The Inflation Reduction and CHIPS Acts just turned one. Like all infants, they need care and guidance to turn out right.
When President Biden signed the two most ambitious planks of his industrial policy, amounting to over a trillion dollars in total, he used the power of government to advance lofty public goals: tackling climate change, creating good union jobs, improving racial equity, and promoting national security and industrial competitiveness. Both laws rely heavily on financial incentives to encourage investment that can strengthen America’s manufacturing capacity.
But as Good Jobs First knows from experience, good intentions don’t guarantee good outcomes. Economic development incentives often allow the creation of low-quality, low-wage jobs; stimulate pollution in communities of color and indigenous communities; and send cities and states into a race to the bottom, offering larger and larger premiums to lure employers while depleting public budgets needed for schools, roads, social programs, and our communities.
Much like state and local incentives, the IRA and CHIPS Act could inadvertently aggravate inequality and environmental injustices, rather than ameliorating them. For example:
- Unless they are explicitly prevented from doing so, some firms that benefit from industrial policy might weaken wages and protections for workers. The shift to a cleaner economy is already subsidizing the weakening of the labor movement, as it pays auto manufacturers to disinvest from unionized manufacturing sectors (like the internal combustion engine) to new, not yet-union lines of production like electric cars and batteries. In Lordstown, Ohio, after General Motors closed down an assembly plant and laid off 1,500 people, it launched a joint venture with LG called Ultium to manufacture EV battery cells. Using state and federal manufacturing incentives, including tax credits from the IRA, the company replaced $30 an hour jobs with jobs paying $16.50 an hour.
- Absent modernized workplace safety rules, manufacturing incentives could encourage companies to invest in production that poses toxic threats to workers and nearby communities. This is a particular challenge as the US repatriates silicon chip manufacturing, which left behind poisoned frontline workers and polluted Superfund sites when the industry moved offshore.
- In an era of outsized corporate power, recipients of public incentives may raise executive pay or shareholder dividends rather than invest in workforce skills or technical improvements. In the US semiconductor industry, for example, where the ratio of CEO to median employee pay last year was 323 to 1, the average profit margin was more than 19%. Texas Instruments reported a profit margin of 43.7% in 2022.
Although there are labor and environmental provisions in the two acts, they don’t go far enough. A union bonus for tax credits was stripped out of the IRA before passage. Neither of the new policies mandate wage or job quality requirements for permanent production jobs.
Worse, we see mounting industry opposition to the existing safeguards, including the requirement that CHIPS Act beneficiaries provide affordable childcare for their workforce. Under the banner of “permitting reform,” there are aggressive bipartisan congressional efforts to weaken EPA requirements and shorten timelines in the energy and infrastructure sectors. And in recent weeks, we’ve seen the semiconductor industry warn hysterically that a proposed ban on the polluting “forever” chemicals, PFAS, would result in a complete shutdown of all US domestic semiconductor manufacturing.
We urge federal actors to stand strong and implement the CHIPS and Science Act and the IRA in a manner that protects workers’ rights, wages, community safety, the local environment, and our democracy.
Even without strong federal guardrails, states and local communities can attach strings to their own subsidy programs. They can require companies pay market-based wages, so subsidized jobs don’t pull down state or national pay levels. To improve skills pipelines, states and localities can also refuse to abate the school share of property taxes and require first-source hiring preferences. All companies receiving taxpayers incentives should provide transparency to the public on actual investments and job creation. If companies don’t live up to their commitments, strong clawback provisions should recapture public resources.
The CHIPS Act and IRA are great examples of using the government for good. Let’s help them live up to their promise.