Center for Policy Research
Strategies to Build Economic Strength in Lagging Areas: Investment, Tax Incentives, Wage Subsidies, Worker Training, and Education
Michael J. Wasylenko
C.P.R. Working Paper No. 219
Michael J. Wasylenko
For more than five decades, economists and policy makers have observed and researched growing disparities in job opportunities and earnings among working families and have proposed strategies to improve job and earnings prospects for those at the bottom and middle of the earnings distribution. The disparities also have a spatial dimension in that some states and regions of the United States grow, while others lag, with corresponding job opportunities in growing and lagging regions. However, even within states that enjoy relative prosperity, the gains from job creation occur disproportionately, as high-wage jobs grow only in some areas of thriving states.
There are growing earnings and job disparities among states; among different areas within states; and between residents who work in high-wage occupations and in less-skilled jobs within the thriving areas of states. The paper first discusses growth disparities among regions of the United States and the reasons they have widened in recent decades. It then turns to growth disparities within regions and MSAs. Federal and state governments have addressed economic development in areas through place subsidies that utilize a variety of tax forgiveness, as well as wage subsidies. Sections three through seven of the paper review the types of subsidy policies directed at economic development of particular places and assesses their effectiveness. Section eight addresses the empirical evidence on State Enterprise Zones (EZ), Federal Employment Zones, and related programs.
The last two sections focus on job training and other policies that assist lower-skilled workers find employment. Wage subsidies help low-skilled workers with job placement. These sections also discuss preparing youth for future employment using ongoing research on income and social mobility through improving conditions in neighborhoods for children as well as high-quality preschool education programs 2 for children. People-based policies that build human capital in children need greater priority, and to the extent possible, they need to be differentially directed toward children in distressed areas.