Job Churn Shows Futility of Corporate Welfare

Monthly job reports on payroll employment and the unemployment rate hide the massive job creation and job loss that occurs in the economy. This turnover challenges the state’s ability to influence job creation by offering tax money to select businesses to locate their business in Michigan.

According to the Bureau of Labor Statistics, Michigan’s private sector created 193,208 jobs in the first quarter of 2014 and lost 179,299 jobs in the same period.

The job creation was caused by 40,862 existing businesses adding to their payroll plus the opening of 11,150 new business establishments. The losses were caused by 41,565 businesses decreasing their payroll and 5,571 business establishments closing. While these numbers are preliminary, this was the lowest number of business closings recorded in this data series, which goes back to 1992.

Over the same period the state’s primary business attraction and retention program, the Michigan Business Development Program, offered subsidies to 15 companies to create 1,931 jobs. The subsidies will cost taxpayers up to $24 million, depending on how many of the recipients meet their milestones. The program’s annual report shows that since it was launched only 48 percent of the promised jobs have materialized, although that may improve given time lags between when the grants are offered and when firms hire workers.

Even if the jobs are created as expected and during the period that they were announced, it would account for less than 1 percent of the actual job creation. And these incentivized jobs would replace just 1.1 percent of the jobs that disappeared over those months.

Subsidizing particular firms is a poor way to foster broad-based economic growth. Policies that improve a state’s business climate, like a personal income tax rate reduction, are a proven way to generate sustainable growth in the economy.