12/09/2024 | News release | Distributed by Public on 12/09/2024 19:12
There is a long history of U.S. state and local governments using subsidies to attract employers and stimulate economic activity, but research suggests that these industrial recruitment policies can have high costs per job generated. In a recent research article published in Economic Development Quarterly, I evaluate the economic impact of South Carolina's $1 billion deal to recruit Boeing's 787 Dreamliner assembly plant to North Charleston, which opened in 2011. The research investigates how the Boeing plant impacted South Carolina's burgeoning aerospace industry, the Charleston Metropolitan Area's labor market, and the deal's overall cost effectiveness.
I find that the Boeing plant had a substantial impact on the state's aerospace sector in the ensuing decade resulting in employment, wage, and establishment growth within the industry. My results suggest that the state's aerospace industry gained 6,000 jobs after the plant opening, exceeding Boeing's 3,800 promised jobs and achieved good value for South Carolina taxpayers compared to other contemporary aerospace industrial recruitment deals. Furthermore, my local multiplier analysis indicates that each promised job generated 2.6 other jobs within the Charleston Metro Area in the five years after the plant opened.
Before Boeing chose South Carolina as the site of its second 787 Dreamliner plant, it considered several other states including California, Kansas, North Carolina, Texas, and Washington. However, by 2009, the company had narrowed down its selection to Washington and South Carolina. Everett, Washington, housed Boeing's existing 787 plant, but that plant had recently undergone organized labor disputes including a 57-day work stoppage in 2008, which cost the company over $1 billion in profits. On the other hand, South Carolina was seen as a desirable location for the plant as the Charleston Metro Area contained several existing parts suppliers for the 787 Dreamliner, and the state held a largely nonunionized workforce.
In October 2009, South Carolina successfully offered Boeing an incentive package to locate the 787 Dreamliner final assembly and delivery facility in North Charleston. The incentive package required Boeing to create 3,800 full-time jobs and invest a minimum of $750 million in the state. Estimates of the total incentive package varied between $800 million and $1 billion and included:
In July 2011, Boeing South Carolina opened and as of January 2022, employed 5,521 people.
Researchers tend to determine the causal impact of a policy by comparing the treated area (e.g., South Carolina) to a control group that is similar in other dimensions but did not receive the policy. For the state-level analysis, I compare South Carolina's aerospace sector (i.e., employees, wages, establishments) to other states that were considered finalists for the Boeing 787 Dreamliner plant but ultimately lost their bids (e.g., California, Kansas, North Carolina, Texas, Washington). I use difference-in-differences techniques to evaluate the effect of the policy by comparing the difference in outcomes between the treated and control groups before and after the policy was implemented (i.e., the Boeing plant's opening in 2011). The key assumption is that South Carolina's aerospace sector would have behaved similarly to the losing states had it not been selected, so any excess growth in the state's aerospace employment, wages, and establishments can be attributed to the Boeing plant.
Using public data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages, I estimate that between 2010 to 2021, 6,000 aerospace jobs (311 percent) were added in South Carolina relative to control states. That is 2,200 more than the 3,800 jobs that Boeing promised to bring to the state when the incentive package was codified into South Carolina state law. My results suggest that the Boeing plant increased wages in South Carolina's aerospace industry by 10 percent on average over the treatment period, with much of the strongest gains coming in the last four years of the treatment period. Additionally, the number of aerospace establishments in the state grew by 44 percent.
My employment effect estimate implies that the Boeing recruitment deal achieved good value for South Carolina taxpayers compared to other contemporary aerospace industrial recruitment deals. Over a sample of 543 deals from 2002 to 2017, Cailin Slattery and Owen Zidar estimated that firms receive roughly $178.4 million in state and local incentives for 1,487 promised jobs at a cost of $119,972 per job across all industries. However, their estimate of the average cost per promised aerospace manufacturing job is considerably higher at $214,237. Using a conservative estimate for the Boeing South Carolina incentive package of $800 million, the cost per promised job was slightly lower at $210,526. However, if one looks at total aerospace jobs generated based on my model estimate of 6,000, the cost per job generated was considerably lower ($133,333) than the cost per promised job.Additionally, the Boeing plant likely boosted local job growth for other industries so the benefits to the Charleston metro economy are substantially greater than these state-level aerospace industry results suggest.
I find that the Boeing plant had a substantial local multiplier effect beyond the aerospace industry, such that Boeing employees' spending in the region created jobs and increased wages in the Charleston Metro Area.
I assess the local impact of North Charleston's 787 plant at the metro level using difference-in-differences models with data from the U.S. Census County Business Patterns on employment and wages. The control group consists of metro areas that had twice the concentration of the United States in aerospace product and parts manufacturing in 2010: Chambersburg-Waynesboro, PA; Cincinnati, OH; Columbus, GA; Dallas-Fort Worth-Arlington, TX; Muskegon-Norton Shores, MI; Palm Bay-Melbourne-Titusville, FL; Phoenix-Mesa-Scottsdale, AZ; Rockford, IL; San Diego-Carlsbad, CA; Tulsa, OK; Wichita, KS.
My results from the five-year impact models suggest that overall employment increased 6 percent, and wages rose by 3 percent in the Charleston Metro Area relative to the control group. Using Boeing's 3,800 promised jobs as the denominator, my analysis implies a local employment multiplier effect of 2.6 ([13,700/3,800] −1). This figure is consistent with the other research finding that for each skilled job created in the manufacturing sector, two to three additional jobs are generated in the same city through an increase in the local demand for goods and services. These jobs might include local service jobs such as dentists, hairdressers, teachers to educate the children of Boeing employees, and construction workers to build their homes. However, other coincident economic factors (e.g., increasing tourism to the South Carolina Lowcountry) may have contributed to Greater Charleston's strong overall employment growth compared to controls over the treatment period. Thus, the local multiplier estimate could be biased upward.
South Carolina's recruitment of a Boeing 787 Dreamliner assembly plant to North Charleston in the late 2000s boosted the state's aerospace sector and Charleston's local labor market over the subsequent decade. When analyzing only the aerospace jobs generated by the Boeing plant, the recruitment policy appears to have achieved good value for South Carolina taxpayers compared to similar deals. Furthermore, the plant opening raised local demand, leading to increased employment and wages outside of aerospace but within the Charleston metro economy.
Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.