 to 16 times more effective in jobs created per dollar spent than tax incentives. The cost-effectiveness of job training is supported by the Anderson study, which finds that the state’s Bluegrass State Skills Corporation (BSSC) is more cost-effective than tax incentive programs.

Manufacturing extension services

Bartik notes that programs that assist existing businesses have demonstrated success. He particularly cites manufacturing extension programs, which provide smaller manufacturers with information to increase productivity through new technologies and different ways of doing business. Bartik cites research suggesting each dollar spent on such services reduces business costs by over three dollars.

High tech development

Bartik cites university technology transfer programs (also mentioned in the Anderson report), increased broadband access, training programs for high tech industries and access to venture capital as effective economic development strategies oriented toward innovative new industries.

In addition to the above categories, Bartik also emphasizes the importance of policies that increase the skills of the workforce. He specifically identifies: the role of community colleges in providing needed training; the provision of on-the-job training, public employment and subsidized jobs for disadvantaged workers; and the need to improve K-12 education.

He also puts emphasis on the power of early childhood education in long-run economic development, noting that universal preschool “has, in the long run, over twice the projected annual impact on jobs of business subsidies.”

As we have shown in previous work, the state’s economic development strategy has long focused narrowly on providing tax and other financial incentives to attract industry. There are good reasons to diversify the state’s approach. In recent years, the budgets of public programs in education and other areas that have an economic development impact have been cut dramatically by the state, while business tax incentives have been expanded even further. Properly understood, Anderson’s report is part of the mounting evidence that demonstrates the need to re-think what we are doing to create jobs.

Public Versus Private Employee Costs in Kentucky: Comparing Apples to Apples

Click here to download a pdf of the full report

New Report: Kentucky Public Employees Are Undercompensated Compared to Private Sector Counterparts

Further Cuts to Pension or Other Benefits Would Widen Gap

While a state task force considers further cuts to public employee pension benefits, a new report shows that Kentucky public workers are already undercompensated compared to their private sector counterparts. Public sector workers receive 12.8 percent less total compensation on an annual basis and 9.2 percent less on an hourly basis.

The report is produced by the Kentucky Center for Economic Policy (KCEP) and authored by Dr. Jeffrey H. Keefe, an associate professor of labor and employment relations at the School of Management and Labor Relations, Rutgers University.

“The state pension system for public employees has been poorly funded by the Kentucky legislature, and a task force is now considering further cuts–or even elimination of the defined benefit pension system–on top of cuts made in 2008,” said Jason Bailey, KCEP director. “But before there are more cuts, and before accepting the claims that public employees have overly-generous benefits, we should look at the facts about public sector compensation.”

The report makes an apples-to-apples comparison between the compensation of public sector and private sector employees in Kentucky. It compares total compensation–including both wages and benefits–and controls for the differences between public and private sector workforces–including the higher levels of education in the public sector. 51 percent of full-time Kentucky public sector workers hold at least a four-year college degree compared to 22 percent of full-time private sector workers.

The report notes that while public sector workers receive a greater share of their overall compensation in the form of retirement and health benefits, it is invalid to simply compare public and private sector benefits and claim that public workers are overpaid. Public sector employees in Kentucky have much lower wages than comparable workers in the private sector, making their overall compensation somewhat lower.

“Most public employees haven’t been receiving raises in recent years, and state workers have seen their health and retirement benefits cut,” said Bailey. “While the recession impacts everyone, the public pension system’s problems have been created primarily by poor legislative decisions. It’s unfair to put all of the burden of that problem on the backs of the workers. Deep cuts hurt those families, our local economies and our ability as a state to attract the qualified workforce we need to carry out critical public services.”

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The Kentucky Center for Economic Policy is a non-profit, non-partisan initiative that conducts research, analysis and education on important policy issues facing the Commonwealth. Launched in 2011, the Center is a project of the Mountain Association for Community Economic Development (MACED). 

Public Compensation.pdf

Public Versus Private Employee Costs in Kentucky: Comparing Apples to Apples

While a state task force considers further cuts to public employee pension benefits, a new report shows that Kentucky public workers are already undercompensated compared to their private sector counterparts. Public sector workers receive 12.8 percent less total compensation on an annual basis and 9.2 percent less on an hourly basis.

The report is authored by Dr. Jeffrey H. Keefe, an associate professor of labor and employment relations at the School of Management and Labor Relations, Rutgers University.

Public Compensation Report

Kentucky Debating a Tax Overhaul — Again