Good Jobs First: Accountable Development, Key Reforms


• Key Reforms

Reform #3: Ensure that Subsidized Companies Create Quality Jobs

Is every job a good job?
Governments offering subsidies to companies have historically focused on the amount of money the company will invest and the number of jobs the project will generate. These are important features of a project, but indicate nothing about the quality of the jobs the project will produce.

Often no one checks up on the quality of jobs created, but when we do, we too often find subsidies going to companies offering part-time work with low pay and poor benefits. An analysis by Good Jobs First of more than 500 deals all over Minnesota found that almost two thirds of the companies were paying wages so low that a family of three would qualify for Medicaid, and more than a fourth paid so low the same family would qualify for food stamps (see Economic Development In Minnesota: High Subsidies, Low Wages, Absent Standards). In Kentucky, the Democracy Resource Center found that, in a two-year period, the state had granted tax breaks to at least 31 companies that paid average wages below the federal poverty line for a family of four (see the DRC's report Kentucky's Low Road to Economic Development).

When workers at subsidized companies are paid poverty-level wages, taxpayers end up subsidizing the company twice: once with the economic development subsidy, and again when our taxes pay for social support programs such as food stamps, Medicaid, and housing and energy assistance that low-wage workers need to get by.

Targeting subsidies to create quality jobs
Increasingly, states and cities have moved away from the idea that "any job is a good job" -- particularly when taxpayer-funded subsidies are involved -- and are working to structure subsidies to create family-sustaining jobs for local residents.

Job quality standards are requirements that subsidized companies create jobs that meet certain criteria, including wage levels, availability of health insurance, and full-time hours. Standards can be used in all types of subsidy programs, including training grants, tax abatements, industrial revenue bonds, enterprise zones, tax increment financing (TIF), and tax-free loans.

Job quality standards are the most widely-enacted subsidy reform. As of 2003, at least 43 states, 41 cities and 5 counties applied such rules to at least one subsidy program. At the local level, many standards have been enacted through living wage laws that apply to all types of economic development assistance above a certain dollar amount. At the state level, standards are more often attached to specific incentive programs; only a few states apply the same standard to multiple programs. At least 116 state subsidy programs currently use job quality standards.

Most of the standards are statutory, the result of initiatives of community activists, elected officials, or both. Some are agency policies, while others are a combination of statute and policy, with standards defined by development agencies in accordance with guidelines set out by legislation.

Best practice
There are many precedents for job quality standards at both the state and local level, with very diverse approaches to both what types of standards are set and how to structure the requirements. Look at the chart of job quality standards listed by state, city, and county (last updated in 2003) to get an idea of the many ways in which standards are used.

The best job quality standards are those that mandate standards for all companies that receive a given subsidy. Some jurisdictions negotiate standards on a case-by-case basis for company-specific development deals; others include wage rates and/or health benefits as part of a formula for evaluating applications or calculating subsidy eligibility. While quality jobs may result from such approaches, it is fairer for companies, simpler for community activists, and more efficient for governments to apply a minimum standard to all companies, ensuring that no companies offering jobs that don't meet agreed upon criteria ever qualify for subsidies.

Wage standards
Wage standards are the most common type of job quality standard. Wage standards vary greatly, but they are generally based on one of three types of formulas: poverty measures such as the federal poverty line; static dollar amounts; or market rates such as the average wage of a state, region, county, or industry.

In most cases, market-based wage requirements are higher than those based on poverty measures. To give a few examples: companies using Workforce Investment Act funds in Montana must pay wages and benefits worth at least 110 percent of the state median wage, which comes to $14.31; Nevada requires recipients of several types of tax abatements to pay at least the statewide average hourly wage of $17.34, in addition to providing health benefits (wage levels as of 2005).

Jurisdictions that use needs-based standards derived from alternative measures of subsistence also tend to have higher wage standards. Burlington, Vermont bases its living wage on the yearly needs of a single person in an urban area with a moderate food plan as calculated by the Vermont Joint Fiscal Office: $12.02 per hour if health benefits are provided and $15.52 if they are not. Fairfax, California bases its living wage on the monthly cost of renting a one-bedroom apartment in the city ($950 in 2003). Current wage requirements for subsidized businesses are $13.47 with health benefits or $15.28 without (wage levels as of 2005).

In addition to setting a wage level high enough for workers to live on in the region, it is also important that wage standards be adjusted annually. Fixed wage standards -- those not updated yearly -- lose value over time due to inflation. Legislating automatic annual increases tied to updated market-based wages, revisions to the poverty line, or changes in the Consumer Price Index (CPI) maintains the value of the wage, and avoids unnecessary political fights to increase the wage every few years.

Health benefit standards
The best health benefit standards are those that require employers to provide (not just offer) health insurance. This avoids the possibility employers will circumvent the requirement by offering plans so costly that few employees enroll. Because legislating health benefits is a tricky legal area, most states are necessarily vague as to what providing benefits means and who pays for coverage. A few states are more specific, requiring that employers pay at least some percentage of health coverage costs. Programs in Arizona, Delaware, Maine, New Mexico, and Oklahoma require employers to pay at least half health insurance costs; Iowa's Community Economic Betterment Account program requires employers to pay at least 80 percent of the cost of health and dental benefits for employees or at least 50 percent of the cost of a family plan.

At the local level, a number of cities and counties require companies to pay higher wages if they do not provide health benefits. The average amount allotted for benefits as of 2003 was $1.50 per hour, ranging from $.83 per hour in Duluth to $2.34 per hour in San Diego.

Other benefits
In addition to wage and healthcare requirements, many jurisdictions add other standards to ensure subsidies create quality jobs. By far the most common is the requirement that new jobs be permanent, full-time positions. Some jurisdictions also require that jobs offer opportunities for training and/or career advancement.

A few jurisdictions require that employees receive sick leave and/or paid vacation. Among those are Oakland, Berkeley, Los Angeles, and Richmond, California, which all require employees to receive 10 compensated and 12 uncompensated days off per year. Burlington, Vermont requires companies to provide 12 compensated days off for sick leave, vacation, or personal leave. Ashland, Oregon requires that employees receive eight hours of sick leave per month plus paid vacation.

Some subsidy programs require employers to contribute to retirement plans, including Flagler County, Florida's Economic Development Grant Incentive Program and Lewiston, Maine's Tax Increment Financing (TIF) program. Maine's state Employment TIF program requires companies to provide an ERISA-qualified retirement plan. Several other jurisdictions encourage retirement contributions by allowing them to count towards total compensation requirements.

Subsidy recipients in Minneapolis, Los Angeles, and New Britain, Connecticut must meet guidelines for local hiring. New Britain, Los Angeles, Oakland, Burlington, and Rochester, New York require companies to inform employees about possible eligibility for the Earned Income Tax Credit (EITC).

Caveats
While job quality standards are the mostly widely enacted subsidy reform, they are also a common target for attacks by opponents who claim that standards will destroy jobs and scare away potential new investment. Interviews with development officials show that this is not the case. The vast majority of officials interviewed for The Policy Shift to Good Jobs reported that including job quality standards in subsidy programs either did not harm their business climate or had a positive impact. Quantitative evidence also supports this finding -- a recent report by University of California economists found that the Los Angeles living wage ordinance has raised pay for nearly 10,000 jobs -- with minimal employment loss.

Still, it is important to do your research to design job quality standards that make sense for the subsidy programs and employers in your region. Finding out which firms use subsidy programs, what they pay, what types of companies and industries subsidy programs are targeting, and who is likely to get the jobs will give an idea of the type of standards a program needs to make sure the jobs it creates are good ones. Researching prevailing industry wage rates, regional average wages, and the cost of health benefits is also essential for tailoring wage rates to your area.

Some jurisdictions build some flexibility into wage standards: making exceptions for young or inexperienced workers; allowing a certain percentage of employees' wages and benefits to be paid at a rate lower than the wage standard; or requiring employers to meet an average wage requirement. While such structures make sense in some cases, they must be closely monitored to make sure that they are serving their purpose (allowing trainees or entry level workers to start at a lower wage, for instance), without undermining the intent of the wage standard as a whole.

Ongoing monitoring and enforcement are critical for the success of all job quality standards. Governments should require companies to inform employees of their rights under the law and to submit regular reports showing the wages and benefits paid and hours worked by employees on the site. Subsidies with standards must have strong clawback language that imposes monetary penalties in the case of noncompliance, and governments must be held accountable for enforcing such penalties when necessary.

More information
Information in this section came from Good Jobs First's report The Policy Shift to Good Jobs