Where do jobs come from?

Food for thought for Iowa economic recovery policy choices: The vast majority of new businesses in Iowa are independent firms born here. The bulk of job creation comes from independent or standalone businesses.

See the report here

The Governor’s Economic Recovery Board is scheduled next week (Oct. 6) to discuss and recommendations from working groups and present them to Governor Kim Reynolds. This comes as Iowans have filed nearly a half million initial unemployment claims during the current COVID-19 recession, creating serious gaps in the economy.

This is a good time to remind policy makers how most businesses and jobs are created, and where to focus policy responses. The Board should not look e toward the big fish that get all the publicity when the state lands a new manufacturing plant, or a national corporation announces the opening of a new facility. Instead, they should pay attention to entrepreneurial activity and new businesses.

Year in and year out new businesses are being formed, and innovative small firms grow by leaps and bounds. At the same time, branch plants are shuttered, small businesses fail, high-tech stars are bought up and moved out of state. Taking all these changes into account, what accounts for the bulk of employment growth in Iowa? And what does this tell us about economic development policy?

Common Good Iowa research examines business dynamics in Iowa over 22 years. This work relies on a database of all business establishments that existed in the state during the period 1992 through 2014.[1] This allows us to identify all business establishments born in Iowa over this period and those moving into or out of the state, or dying. And it allows us to measure the employment in those establishments year by year.

Noteworthy points:

    • The vast majority — 85 percent — of new businesses in Iowa are independent firms born here. Only one in eight are new branches of existing firms, and just 1.4 percent are businesses or branches moving here from elsewhere.
    • Over the 10-year period 2004 to 2014, the net growth in Iowa jobs came almost entirely from independent firms, and mostly from the birth of new firms. As the chart below shows, job growth from new independent businesses outnumbered the jobs lost in businesses that died by 71,623. Independent firms that were already in Iowa in 2004 contributed another 40,000 jobs. Branch plants, on the other hand, showed a net loss of jobs over that period.

Independent Businesses: Major Source of Iowa Job GrowthBut here’s the key: While the average branch plant and independent businesses had the same history of job creation over time, there are far more independent businesses starting up in the state. The result is that the bulk of job creation comes from those independent or standalone businesses. In fact, nearly a third of all the jobs that existed in Iowa in 2014 were in new businesses born in the past 10 years, and most of those were independent firms. Only 1 percent of the jobs were in businesses that moved into Iowa from elsewhere.

The implications for state and local economic development policy are clear. No matter how you look at it, the birth of new independent businesses is the major source of net job growth. This reality calls for a shift in policy away from incentives to attract branch plants and out-of-state businesses, towards investments in education, research, work supports, entrepreneurial education, and the quality of life factors that have been shown to contribute to entrepreneurial activity.

 

[1] The five states are Iowa, California, Texas, Massachusetts and North Carolina. For a complete discussion of data sources, research method, and results for the other four states in the study, see Peter Fisher, Business Survival and the Fiscal Effects of State Incentive Policies. Report prepared for the Ewing Marion Kauffman Foundation. The Iowa Policy Project, November 2018.

Peter S. Fisher is Research Director of Common Good Iowa, recently formed by the merger of two Iowa-based, nonprofit, nonpartisan public policy organizations, the Iowa Policy Project and the Child and Family Policy Center. Fisher holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus of Urban and Regional Planning at the University of Iowa. He is the author of a number of reports for the Iowa Policy Project from 2001 through 2020 dealing with state economic development and fiscal policy, including tax incentives and tax increment financing.

Beyond jobless rate drop: Little for optimism

The drop in the unemployment rate is due less to economic recovery than by discouraged workers dropping out of the labor force entirely.

Iowa’s unemployment rate fell to 6.6 percent in July, down from its peak of 11 percent in April. But larger picture offers little grounds for optimism.

The overall jobs deficit is still substantial. The Iowa economy has shed 97,200 jobs since February — that’s 35,500 more jobs than were lost in the entirety of the Great Recession. And that 6.6 percent unemployment rate is still equal to the highest monthly rate recorded during the Great Recession.

The drop in the unemployment rate is generated less by any observable economic recovery than by the fact that discouraged workers are dropping out of the labor force entirely. Since February, Iowa’s labor force participation rate (the share of the adult population who are working or looking for work) has plunged from 70.9 percent to 65.6 percent — a decline twice as steep as that of the nation as a whole, and steeper than all but one other state (Kentucky).

For those on unemployment (106,392 continuing claims, and 6,544 new claims last week), the uncertainty and insecurity is mounting. It is now almost a month since the $600 “PUC” bump to unemployment benefits expired, and it is unclear when or how the $300/month “Lost Wages Assistance” program established by executive order while kick in as a partial replacement.

Because the Lost Wages Assistance program requires a 25 percent match in state money, it will be unavailable to those who are receiving “Pandemic Unemployment Assistance” (PUA) benefits instead of regular state benefits. Meanwhile, Iowa Workforce Development is aggressively trying to move beneficiaries from the regular state program over to PUA. And, as of September 8, the job search requirements for almost all receiving UI benefits will be reinstated.

It’s hard to spin any of this as good news. While just under 100,000 Iowans have gone back to work, almost 130,000 have dropped out the labor force entirely. For many, the return to work — into the teeth of a pandemic that shows no sign of abating — is driven less by a genuine economic recovery than by an unemployment insurance system whose benefits are that is suddenly less accessible and less generous.

Colin Gordon is a senior research consultant for Common Good Iowa. He is a professor of history at the University of Iowa.

IPP, CFPC form Common Good Iowa

A new chapter for great work by longtime partners in Iowa policy analysis — now as one organization, Common Good Iowa.

Today we have exciting news. The Iowa Policy Project has joined with our longtime partners at the Child and Family Policy Center to formally create a new organization, Common Good Iowa.

Look to Common Good Iowa for the solid research, rigorous policy analysis and focused advocacy that Iowans have come to expect from both organizations. Expect the same attention to critical issues that you have seen from IPP over two decades — and a new, invigorated approach to advancing a bold policy agenda. By joining to together we will have more capacity to coordinate our expertise on issues and communications, and wage successful campaigns to improve the lives of every person who calls Iowa home.

The creation of one organization out of two is the result of many months of discussions among board and staff members at both IPP and CFPC. We have always recognized that as each group has focused on some issues that the other has not, we share a common focus in other areas, including budget priorities and tax policy needed to fairly and adequately support those priorities. But we also have recognized that we need to connect the dots better between these many issues if we want our friends in the advocacy community to do so as well.

Common Good Iowa will, with one voice, draw attention to policy that connects these issues for the benefit of our entire community in Iowa — as we say, “the common good.”

Since the early discussions in 2000 that led to our founding in 2001, IPP has followed the vision of a “three-legged stool” for our work: economic opportunity (to include wages, jobs, education, wage theft, collective bargaining, economic development, pensions, and work supports including child care and Food Stamps); tax and budget issues, particularly tax fairness and revenue adequacy; and energy and the environment, including policy opportunities toward clean, sustainable energy choices and better water quality.

As you may know, IPP’s work on tax fairness and tax credits, as well as some of our research and advocacy on work support and safety-net programs, has been in cooperation and coordination with CFPC as the “Iowa Fiscal Partnership.” That brand on our work will go away as we are now formally one organization.

Common Good Iowa will carry on CFPC’s example as a leading advocate in Iowa on early childhood; children’s health, development and well-being; and family economic opportunity. As CFPC has done for many years, our new organization will continue to share data, link research to policy and promote best practices for improving child well-being as part of the nationwide Kids Count initiative.

Every staff member for both IPP and CFPC has a place in the new organization. Anne Discher, who has served as executive director of CFPC, will be the executive director of Common Good Iowa, headquartered in Des Moines. We will retain an Iowa City office, with IPP executive director Mike Owen becoming deputy director of Common Good Iowa. I invite you to reach out to Anne or Mike if you have questions about this new arrangement.

The name “Common Good Iowa” was chosen after great deliberation among staff and board of both organizations. It reflects our vision of public policy in Iowa. Philosophers, economists and political scientists have long debated and defined the common good, and there’s a powerful theme that links those conversations: public systems and structures for the benefit of all people, achieved through collective action in policymaking and public service. It feels utterly right for our new endeavor.

This is a great opportunity to reimagine our work. We’re at a moment when the devastating impact of racism, intolerance in our civic discussions, and years of neglect of our public systems have been laid bare for all to see. No Iowa community can thrive when some community members are systemically deprived of opportunity by our health, educational, human service and justice systems. We must do better.

As a largely white organization, we pledge to listen to and learn from our partners of color around our state, and to be not be just not racist, but, to borrow from scholar Dr. Ibram X. Kendi, to be anti-racist: to actively advance concrete policies and practices to dismantle the persistent inequities experienced by Black, Latinx, Asian, Native and other marginalized communities. We also commit to the internal work to become an organization that itself is attractive to a diverse, talented staff.

The merger is official now, although we will be putting finishing touches on our new brand over the next months. You’ll be hearing more about how you can celebrate virtually with us when we unveil our new logo, website, social channels and policy roadmap later in the year.

Until then you can reach Common Good Iowa staff at their existing CFPC and IPP email addresses, websites and social media accounts.

Sincerely,

Janet Carl

Vice President, Common Good Iowa Board of Directors
Former President, Iowa Policy Project Board of Directors