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Can Governments Buy Jobs? And If So, How Much Should They Cost?

2 min readBy: William Ahern

The Texas Rangers once famously signed shortstop Alex Rodriguez to a 10-year contract for $250 million—$25 million per year—breaking every baseball salary record. At first there was euphoria in Texas that they would have such a great player, but that didn’t last long. Even though Rodriguez played great ball, he ended up being bad for the team. He just wasn’t worth that much.

State and local governments are now doing something similar. As unemployment rises, they are upping their bids for keeping government workers and retaining or gaining private businesses. At first, everyone cheers when news breaks that an agency has been saved or that a company has moved in locally. But when the contract details are made public, people think twice. Here are two recent examples:

Gov. Tim Kaine of Virginia claims to have saved or created 7,100 state government jobs with $1.5 billion in federal stimulus funds. Even though he had warned of cutting only 500 people before the stimulus passed—a far cry from 7,100—let’s take the 7,100 figure at face value. How much per job is that? More than $200,000 per job. Ouch! And if 500 is a more accurate figure for jobs saved/created, then the per-job price gets really astronomical.

When creating or saving public sector jobs, even the idea of counting salaries paid as benefits is dubious. Aren’t those normally called costs? Is there any public project that would fail a cost-benefit test if salaries are counted as a benefit instead of a cost?

Governments are buying private sector jobs, too. In Iowa, local and state government institutions ponied up $53 million to persuade IBM to locate a facility in Dubuque. A Wisconsin editorialist, who apparently thinks $53 million was a bargain, bemoaned the failure of his own elected officials to pay a higher price, but maybe he didn’t do his arithmetic:

The [new IBM] center will open in stages, with 300 to 400 employees by July, and additional hires in later months. It will reach 1,300 employees by June 2010, …. The cooperation among various players also helped Dubuque present a $53 million financial incentives package to IBM.

Would Wisconsin’s economy have been better off if their officials had paid a higher price than what Iowa paid for the IBM facility? In the first year, when most or all of the subsidies will be spent to benefit the company, 400 jobs may be created. That’s $132,000 per job. And even if you look out into 2010, and the job total actually reaches the projected 1,300, that will still amount to $42,000 per job.