Film tax credits, jobs, and lost incomes

the-last-picture-show-posterThis morning artsjournal.com links to yet another chapter in the endless series of different states, provinces and countries deciding how much in tax credits ought to be granted to commercial film and television production, because: jobs. I recently posted re Maryland here. Today, Hollywood Reporter, er, reports:

the California Film and Television Job Retention and Promotion Act of 2014 was approved by the state assembly Wednesday by a unanimous vote of 71-0.

The legislation, authored by Assemblymen Mike Gatto (D-Los Angeles) and Raul Bocanegra (D-Pacoima) had more than 60 co-authors.

However, there is still no specific amount of money the state will put up for the new legislation, which would replace the current program that allocates $100 million a year, which has not proven to be enough to stem the flow of production to other states and countries that offer even greater incentives. …

“We can’t sit by and watch a $17 billion dollar a year sector of our economy leave California,” said Bocanegra. “This expanded and improved program will go a long way toward making California more competitive with other states’ programs.”

Between 2004 and 2012, California lost more than 16,000 film- and television-industry jobs, according to the U.S. Department of Labor, resulting in more than $1.5 billion in lost wages and economic activity.

Why this industry deserves tax credits for production and jobs in ways that other industries do not is not made clear. But let me just pick on one particular aspect of the story, from the last paragraph I quote, since it gets to the heart of what is wrong with ‘economic impact’ studies.

Suppose I am a computer technician working in the film industry, earning $100,000 per year. Suppose I then switch jobs, and begin working as a computer technician in the transportation sector, still earning $100,000 per year. The film- and television-industry has lost 1 job. But California has had no loss in wages and economic activity.

I trust the Department of Labor estimate of the decline in employment in the industry from 2004 to 2012. But that does not translate into lost wages and economic activity (and the Dept of Labor would not make that claim – it is coming from partisan analysis). People do other jobs. The fundamental (and it is fundamental) error made in economic impact calculations is the assumption that were it not for the particular spending under analysis, the wages and income would simply be lost from the region.

But it wouldn’t be. People do other things than work in media production. People move between sectors. Numbers in these studies are presented as factual when the truth is they are generated through faulty reasoning.

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Comments

  1. Karen Gahl-Mills says

    Faulty reasoning indeed.
    And don’t get me started on the race to the bottom that these film tax credit wars are creating across the country. More faulty reasoning by all concerned.
    I’d love to see the economic analysis here in Ohio, where the tax credits are relatively young and have created an uptick in film production in our state that is very real. But I’d be willing to bet that any uptick in employment is about folks moving between sectors, not new jobs being created.
    Thanks for the post.

  2. says

    Unburdened by any degrees in economics, may I ask then if there is ever any economic growth at all? I mean, your example of a person moving between sectors is right — no job is lost or created there — but doesn’t the film tax credit create some jobs by ensuring that films are made in a given state? It’s true that it’s some kind of arms-race style spending reminiscent of the wars between states over auto plants in the 1980’s, but if it doesn’t work at all, then does that mean tax credits and other incentives just don’t ever generate jobs? How can policymakers know which incentives work? Or is it more that these incentives work when they are new and then lose their clout over time (as was the case with House of Cards in Maryland)?

    • says

      Thanks MW for the comment. Two points: first, the claims on ‘lost jobs’ do not actually tie activity to tax policy, the quote simply says that there are fewer people working in the film sector. But that does not mean the state has lost income, because it does not report on what jobs people are doing instead. We cannot know whether California has lost income, because we don’t know what has happened to total employment and wages in the state – we are only told about this one sector.

      Second, I think tax credits, for any activity, will generate some jobs in that sector. We can grow jobs in anything if we are willing to provide enough subsidies. But that necessarily means the taxes applied to something else have risen (or that spending has been cut in some sector), so we don’t know about the aggregate effects. Indiana could have an asparagus industry if it wanted to give all sorts of tax incentives for farmers to grow asparagus, but that does not mean that incomes or employment in the state of Indiana as a whole would rise. Indeed, there are many reasons to believe that such a policy would cause aggregate incomes to fall.

      Film jobs are visible, and they have a powerful industry lobby to get the word out, and in turn legislatures pay a lot of attention to it. But ask whether we would give the same sorts of preferences to asparagus production…

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