Study: 87% of RI job growth is from local firms

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PROVIDENCE, R.I. (WPRI) – The vast majority of private-sector jobs created in Rhode Island over the last two decades were added by startups or older businesses already in the state, not companies that relocated from another state, according to a new study.

Researchers at the left-leaning Center on Budget and Policy Priorities found that between 1995 and 2013, 87% of gross private-sector job creation in Rhode Island “came from startups, the expansion of employment at existing establishments, and the creation of new in-state locations by businesses already headquartered in the state.”

By contrast, only 10% of new private-sector jobs were created by out-of-state businesses adding an in-state branch, and just 3% were jobs relocated into Rhode Island from another state.

The study used those statistics and related findings to argue that officials in many states are barking up the wrong tree on economic development if they focus on luring companies from other states, and should instead be doing more to nurture homegrown young firms.

“There is a growing consensus among the economists who have studied the new data on the dynamics of job creation about its implications for public policy: policy needs to focus on encouraging entrepreneurship generally, helping new businesses to survive, and enabling businesses with the potential to become high-growth firms to fulfill that potential,” the study’s authors wrote.

The authors suggested policymakers should pay close attention to the recommendations of the Kauffman Foundation, a think tank that focuses on promoting entrepreneurship, in its forthcoming “America’s New Entrepreneurial Growth Agenda” report, which is scheduled to be released Wednesday afternoon.

There is some agreement across the ideological divide on the importance of promoting entrepreneurship to grow the economy. James Pethokoukis, an expert at the right-leaning American Enterprise Institute, has expressed concern about an apparent slowdown in startup activity in recent years and promoted policies such as occupational-licensing reform to combat it.

The findings could impact the debate over Gov. Gina Raimondo’s approach to economic development, which has combined efforts to woo companies from other states – most notably General Electric – with a variety of new incentive programs that can be used by in-state companies, particularly real-estate developers.

The Center on Budget and Policy Priorities’ local affiliate, the Economic Progress Institute, has long been skeptical of state tax breaks for businesses, arguing they are frequently ineffective and costly.

The group recently praised Raimondo for including funding in her proposed 2016-17 budget to study the effectiveness of tax incentives, but also argued her proposal to expand the state’s research-and-development tax credit and make it refundable could be an “unwarranted and unnecessary” use of $5 million.Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesi

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