What's the Best Way to Build Your State's Economy?

The best way to build a strong state economy isn't to cut taxes and hope businesses invest in your state and create jobs. Instead, the best way to ensure both economic prosperity and job creation is to invest in education. A policy brief by Peter Fisher of the Economic Policy Institute and Noah Berger of the Massachusetts Budget and Policy Center (an OTL ally) has a simple message for state-level policymakers concerned about their state's workers: "If you educate them, jobs will come."

The report, "A Well-Educated Workforce Is Key to State Prosperity," overwhelmingly finds that high-wage and high-productivity states are those with a well-educated workforce:

When businesses are looking to relocate, they're more concerned with who they could potentially hire and how qualified they are than any tax incentives the state might offer. However, over the past several decades, many states have engaged in what Fischer and Berger call a "race-to-the-bottom" economic development strategy. Policymakers cut taxes in their state hoping to lure businesses from other states. But here's the problem with that strategy:

"State and local taxes on businesses are simply too small a share of total business costs to play a significant role in location decisions; other factors – labor skills, wages, access to inputs and markets – are much more important. Yet business tax breaks are expensive, and take money from investments in education and infrastructure that increase productivity and support growth."

So instead of trying to undercut other states' tax rates, policymakers should instead focus on ensuring that all students have the resources and opportunities they need to become strong workers in a well-educated workforce.

Read the full policy brief here!

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