Enterprise Zones and Resident Employment

1. Enterprise Zones and Resident Employment Joel A. Elvery Maxine Goodman Levin College of Urban Affairs Cleveland State University This presentation reports the results of research and analysis undertaken while the author was an employee of the Center for Economic Studies at the U.S. Census Bureau. It has undergone a Census Bureau review more limited in scope than that given to official Census Bureau publications. Any opinions or conclusions expressed in the paper are those of the author and do not necessarily represent those of the U.S. Bureau of the Census. The results presented here have been cleared for disclosure.

2. Research question Did urban enterprise zones increase the probability that a zone resident was employed in 1990? • Develop new identification strategy to address the selection of where zones are located • Effects estimated conditional on the traits of zone residents • Find no measurable increase in employment probability • Estimated effects are negative and insignificant

3. What are enterprise zones? • Geographically targeted incentives to attract business activity to specific areas • Typically in distressed areas • Goals include reducing poverty and unemployment • Studying enterprise zones designated in California and Florida during the 1980’s. • Not empowerment zones!

4. What are enterprise zones? • States designated zones started in 1980 and grew rapidly after 1986 • Timing and specific characteristics varied state by state • Important differences across states: • Types of incentives offered • Degree to which zones were targeted to distressed areas • Degree to which incentives were tied to hiring • Eligibility criteria for businesses receiving benefits • Share of state included in zones

5. Early research shows mixed results • Case study research found that enterprise zones with active administration attracted new businesses and encouraged existing businesses to expand (Van Allen, 1998, Jones and Weisbrod 1986) • Studies that compare zones to other non-zone areas find that zones did not experience more growth in jobs or businesses than other areas (Engberg and Greenbaum 1999, Dowell 1996, Redfield and McDonald 1991)

6. Recent work finds some evidence that enterprise zones do have higher than expected job growth • O’Keefe (2004) finds annual job growth in California EZs was 3 percent higher from 1990 to 1996 than it would have been without the EZ program • From 1997 to 2003, the annual job growth rate in EZs was 3 percent lower than without the EZ program • Bonodonio and Greenbaum (2007) find that two policy features are associated with higher job growth: incentives tied to job creation and smaller share of state included in EZs

7. Recent work finds some evidence that enterprise zones do have higher than expected job growth • Bonodonio and Greenbaum (2007) also show that effects of enterprise zones on job growth differs by type of establishment: • Net job growth is roughly 2 percent higher in EZs • New establishments have 25 percent higher job growth in EZs • Existing establishments that do not close have 6 percent higher job growth in EZs • Existing establishments that close during the ten years studied have 19 percent higher job loss in EZs

8. Less research on the effect of EZs on residents • Papke (1993): Using block group level data, found 0.11 percentage point increase in employment in Indiana enterprise zones • Greenbaum & Engberg (2000): Found zones increased annual unemployment growth rate by 0.148 percentage points in California and 0.084 percentage points in Florida. • Used propensity score in regression as only control for zip characteristics • Did not control for demographic changes over 80’s

9. California and Florida’s EZ programs • California: • Enacted in 1984, implemented end of 1986 • Small number of zones created in distressed areas • Incentives tied to hiring workers with history of unemployment • No minimum investment requirements • Florida: • Revised program enacted 1984, implemented Jan. 1, 1987 • Moderate number of zones created in distressed areas • Incentives tied to hiring zone residents, regardless of employment history • Minimum investment/employment requirements

10. Comparing California and Florida’s EZs

11. How would one expect enterprise zones to impact resident employment? • Programs could increase employment if: • Create jobs in zone that match skills of unemployed residents • Encourage businesses to hire unemployed zone residents for existing jobs • Permit businesses to offer zone residents higher wages • Could also decrease employment if: • Encourage investments that would reduce the number of jobs that match resident skills

12. Why is it be important to control for post-designation characteristics? • Zones in distressed areas and able workers leave distressed areas • Zones designated after 1986 • People’s own characteristics are more important determinant of their employment than where they live

13. Identification Strategy

14. Data Sources • Cenusus of Population and Housing: 1970 – 1990 • Provides relatively large samples for detailed geography • 1990 data: Own tabulations from 1990 Sample and 100% Edited Detail Files. Tabulated by 1980 tract-place pair • The 1990 SEDF is used for the individual level employment probability models • 1980 data: STF3A, tract-place level counts • 1970 data: Fourth count files, tract level counts

15. Data Sources • Standard Statistical Establishment Lists, 1982-1986 • Administrative records data that covers most private establishments with employees • Tabulate changes in number of jobs and establishments by Census Place for 3 years prior to designation of zones • Maps of zone location • Use paper maps to find location • Map location with ArcView using the TIGER/Line 1992 source data • TIGER/Line 1992 data is also used to convert from 1990 Census geography to 1980 Census geography

16. Measuring Zone Location Fort Lauderdale, FL

17. Individual Employment Probability

18. Probability of Containing a Zone

19. Match QualityCalifornia

20. Match QualityFlorida

21. Outcome Variable Definitions • Raw employment rate • Share of people aged 18 to 55 in the labor force and not enrolled in school who are employed • Calculated at tract level with 1990 SEDF data • Conditional employment probability • Derived from fixed effect from the employment probability model • Estimated with same sample used to calculate the employment rate

22. Simple Differences

23. Estimated effects: men and women pooled Bootstrapped standard error in parentheses for all tables

24. Estimated effects: men’s employment Bootstrapped standard error in parentheses

25. Estimated effects on men’s employment when include men out of the labor force Bootstrapped standard error in parentheses

26. Conclusions • These zone programs were especially likely to generate effects on resident employmen: • Targeted, so small portion of state affected • Tax credits tied to hiring disadvantaged workers • I use methodology suited to question and eliminate as much measurement error as possible • Results suggest that zones reduced employment probability of residents, typically by –0.5 to –1.5 • Generally more negative in Florida than California • Controlling for the characteristics of zone residents makes the estimated effects less negative, often by 50% or more

27. Conclusions • Controlling for resident characteristics also makes estimates more precise • Not statistically significant. Additional assumptions may be necessary to draw more precise conclusions • Does not support view that zones improved resident employment • Finding no measurable improvement in resident employment due to zones in California and Florida does not bode well for the zones of other states