A timely new paper from Indiana University for Smart Incentives provides an up-to-date look at how manufacturing incentives are used across states.

I’d like to thank Professor Sarah Bauerle Danzman and her students for their valuable work, “Incentivizing an Increasingly Automated Manufacturing Sector: A Descriptive Analysis of U.S. States’ Manufacturing Investment Promotion Programs.” Their research:

  • describes incentive tools used to attract and retain manufacturing operations
  • explains the policy rationales for using these incentive programs
  • examines how economic, political and demographic factors influence incentive use

Among the paper’s findings:

  • Tax incentives (147) were used in an overwhelming majority of programs (210 total).
  • Skills mismatch is a commonly cited problem for high tech manufacturers, but the study identified only 11 training programs among the manufacturing-specific incentives.
  • Capital formation is the most cited primary rationale for incentive program offerings, despite common claims for increases in local employment.
  • Only 26 programs target supply chain and trade integration; just 18 programs emphasize the development of clusters.
  • 44 programs focus on green technology.

Policy Implications

The research raises interesting questions about how manufacturing incentives can be improved to serve industry and the communities in which firms operate:

Less than 6% of programs have clearly defined impact assessment criteria or “easily identifiable evaluation programs available to the public.” How can states improve program impact and accountability

Should programs be realigned to address more directly skills training for manufacturers and support for capacity-building and cluster development – factors that have been clearly established as critical to advanced manufacturing success?
How can states balance their interest in gaining manufacturing employment with programs that emphasize capital formation and industry trends that favor investment over hiring?
We look forward to pursuing the answers to these questions over the coming year and welcome your thoughts on trends in manufacturing incentives.