Incentivizing the Missing Middle: The Role of Economic Development Policy

Abstract

The shrinking middle class and increasing income polarization in the United States are issues of concern to policy makers and others. Economic development incentives are a key policy tool used at the state and local levels to promote local economic growth, and, presumably, provide employment opportunities. However, these incentives may have unintended consequences that may be contributing to the decline of the middle class. The authors combine detailed industry-level detail on incentives with proprietary county-level industry employment data and two methods for defining middle-class industries. Using an instrumental variable approach, the authors estimate how differential economic development policies affect middle-class jobs. The authors find evidence that incentivizing creative-class and high-wage industries may be contributing to the hollowing out of the middle class. Without hurting employment in other industries, targeting working-class and middle-wage industries alleviates this trend, while reducing incentives on creative-class and high-wage industries could help increase working and middle-class employment.

Comparison of the Impact of Different Economic Patterns on Population Inflows: Evidence from China’s Guangdong, Jiangsu, and Zhejiang Provinces

“…Previous studies have suggested an interactive mechanism between economic development and population inflows. High-quality and sustainable economic growth accelerates the accumulation of human capital, as well as the population flows between regions, thereby expanding the market scale of human capital [77]. Additionally, population inflows lead to the continuous expansion of the human capital scale, steady improvement in its quality, and optimization of its structure, injecting a constant source of momentum into sustainable economic growth.…”

Empirical Study on Human Capital, Economic Growth and Sustainable Development: Taking Shandong Province as an Example

“…Human capital and sustainable economic growth promote each other and form a virtuous circle. First, in terms of quantity, high-quality and sustainable economic growth creates additional jobs, adequate innovation support, and favorable development opportunities for high-quality talents with new knowledge and skills; as a result, the market supply of human capital is maximized, and the flow and prosperity of human capital markets are promoted [24]. The increase of human capital stock improves the marginal productivity of individuals and slows down the decline of the marginal productivity of material capital [25].…”

Economic Development Strategies: Taxes, Incentives, and Public Expenditures

“…I have spent a good portion of my career studying state and local economic development policies (Patrick, 2014a(Patrick, ,b, 2016b(Patrick, ,a, 2021bPatrick et al, 2017;Partridge et al, 2020;Patrick and Stephens, 2020). Within the literature, decision-makers can find support and evidence against the policy of interest (for recent overviews, see Neumark and Simpson, 2015;Bartik, 2018;Neumark and Young, 2019;Bartik, 2020;Slattery and Zidar, 2020;Hanson, 2021;Hanson and Rohlin, 2021).…”