Connecticut's Incentives To Keep Jobs Makes Sense But Won't Really Create Any New Ones

Connecticut has suffered financially in the wake of the 2008 financial crisis. Fairfield County, the driver of much of Connecticut’s revenue, has lost a number of financial industry jobs. In another huge blow, General Electric, a company that has been headquartered in the state since 1974, decided to move out and up to Boston. Although GE claimed that two recent tax hikes drove their decision, the real explanation is that the company, having largely divested its financial services divisions, is transforming from a manufacturing firm to a technology firm and felt it needed a vibrant city environment to attract the talent it will need in the future.

So, Connecticut is under pressure to keep the businesses it already has in the state. This summer, it offered $22 million in loans and grants to Bridgewater Asset Management, one of the largest hedge funds in the world, in return for the firm’s agreement to stay in the state and add another 750 jobs. Massachusetts apparently gave GE upwards of $150 million to move 800 jobs to the state while Connecticut is promised 750 probably higher paying jobs from Bridgewater for about one-seventh the amount. Earlier this week, the state offered another financial firm, AQR Capital Management, $35 million in incentives similar to Bridgewater in order to keep the company in Connecticut as well as adding 600 new jobs in the next decade.

You can understand why Connecticut would be so eager to provide these incentives in order to keep these jobs in state and add new jobs. These will, in general, be higher paying jobs that will generate revenue. On the other hand, it does seem counterintuitive to have to offer such incentives to such already-profitable firms. And, at over $27,000 per new job, it seems like a pretty expensive method to add new jobs, no matter whether it proves to be a profitable investment. You have to wonder if those $37 million in loans and grants had been spread out among a larger number of younger, smaller, and slightly less profitable firms whether it would end up providing a bigger bang for the buck. Studies have shown that these types of incentives do not end up really adding any new jobs per se. Rather, they keep existing jobs and jobs that would be created anyway from moving from one state to another as the states essentially engage in a race to the bottom.

So what Connecticut is doing with these loans and grants is perfectly understandable. But from a federal perspective, this really is lunacy. States are wasting precious tax dollars in an effort that apparently does nothing to create new jobs for the country, while at the same time just creating even more profits for companies that are already profitable. A rational federal jobs policy would actually do something to alleviate this situation. I’m afraid we are a long way from seeing that happen.