Government programs can improve local labor markets: Evidence from State Enterprise Zones, Federal Empowerment Zones and Federal Enterprise Community

• Published in: Journal of public economics Vol. 95; no. 7; pp. 779 - 797
• Main Authors: Ham, John C., Swenson, Charles, İmrohoroğlu, Ayşe, Song, Heonjae
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.08.2011; Elsevier
• Series: Journal of Public Economics
• Subjects: community programs; Disadvantaged labor markets; employment; Empowerment zones; Enterprise communities; Enterprise zones; Enterprise zones Empowerment zones Enterprise communities Program evaluation Disadvantaged labor markets; Entwicklungsplanung; governmental programs and projects; income; issues and policy; labor; labor market; markets; poverty; Program evaluation; Regionaler Arbeitsmarkt; Sonderwirtschaftszone; subsidies; tax credit; unemployment; USA; Wirkungsanalyse; Empowerment zones; Disadvantaged labor markets; Program evaluation; Enterprise zones; Enterprise communities
• ISSN: 0047-2727; 1879-2316
• DOI: 10.1016/j.jpubeco.2010.11.027

Federal and state governments spend well over a billion dollars a year on programs that encourage employment development in disadvantaged labor markets through the use of subsidies and tax credits. In this paper we use an estimation approach that is valid under relatively weak assumptions to measure the impact of State Enterprise Zones (ENTZs), Federal Empowerment Zones (EMPZs), and Federal Enterprise Community (ENTC) programs on local labor markets. We find that all three programs have positive, statistically significant, impacts on local labor markets in terms of the unemployment rate, the poverty rate, the fraction with wage and salary income, and employment. Further, the effects of EMPZ and ENTC designation are considerably larger than the impact of ENTZ designation. We find that our estimates are robust to allowing for a regression to the mean effect. We also find that there are positive, but statistically insignificant, spillover effects to neighboring Census tracts of each of these programs. Thus our positive estimates of these program impacts do not simply represent a transfer from the nearest non-treated Census tract to the treated Census tract. Our results are noteworthy for several reasons. First, our study is the first to jointly look at these three programs, thus allowing policy makers to compare the impacts of these programs. Second, our paper, along with a concurrent study by Neumark and Kolko (2008), is the first to carry out the estimation accounting for overlap between the programs. Third, our estimation strategy is valid under weaker assumptions than those made in many previous studies; we consider three comparison groups and let the data determine the appropriate group. Fourth, in spite of our conservative estimation strategy, by looking at national effects with disaggregated data, we show that ENTZ designation generally has a positive effect on the local labor market, while most previous research on ENTZs, much of which used more geographically aggregated data to look at state-specific effects, did not find any significant impacts. Fifth, we note that there is little or no previous work on ENTCs. Overall, our results strongly support the efficacy of these labor market interventions. ► We examine how state enterprise zone programs affect disadvantaged labor markets. ► We use census tract data and look at average national effects and state effects on several outcome variables in evaluating these zones. ► We also examine the impacts of two Federal programs aimed at very disadvantaged labor markets. ► Contrary to much previous research, we find state enterprise zones are effective on average. ► The Federal programs are quite effective in improving these very disadvantaged areas.