2. Finishing up City Development

3. Figures 4-7, 4-8 Labor costs may vary across areas. We can perform the same exercise with labor costs and transport costs that we did with resources, earlier. This is important, because wages may vary within a metropolitan area. Let’s review (Excel file).

4. Saturn Plant They could locate anywhere. Why’d they locate in Spring Hill TN? Bartik et al looked at –transport costs –labor costs for local suppliers –state and local taxes (before subsidy) –total costs

5. Estimated Cost ($/car) Transport 426 423 419 417 430 413 427 State, Loc Tx 118 106 134 162 116 168 169 Local Labor 159 186 172 202 244 209 219 Total 703 715 725 781 790 815 City Nashville, TN Lexington, KY St. Louis, MO B’ton, IL Kalamazoo, MI Terre H, IN Marysville, OH

6. Effects of Taxes and Public Services Do property taxes and public services make a difference. Example: –Business wants to open. Has its choice between City D, with high property taxes, and –City E, with low property taxes. Do these taxes make a difference?

7. Effects of Taxes and Public Services Solid evidence that, all else equal, local taxes have strong negative effects on local business growth. Why? What does the all else equal mean? A> It depends what the people who levy the taxes are doing with the money they raise.

8. Elasticities Remember elasticity!  Responsiveness! Elasticity of y with respect to x means that a 1% increase in x may increase y by 0.1%, 1.0%, or 10%. How do we calculate it? E xy = (%  y)/(%  x) E xy = (  y/y)/(  x/x)

9. Elasticities Remember elasticity! Suppose there is a local sales tax of 1%. Suppose that you raise it to 1.5%. What was the percentage increase? Ans>  t/t = (1.5 - 1)/1.25. Why 1.25? Ans>Mid-point! So,  t/t = (.5/1.25) = 0.4 or 40%.

10. Elasticities Elasticity of intermetropolitan business activity (A) with respect to local tax [(  A/A)/ (  t/t)] varies between -0.1, and -0.6. Elasticity of intrametropolitan business activity with respect to local tax varies between -1.0, and -3.0. Why are they so different?

11. Elasticities What about simultaneous increases in taxes and in public expenditures? A> It depends! How are they spending the money?

12. Impact of Wages and Unions Bartik finds a wage elasticity of -1.0 to -2.0. What does this mean? Unions typically raise wages. Unions may often increase labor productivity. What does the joint effect suggest?

13. For next time, Move on to Ch. 5.