Understanding the Employment Effects of Opportunity Zones

• In Event: Place-Based and Housing Supply Policy: Market and Health Impacts

Abstract

Opportunity Zones (OZs) were created in the Tax Cuts and Jobs Act of 2017 and became effective in 2018. Under the auspices of the OZ program, 8,764 census tracts in the United States offer investors substantial tax advantages in the form of capital gains tax reductions or eliminations for investments in the zones. Estimates suggest that tax expenditures on the OZ program are on the order of $8.2 billion for 2020-2024 and likely to grow going forward. Thus, not only are OZs one of the newest place-based policies in the United States, but their scale far surpasses that of prior comparable policies.

Early research found no evidence of impacts of the program on employment, earnings, or poverty of zone residents, but some evidence of positive effects on employment among businesses in zones. A critical limitation of this earlier research, however, was just that – it was early. Early research also tended to focus on only a single dimension of the program's effects on employment – for example, its effects on job creation by businesses, or its effects on employment among zone residents – with little attempt to reconcile what are sometimes ostensibly conflicting findings. In this paper, we provide longer-term and more comprehensive evidence on the effects of OZs on local employment.

We take advantage of multiple data sources, including both survey-based data (the American Community Survey, or ACS) and administrative data (the LEHD Origin-Destination Employment Statistics, or LODES). The LODES are derived from state unemployment insurance tax records and thus cover the near universe of workers in the United States, permitting year-by-year analysis at the census tract level through 2023. Our main sample includes 6,866 designated OZ tracts and 20,522 non-designated low-income community tracts.

Using inverse probability weighting (IPW) methods that leverage institutional rules for tract eligibility, we adopt a longer-run and more comprehensive perspective on the labor market impacts of OZs. We examine effects on both workplace and resident employment, spillovers on neighboring communities, and changes in the demographic composition of targeted areas.

We find that OZ designation increases job creation among businesses within zones. However, a large share of the newly created jobs in zones is offset by declines in nearby low-income communities. While we detect gains in OZ resident employment over the longer run, the increase comes from jobs with workplaces outside of OZs that, in light of the changing demographic composition of zones, are likely held by new as opposed to existing residents. We also find that the positive effects of OZ designation in terms of both workplace and resident employment growth are stronger for urban tracts than for rural tracts.

Overall, our results suggest that OZs have limited benefits for existing residents of targeted areas and are associated mainly with a spatial reallocation of jobs and households. Our results provide important insights into the effects of the OZ program, and more broadly speak to the efficacy of such programs in improving economic opportunities in disadvantaged communities.

This submission is NBER Working Paper 34589 (http://www.nber.org/papers/w34589).

Author

• Noah A Kouchekinia, University of California Irvine
  Presenting Author