In the late twentieth century the US was going through deindustrialization. The number of manufacturing jobs declines nearly 6 million between the late 1970s to 2005. This created a need for new industries and jobs. Consequently new goals and policies regarding economic development were written. One strategy was to use tax abatements. Now three decades later, it is questioned how effective these tax abatements have been. Have they helped the Michigan economy to diversify and create jobs or shifted jobs and creativity else where?
What specifically have these tax abatements been? "About one third of all local governments in Michigan granted property tax relief to manufacturing firms through PA 198 Industrial Tax Abatements, with some 7,600 abatements granted between 1991 and 2001" (Michigan's Industrial Tax Abatements, Pg. 53, Sands & Resse). Michigan's local governments used tax abatements more frequently than any other state's local government. The greatest number of abatements have been to businesses in the industry sector. "Abatements were granted to encourage over $40 billion in (projected) investment in new manufacturing plants and equipment. About half of this total represented investment by transportation equipment firms, where the average investment per abatement was just over $27 million." Businesses that received these abatements promised the retention of jobs and also the creation of new jobs.
A Shift-Share analysis (Assesses changes in local economic activity relative to national trends; it measures not just whether the local economy is growing or declining but also how the performance of local industries compares to national averages) showed that Michigan had a "higher than average proportion of its jobs in the fast-growing services industry; Michigan firms in this category experienced much slower rates of growth than their national counterparts, however. As a result of these changes, the Michigan industrial employment profile became more similar to that of the country as a whole, although manufacturing continued to be one of the state's leading sectors." However, this did not equate to the promised jobs. In fact, "with the exception of transportation equipment manufacturing, employment has declined in manufacturing sectors. While the number of transportation equipment jobs rose by 18 percent, this is less than the 22 percent increased promised in abatement applications. The addition of new jobs as a result of tax abatements did not prevent staff reductions in other areas of these firms."
According to the conclusions of this article and as is evident by the current condition of the Michigan economy and its unemployment rate, industrial tax abatements have not be successful.
Source: Michigan's Industrial Tax Abatements: Phyrrhic Victories? Gary Sands & Laura A. Reese