OK so enlighten us. How much is Wisconsin throwing at Foxcon in incentives and how many jobs is it is supposed to produce?
In particular, Greenstone, Hornbeck and Moretti (2010) showed that existing firms in counties that have won large investment projects have seen productivity increase by an average of 12 percent five years after the plant opening. Greenstone and Moretti (2004) also found that industry labor earnings in winning counties increased by an average of 9 percent five years after the plant opening, with similar increases in related industries and neighboring counties. Property values, a proxy for the overall net benefits of the investment package, increased by roughly 7 percent in the five-year span. Moreover, they found no reduction in government services, suggesting the incentives did not crowd out other government expenditure.
While large plant openings led to gains on average, there was significant heterogeneity. A leading successful example is BMW, which in 1992 was promised $115 million in incentives by South Carolina for an initial investment with 2,000 planned jobs. Within five years, the plant was supporting over 3,500 supplier jobs, and by 2014, employment at the plant had grown to over 7,600, with an estimated additional 22,000 indirect and induced jobs throughout the state. By contrast, Mercedes in 1993 opened a plant in Alabama, with $450 million in incentives for 1,500 promised jobs. Within five years, the area around the plant had lost more than 800 supplier jobs.
Foxconn has the potential to generate broad gains that go far beyond the official job estimates and tax revenue costs that have dominated the recent discussion. But the gains are by no means certain — they require that the high-tech investment by Foxconn in Wisconsin would induce other firms to invest in the area, cause high-productivity workers to relocate there and lead current workers to improve their skills.
In evaluating the Foxconn package, the uncertain potential gains in jobs, wages, output and property values must be weighed against the certain fiscal costs. This is a risk, but if a new hub of economic activity materializes, then University of Wisconsin-Madison Chancellor Rebecca Blank could prove correct in calling the decision of Foxconn to invest in Wisconsin “a major leap forward for our state’s economy.”