Film production incentives as economic development policy: why are they problematic?

Louise Story’s series in the New York Times on state and local business incentives concludes with an article (December 4, 2012) on film subsidies, highlighting Michigan’s experience.

Why are film production incentives so problematic as economic development policy? I wrote on this topic back when I started this blog, in December 2010.

The biggest problem with film production incentives as economic development programs is that even when they “work”, in the sense that they produce new film production activity in a state, the benefits for state residents tend to be meager. The jobs produced are often temporary and low-wage.

In addition, as Ms. Story’s article outlines, the jobs are also mostly dependent on a continuation of ongoing large state operating subsidies for film production. Therefore, unlike some incentives, which might provide a short-term incentive for capital investment, film production incentives seem to need to be ongoing to be effective. This raises their costs significantly.

The reality is that a state can make almost any industry “competitive” in a state economy if it provides an ongoing subsidy of 30% to 42% of its labor costs, as Michigan at one time did with films. But this strategy has huge costs per job created. There is no way a state can afford to do this for all jobs, or even all jobs in “export-base” industries.

As I have outlined before, sensible state business incentive policy is highly targeted on policies that are cost-effective in creating good jobs.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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