Recompete Pilot Program is Critical to U.S. Economic Policy

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April 17, 2024

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In this historically tight labor market, economic development programs must target people and places with low levels of employment. The U.S. Economic Development Administration's Recompete Pilot Program (Recompete) is a $200 million grant program that will provide flexible $20 million to $50 million grants to places with persistently low prime-age (ages 25-54) employment rates. This blog post explains how Recompete aims to raise prime-age employment and renew economic opportunity in communities through three key design principles.

1. Targeting prime-age employment: Economists find that one of the most important indicators of a community's economic outcomes and wellbeing is the percentage of working age adults with a job.[1] However, research shows that new jobs created through economic development investments often go to those already employed in the area or in-migrants, instead of the local non-employed (meaning workers that are either unemployed or have left the labor force). Recompete is one of the only federal place-based programs that is focused specifically on raising prime-age employment and bringing the long-term unemployed back into the workforce.[2]
2. Targeting investments in places with low levels of employment: Many jobs programs are targeted towards individual non-employed workers, not to geographies with high concentrations of unemployment and/or low labor force participation rates. However, there is evidence that investments that target places with low levels of prime-age employment have greater returns than investments in areas with high employment rates.[3] Distressed areas are generally furthest from full employment and therefore hold the highest potential for job gains, which in turn leads to greater benefits for individuals and for the broader community.[4] Moreover, given that American migration to places with job opportunities has decreased over the last few decades[5], investments must be made in distressed areas to ensure economic opportunity extends to places and populations that have previously been left behind.
3. Providing flexible investments that have stronger outcomes than traditional economic development: Recompete investments are more likely to create jobs and raise employment in distressed areas than traditional economic development tax incentives, which focus on attracting employers and currently constitute the majority of economic development investment across the country.[6] Additionally, according to labor economist Tim Bartik, activities that may be supported by Recompete are 2.5 to 15 times more cost effective than traditional business tax incentives.[7]

BACKGROUND

By many measures, the American economy has experienced a robust jobs recovery from COVID-19. At the end of 2023, household employment was 2.5 million jobs higher than its pre-pandemic peak and the prime-age (ages 25-54) employment rate was 80.6%-among the highest rates in recent decades. Yet the strong national economy and rapid recovery has not reached many communities that suffer from high rates of working-age adults that are not employed. For example, in Santa Cruz County, Arizona[8], a majority-Latino county, the rate of employed prime-age adults is 8% lower than the national average. Across the country, long-term joblessness is particularly pervasive in the Deep South, industrial Midwest and East, the Central Plains, and in agricultural and tribal communities in the West. As other parts of the country are taking advantage of the post-pandemic economic surge, these places need additional investments to re-engage workers and the local economy.

Recompete-authorized by the CHIPS and Science Act-has been appropriated $200 million to invest in communities where prime-age employment significantly trails the national average with the goal to close this gap and raise overall per-capita wages through flexible, locally-driven investments. In Summer 2024, EDA plans to award Recompete grants ranging from $20-$50 million in 4 to 8 places. Recompete investments can support a wide range of activities across workforce development, business and entrepreneur development, infrastructure, as well as additional planning, predevelopment, or technical assistance. Recompete permits a wide range of activities to allow applicants to identify individualized, community-driven ideas to address the causes of low prime-age employment and wages.

DISCUSSION

There are three primary reasons why the Recompete program is unique to national economic policy, based on place-based economic literature.

1. Targeting prime-age employment:

Recompete was created to increase prime-age employment in distressed places as economists find that the percentage of working age adults with a job is one of the most important indicators of a community's economic outcomes and wellbeing.[9] While job creation is a priority for most federal programs, none have a specific mandate to invest in areas of low prime-age employment and seek tailored, place-based strategies to increase employment in those areas. When traditional programs create jobs without targeted strategies to employ local non-employed workers, approximately 80% of the jobs created go to workers who are already employed or in-migrants.[10]

While helping existing workers access better jobs is important, there are numerous benefits associated with increasing employment among local, non-employed workers. Communities that have low levels of employment tend to have higher rates of suicide, substance-use disorders, and other negative health outcomes, while communities that have experienced improved employment levels have reported gains in healthcare access and in mental health outcomes.[11] Those who remain out of the labor force often face caregiving responsibilities, limited transportation options, low emotional wellbeing, physical health needs, low levels of education and training, discrimination, and other significant barriers.[12] Beyond the non-employed worker who gains a job, increases in parental income also have long-term impacts on a child's future earnings and educational outcomes, while joblessness has negative effects on local crime and marriage rates.[13] Programs like Recompete can expect to meaningfully increase prime-age employment rates by tailoring investments to address systemic barriers to employment and the unique conditions in a local economy.

2. Targeting investments in places with low levels of employment:

Recompete is "place-based," with eligibility criteria that only allows places to apply if their prime-age employment rates significantly trail the national average. Non-employment among prime-age men has nearly tripled over the last fifty years and that non-employment is particularly concentrated in specific parts of the country.[14] There is strong evidence indicating that raising employment rates in places that are distressed is more impactful than in places that are already prosperous. According to labor economist Tim Bartik, a jobs boost in a high unemployment area will have a significantly greater impact on employment and earnings than a similar jobs boost in a low-unemployment area. This is because jobs created in low employment areas-especially those with accompanying interventions targeted at the non-employed-are far more likely to go to non-employed individuals rather than someone with an existing job (based on the simple fact that there are far more non-employed people in these areas). Moreover, he shows that there are greater societal benefits to job growth in distressed places, such as crime reduction and improved outcomes for children.[15]

Moreover, targeting investments to distressed places is essential to economic growth across the country-not just in a few superstar areas. One reason for this is Americans are no longer moving to economic opportunities at the rates they had in the past. Despite work by Raj Chetty and others that document the positive impact of moving to more prosperous locations, the rate of internal U.S. migration has been declining for decades.[16] This means the natural economic process that drove regional equality in the past is less reliable. Previously, workers moving to high wage areas for better jobs eventually pushed wages down in those areas and caused wage increases in other regions of the country. This dynamic drove the convergence of regional economies and greater place-based equality between World War II and the 1980s. As workers move less, we need more geographically targeted investments to support places with low employment. For all these reasons, U.S. economic policy needs to have a targeted investment strategy for highly distressed places with high concentrations of unemployed. Recompete is a prime example of how to do so.

3. Providing flexible investments that have stronger outcomes than traditional economic development:

Having established the importance of raising employment rates and the substantial impact of focusing such efforts on places with low levels of employment, the question that arises is: How? How can such communities raise employment rates?

Recompete's theory of change is that there is no one-size-fits-all approach to raising employment rates. Rather, Recompete provides flexible funding that allows communities to propose interventions ranging from infrastructure to job training to Revolving Loan Funds. Additionally, Recompete emphasizes community engagement and equitable design to ensure investments meet the needs of historically underserved populations and are sustainable through community-buy in and participation. Aligned with this commitment to equity, Recompete does not have funding match requirements and has allowed investments in areas that go beyond EDA's normal scope, including childcare and other social services. The wide range of wraparound service activities that Recompete allows exceeds what is provided by other federal jobs programs like WIOA.[17]

While Recompete provides flexible funding, it does not allow funds to be used towards tax incentives for business relocation-a common approach to job creation in economic development. Research shows that these tax incentives often fail to have a substantial impact in distressed places. For example, recent evidence on the Opportunity Zones initiative shows that the tax breaks had little to no impact on job creation in distressed places, instead providing most benefits to investors and high-income places.[18] Even when tax incentives are successful in creating jobs in distressed places, they are not cost-effective. As documented by Bartik, such incentives have a cost of approximately $196,000 per job, compared to estimates that range from $13,000 to $77,000 per job for the types of investments allowed by Recompete. Thus, not only is the Recompete approach likely more effective at creating jobs and raising employment, but it is also 2 to 15 times more cost effective than traditional employer incentives.[19]

CONCLUSION

The Recompete Pilot Program stands to reverse decades of disinvestment and unlock the economic potential of distressed places across the country. The three design principles highlighted in this blog post can inform future economic development policy design. By raising employment in distressed places through flexible, place-based grants, economic development practitioners can expect a greater return on investment than race-to-the-bottom tax incentives and a higher likelihood of success in getting good jobs to people who have been left out for far too long.

[1] See Austin, Glaeser, Summers [2018] and Krueger [2017].

[2] See Benzow [2023] which documents that Recompete's use of the prime-age employment gap to determine eligibility as "a new measure in federal place-based policy."

[3] See Austin, Glaeser, Summers [2018].

[4] Research finds that areas with concentrated unemployment have negative societal outcomes beyond the direct impact of the lack of jobs for those un-employed. These negative community-level outcomes range from future childhood earnings, health, suicide and crime rates. SeeBarr, Eggleston, and Smith [2022], Antonisse and Garfield [2018], and Blizard and Sheetz [2023].

[5] See Olney and Thompson [2024].

[6] For example, Bartik [Fall 2020] estimates that over $50 billion is spent each year on business attraction incentives.

[7] See Bartik [Fall 2020] estimates the present-value cost per job created for tax incentives is $196,000 per job as opposed to $13,000 to $77,000 per job for other interventions such as customized job training and manufacturing extension services.

[8] Santa Cruz County, Arizona is one of Recompete's 22 Finalists, announced in December 2023. See https://www.eda.gov/news/press-release/2023/12/20/biden-harris-administration-announces-22-recompete-pilot-program.

[9] See Austin, Glaeser, Summers [2018] and Krueger [2017].

[10] See Bartik [2022].

[11] See Nordt [2015], Nolte-Troha, et al. [2023], Antonisse and Garfield [2018], and Silver, Li, and Quay [2021].

[12] See Puri and Malde [2024], Council of Economic Advisors [2016], and DePillis, Smialek, and Caselman [2022].

[13] See Barr, Eggleston, and Smith [2022], Dollar, Donnelly, and Parker [2019], and Autor, Dorn, and Hanson [2019].

[14] See Austin, Glaeser, Summers [2018].

[15] See Bartik [Summer 2020].

[16] See Olney and Thompson [2024].

[17] See Durham et al. [2019]: "WIOA allows for formula funding to be used to provide supportive services, including child care and transportation assistance, although-because funding is limited-WIOA is unlikely to support direct payment of child care needs for customers."

[18] See Kennedy and Wheeler [2022].

[19] See Bartik [2022].