Job shifting has detrimental effects
Published 12:00 pm Friday, February 26, 2016
By Wyatt Emmerich
State leaders are claiming the new Continental Tire plant in Hinds County will be cash flow positive to the Mississippi general fund. I’m scratching my head trying to figure out how the numbers work.
Our governor and the Mississippi Development Authority (MDA) are relying on an analysis by state economist Bob Neal. Neal emailed me last week, “I am working on a full document to be released to the public with all that information contained. It will be several days before more than a summary is available.” By press time, I had received some more numbers from Neal, but I have yet to see the actual model or get a list of all the underlying assumptions.
I’m trying not to be cynical. I have gone through these motions before. I’ll get bits and pieces, but the full financial model never seems to be available.
The models that do emerge are vague and superficial, relying on inflated “multipliers” that seemed pulled out of a hat.
As University of Kansas economic professor David Burress wrote, “It sometimes seems that the bigger a multiplier is, the more often it is quoted. In any case, some distinctly one-sided political and economic motives encourage the propagation of exaggerated multipliers.
“In particular, economic multipliers are used to justify public concessions to private industry. Since multipliers are costly to measure, of uncertain accuracy, varied in their meanings, and multifarious in their origins, a convenient range of multiplier values is always available.”
To claim for certainty that Continental will boost the coffers of Mississippi, as our leadership has done, is foolish at best, deceptive at worst.
The technology for modeling such complex micro and macro-economic interactions does not presently exist.
For instance, if the plant creates 2,500 jobs, who gets those jobs? If most of the jobs come from skilled workers already working at other plants, then it’s job shifting, not job creation.
Then who fills the slots emptied when skilled workers quit their existing jobs to go to work at Continental? What is the damage caused to those businesses that lose their skilled workers, some of whom took decades to train?
If there is a finite number of skilled workers in Mississippi, then the new jobs at Continental will be offset by job losses at existing industry. Industries without subsidies will shut down, unable to compete for labor.
Ideally, the new jobs will be filled by the ranks of the unemployed, but most of the unemployed lack the skills to be hired by Continental. After two decades of subsidizing industry, Mississippi has the third highest unemployment rate in the nation. It’s not working.
If the new workers come from outside of Mississippi, then you have new residents that will consume governmental services. They will send their children to public schools, use the highways and create their share of public cost. Where are these costs factored into the equations?
Then there is the irony of using taxes from existing residents to fund jobs for those currently living outside our state.
I am waiting to learn how Neal has accounted for these and many other factors. In the meantime, my simple analysis shows a huge cost to the taxpayers of Mississippi.
I use the highest multiplier available from the Manufacturing Institute. This would be 5,825 new jobs, creating $233 million in new wages from which local and state government would get 8.4 percent in taxes. That’s $19,572,000 in new local and state taxes.
But remember, if these really are new jobs — and not just job shifting — then that means new state residents, which raise governmental costs. I am liberally assuming the cost of these new residents is only 75 percent of existing residents because of economies of scale. Even so, that is $14,679,000 in new costs.
Then you have to factor in the cost of the bonds since Mississippi is building Continental’s factory for them. All in all, subsidizing Continental will end up draining half a billion dollars from our state coffers.
That doesn’t include the sales and property tax exemptions. The MDA doesn’t count those as costs because they say the state wouldn’t get that money without a deal. They are ignoring the most fundamental rule of finance — opportunity costs. That’s the money lost now that legitimate taxpaying industries won’t ever be coming to Mississippi again.
Wyatt Emmerich is a Mississippi newspaper publisher and can be reached at firstname.lastname@example.org.