Targeted Business Incentives and Local Labor Markets: A Practical Guide

Why this topic matters (and why most people explain it wrong)

When people hear “business incentives,” they usually picture one thing: a government cutting a deal with a big company and hoping jobs will follow.

But the real story is bigger—and honestly more personal—because incentives don’t land on a spreadsheet. They land in a local labor market: the place where people actually look for work, commute, compete for wages, and decide whether staying put is worth it.

That’s why targeted business incentives and local labor markets go together. If you don’t understand the local labor market, you can’t design an incentive that creates real opportunity (instead of just moving activity around).

What a “local labor market” really is

A local labor market isn’t a city boundary on a map. It’s the “job-shopping zone” where:

Employers pull workers from nearby neighborhoods and towns
Workers compare pay across multiple employers
Wages, hiring, and job switching ripple through the whole area

Researchers often describe local labor markets as areas with lots of commuting overlap—so a hiring surge in one part is felt across the region.

Real-life example

If a warehouse opens on the edge of town, the hiring impact won’t stay “inside the warehouse neighborhood.” It will:

pull workers from nearby retail and delivery jobs
nudge wages up for some roles (or not, depending on how tight hiring already is)
increase commuting pressure and traffic
sometimes increase rents near the new job nodes

So when we discuss targeted business incentives and local labor markets, we’re really talking about how a policy changes job demand, wages, mobility, and even housing pressure inside that commuting-based zone.

What “targeted business incentives” should mean (but often doesn’t)

A targeted incentive is not just “a discount” for any company that asks.

A real targeted incentive answers three questions clearly:

Targeted where? (Which places actually need jobs?)
Targeted to whom? (Which workers are supposed to benefit?)
Targeted for what outcome? (Jobs, wages, training, long-term employment, etc.)

When incentives aren’t targeted, they often drift toward places that are already doing fine—because those places are more “deal-ready” and have more negotiating capacity.

That’s why targeted business incentives and local labor markets isn’t a fancy phrase. It’s a warning label: If you don’t target the incentive to the right labor market conditions, you’ll pay a lot and get little.

Why so many incentive programs disappoint

Let me break this down the way I’d explain it to a friend.

1) The “they would’ve done it anyway” problem (deadweight loss)

Many incentives go to firms that would have opened, expanded, or hired anyway. That’s why some researchers describe big incentive trends as financially unsustainable.

2) The “job gains don’t go to local non-employed people” problem

Even when new jobs appear, a large share often goes to people moving in—not to people who were out of work locally.

One estimate often cited is that in a typical local labor market, only about one-fifth of created jobs increase employment among the previously nonemployed, while the rest show up as in-migration.

So if your goal is helping residents who are struggling, the “jobs created” headline can be misleading.

3) The “it just moved across town” problem (relocation/displacement)

Older enterprise zone-style programs repeatedly show this risk: activity relocates from nearby areas instead of being truly new.

A long review of enterprise zone experiences describes firms relocating from nearby counties and concludes that many programs are not cost-effective at generating new jobs for residents.

4) The “housing eats the benefit” problem

Place-based policies can raise local home values—meaning part of the benefit gets capitalized into housing costs.

That’s not theory only. Evidence tied to targeted zone designations shows increases in home values alongside employment effects.

5) The “weak compliance” problem

Even well-meant incentives can be gamed if requirements are fuzzy, self-reported, or easy to manipulate.

That’s why some policy research pushes for designs that connect benefits to measurable worker outcomes (like wage growth), and warns about “gaming” via timing tricks unless rules are tight.

What the research is quietly saying: targeting works best in distressed places

Here’s one of the biggest “missing pieces” in typical blog explanations:

Where you place incentives matters as much as how big they are.

Research highlights from recent work argue that job creation in distressed places produces much stronger boosts to local employment rates than job creation in average or booming places—and that those gains can persist for years.

And there’s a cost side too: estimates comparing approaches suggest traditional tax incentives can be extremely expensive per induced job, while more practical supports (infrastructure, services, training) can be far cheaper per job.

So the practical takeaway for targeted business incentives and local labor markets is:

If you want maximum impact per dollar, target distressed labor markets and use tools that actually remove business bottlenecks and worker barriers.

The incentive toolbox (ranked the way I’d choose it)

A lot of incentive talk is stuck on “tax breaks.” That’s only one tool—and often not the best one.

Tool A: “Noncash” incentives (often underrated)

These include:

customized training pipelines
business advisory services (export help, tech adoption support, process improvement)
faster permitting / coordinated approvals
site readiness (utilities, road access, buildable land)
targeted infrastructure improvements that unlock multiple projects

One major reform argument is to shift emphasis from expensive cash deals toward customized business services, which can cost far less per job created.

Tool B: Performance-based grants (useful if structured tight)

If cash is on the table, I like it tied to milestones:

money released only after verified hires
money released only after wage thresholds are met
staged payments over time (so retention matters)

Tool C: Tax credits (fine—if they’re specific and measurable)

Broad tax incentives often show marginal impacts on employment overall, with some evidence that only certain credits (like R&D-style credits) show clearer positive relationships in some studies.

So if tax credits are used, better to aim them at the bottleneck you’re trying to change (training completion, wage growth, hard-to-fill roles), not just “existence of a company.”

The part most people forget: job access services

If you remember only one section from this article, make it this.

Even when jobs are created in a distressed area, residents might still miss out because of:

lack of reliable transport
childcare gaps
poor job matching
low credential portability
no support during the first 60–90 days (when many new hires drop off)

That’s why some reform proposals explicitly recommend pairing job creation spending with job access supports—transport help, childcare supports, training, and retention coaching.

This is where targeted business incentives and local labor markets becomes “real life.” Because the difference between “new jobs exist” and “local families benefit” is often one practical barrier.

A simple framework that keeps you honest: the 5-Target Deal Scorecard

When I’m evaluating an incentive design, I run it through this checklist:

1) Targeted place

Is the incentive focused on labor markets with persistently low employment rates (not just “cheap land”)?

2) Targeted industry / project type

Does the project have strong spillovers (supplier jobs, local spending, durable demand), or is it likely to be footloose and temporary?

3) Targeted workers

Are there built-in mechanisms so local unemployed/underemployed residents actually get access to the jobs (training + placement + retention support)?

4) Targeted outcomes

Are you measuring what matters (wages, stable employment, retention), not just ribbon-cutting job counts?

5) Targeted enforcement

Is compliance verifiable and hard to game? (Clear definitions, independent verification, consequences.)

This scorecard alone will make your targeted business incentives and local labor markets strategy stronger than most “standard” deal playbooks.

Two detailed examples (the way this looks on the ground)

Example 1: A logistics facility with lots of hiring—but low wage pressure

Situation: A large employer wants support to open a facility. The labor market has low employment rates, but wages are also low and turnover is high.

Bad incentive: A big tax break based only on “jobs promised.”

Smarter approach:

Use a performance grant tied to verified hires and retention at 6 and 12 months
Add a wage ladder requirement (even modest steps help)
Fund a short training-to-hire pipeline with a local training partner
Add job access supports: transport vouchers, childcare bridge for first 90 days, retention coach

Why? Because job counts alone often don’t translate into resident benefit, and targeting the unemployed takes extra design effort.

Example 2: A targeted zone designation that raises home values

Situation: A targeted area gets special incentives. Employment improves modestly, especially in lower-paying industries, but property values also rise.

What this tells you: some benefits can be captured through housing markets, and you should plan for that.

Smarter approach:

Pair the incentive with housing affordability protections or supply expansion
Make resident benefit explicit through training + placement
Track resident employment outcomes, not just business counts

Evidence from targeted designation research shows exactly this combination: modest resident employment effects and rising home values.

A “deal terms” checklist you can actually use

Before approving any package, I’d want clear answers to these:

What problem are we solving—jobs, wages, inclusion, productivity, or all four?
How many jobs are truly “new” vs relocated from nearby areas?
What share of hires are expected to come from local nonemployed residents?
What wage floor applies, and does it rise over time?
Are benefits tied to wage growth or quality metrics (not just headcount)?
What are the milestones and payment schedule?
What is the clawback formula if goals aren’t met?
Who verifies outcomes (independent audit vs self-report)?
What’s the plan for training, placement, and retention?
What is the estimated cost per net new job created (not promised)?
Will this deal reduce funding for core public services?
What housing or transport pressures might follow job growth?
Are small local suppliers included in the upside?
What happens after incentives expire—does the project stick?
When will we publish results (transparency timeline)?

If you build incentives this way, targeted business incentives and local labor markets stops being a slogan and becomes an accountable system.

Where to place images (exact headings + location)

After “What a ‘local labor market’ really is (in normal words)”
- Image idea: simple map graphic showing a commuting zone / “where workers actually come from”
After “The incentive toolbox (ranked the way I’d choose it)”
- Image idea: “Incentive Toolbox” infographic (Tax breaks vs training vs infrastructure vs services)
After “The part most people forget: job access services”
- Image idea: barrier-to-work checklist visual (transport, childcare, credentials, retention support)
Before “A ‘deal terms’ checklist you can actually use”
- Image idea: one-page scorecard screenshot-style graphic (“5-Target Deal Scorecard”)

Frequently Asked Questions (FAQ)

1) What are targeted business incentives and local labor markets?

It’s the strategy of designing business incentives around how hiring, wages, and commuting actually work in a specific job market—so the benefits reach the workers and neighborhoods you intend.

2) Do targeted incentives create jobs or just move them?

Both can happen. Some evidence shows enterprise zone-style incentives can be ineffective at creating net new employment in some settings, while other targeted designs show modest resident employment gains. That’s why design and evaluation matter.

3) Why do incentives sometimes raise housing costs?

Because some benefits get capitalized into property values—especially if job growth increases demand for nearby housing.

4) What’s better than big tax breaks?

Often: customized business services, training pipelines, and infrastructure/site readiness—especially when targeted to distressed places.

5) How do you make sure local residents get hired?

You pair job creation tools with job access supports (training + placement + transport/childcare support + retention coaching) and verify outcomes.

6) What should incentives be tied to besides job counts?

Wage growth, retention, job quality, and verified resident outcomes—because job counts can be misleading on their own.

7) Are “megadeals” ever worth it?

They can be, but the bar should be high: high-multiplier industry, distressed place targeting, and funding that doesn’t undercut core public services.

8) What’s the fastest way to improve incentive policy?

Publish results, compare assisted vs unassisted outcomes, and shift spending toward targeted, lower-cost-per-job tools.

External resources

https://www.upjohn.org/reimagining-business-incentives-do-more-less
https://www.upjohn.org/research-highlights/smart-targeting-jobs-distressed-places-offers-cost-effective-lasting-effects
https://www.brookings.edu/articles/most-business-incentives-dont-work-heres-how-to-fix-them/
https://equitablegrowth.org/targeting-business-tax-incentives-to-realize-u-s-wage-growth/
https://eig.org/wp-content/uploads/2024/07/TAWP-Bartik.pdf
https://www.dallasfed.org/-/media/documents/research/papers/2016/wp1602.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2258727
https://appam.confex.com/appam/2012/webprogram/Paper2375.html
https://www.huduser.gov/periodicals/cityscpe/vol1num1/ch10.pdf
https://www.e-jps.org/download/download_pdf?pid=jps-37-4-39
https://www.sciencedirect.com/science/article/abs/pii/S0166046200000429