The city needs to think beyond tax incentives to spur increases
We've been talking a lot about tax incentives in Columbus recently. City Council and Yes We Can Columbus have bandied arguments back and forth about the effectiveness of economic development incentives and how they help reduce or exacerbate the problem of inequality in the city.
At the same time, I have written about them a bit in this column, citing Upjohn Institute Economist Timothy Bartik's work showing that a well-designed tax incentive can be a cost-effective way of increasing local wages.
Increasing local wages is an admirable goal for local economic development policy. Local wages also have the benefit of being measurable, meaning we can actually make estimates as to whether policy works or not.
Bartik's research suggests that a well-designed tax incentive is progressive, earning about $6 in benefits for every $1 in costs for poor residents compared to about $2 in benefits for every $1 in cost for wealthy residents. It should be noted, however, that tax incentive progressivity pales in comparison to Bartik's projections for a universal pre-K program, which would return $23 for every dollar invested for poor residents and less than a dollar for every dollar invested for wealthy residents.
By this measure, a universal pre-K program turns out to be more than eight times more progressive than a well-designed tax incentive program.
Early childhood and tax incentive programs are not the only human development programs that yield wage benefits for local residents. Bartik's research has found that a range of different policy approaches can push up local wages.
For instance, higher test scores can lead to much higher local wages, at the value of thousands of dollars per student impacted for just small increases in test scores.
Degree attainment also can have a huge impact on local wages. Converting one high school dropout to a high school graduate is worth a more than $175,000 impact to local wages. Converting a high school grad to an associate's degree is worth $125,000 in local wages. And converting a high school grad to a bachelor's degree is worth a whopping $375,000 in local wages.
Health interventions are valuable, too. Preventing a case of ADHD is worth $30,000 in local wages. Preventing severe mental illness or drug addiction is worth $90,000 in local wages. And having a baby born at normal weight rather than underweight is worth more than $130,000 in local wages.
Crime interventions help, too, albeit to a lesser extent. Reducing someone's possibility of committing a crime and being imprisoned by 10 percent is worth more than $1,000 in local wages.
These interventions only measure the benefits side of the equation and don't include costs. Low-cost interventions could make some of these low-benefit outcomes incredibly cost-effective for the city, county or school districts. And some of the high-benefit outcomes could be weighed down by the absence of low-cost interventions.
Columbus City Council's Legislative Research Office should investigate policy interventions that could give the city the most “bang for its buck” in local wages. Bartik's research gives them a good starting point.