Place-based programs and the geographic dispersion of employment

Government efforts to improve local economic conditions by encouraging private investment in targeted communities could affect the broader geographic distribution of employment in a region, especially to the extent that subsidized businesses face few constraints on whom they hire. This paper examines the labor market impacts of investment subsidized by the U.S. federal government’s New Markets Tax Credit (NMTC) program, which provides tax incentives to promote business investment in low-income neighborhoods. To identify the program’s effects, I exploit a discontinuity in the rule determining the eligibility of census tracts for NMTC-subsidized investment. Using rich administrative data on workers’ residence and workplace locations, I find evidence that many of the new jobs created in areas that receive subsidized investment do not go to residents of targeted neighborhoods. Commute distances to areas that receive investment increase as the share of jobs held by local residents falls. The results suggest that the local economic benefits of place-based programs may be diluted when subsidized businesses have scope to hire from broader regional labor markets, and that place-based programs could exacerbate jobs-housing imbalances and spatial mismatch within cities.