Commentary

Michigan's Corporate Welfare Programs Are a Bad Investment

Resources expended for these programs would be better spent on higher priorities

Editor's Note: This piece first appeared in The Detroit News on August 12, 2020. 

The governor and state legislators earned applause last year for reining in Michigan’s so-called economic development programs. These initiatives hand out special favors to corporations and industries, such as tax credits, abatements and direct and indirect subsidies. The hope in doing so is that more jobs would be created than would have otherwise been the case. Our new study provides more evidence that this is simply an expensive and wasteful enterprise.

To explore the potential that corporate handout programs have to create jobs, we used two specialized and powerful data sets. The first, constructed by Mackinac Center staff, was limited to incentive deals struck by the state of Michigan with different corporations. It started out with more than 7,300 incentive deals the state offered through one of its many programs. The data, which goes back to 1983, includes the name on each deal, the county it was located in and — with one exception — the size of the incentive offered.

The second data set came from the National Establishment Time Series database, which has been described as a census of American business. It tracks employment — among other data — at organizations across the country. The NETS database we used covers 1990 through 2015.

We searched through the NETS database for every one of the 7,300-plus incentive deals reported by the state of Michigan over that time. By doing so, we were able to match a smaller number of firms (more than 2,300 establishments) that had received an incentive to those that had not. With those comparisons in hand, we could track the performance of state jobs programs over time and by incentive category.

The companies that were offered financial favors by the state did increase employment and sales more than corresponding companies that were not offered incentives — by 7.1% and 9.9%, respectively. They did so, however, at the astonishing cost of a $593,000 incentive offered per job per year, on average. Even if each job paid $1 million annually, it would strain credulity to suggest that taxpayers would get money back on their investment. And when we looked at specific programs, the record was equally bleak.