According to a new study, California’s Enterprise Zone Program has no measurable effect on new job creation for businesses located within zone boundaries. 

“Creating jobs is the top priority of the Enterprise Zone Program,” says David Neumark, UCI economics professor and co-author of the study along with Jed Kolko of the Public Policy Institute of California.  “Based on its inability to meet its key objective, we find that the Enterprise Zone Program is ineffective.” 

Findings are based on comparisons of businesses inside enterprise zones to comparable businesses located either just outside designated enterprise zones, or within areas that subsequently were incorporated into the zones. 

Using street-by-street GIS mapping in conjunction with business employment and location data from the National Establishment Time-Series, the researchers found that from 1992-2004, state designated enterprise zones had no effect on job creation.  The study also found the program had virtually no effect on growth in number of business establishments within zones.

California’s EZ program, created in 1984 with the goal of “stimulating business investment in depressed areas of the State and creating job opportunities,” is one of many programs to come under recent scrutiny due to the state’s budget crisis.  Opponents argue that the program costs the state millions in lost tax revenue – nearly $330 million in 2005, according to the California Franchise Tax Board - for programs many businesses would implement regardless of incentives. Proponents, on the other hand, tout its success at decreasing poverty and unemployment rates while at the same time increasing household incomes within zone boundaries – statements supported by a 2006 Department of Housing and Community Development report.

“We’re facing a time when there is obvious concern over low and declining employment while, at the same time, the state of California is dealing with a huge budget crisis,” says Neumark.  “If this fairly expensive program doesn't appear to be achieving its main objective, it’s important that its continuation be reevaluated.”

Findings from the study are available as a working paper on the National Bureau of Economics Research’s website. 


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