Do Urban Enterprise Zones Buffer Distressed Areas During Recessions? Evidence from New Jersey

• In Event: Student Research Panel: Housing Markets, Climate Adaptation, and Place-Based Investments

Abstract

Urban Enterprise Zones (UEZs) are a prominent place-based policy tool designed to revitalize distressed communities in New Jersey through fiscal incentives. While a large body of literature has evaluated the average effects of enterprise zone designation, there is a critical knowledge gap regarding their performance as a recession buffer during macroeconomic crises. This study evaluates whether UEZs in New Jersey provided a cushion for local labor markets during the Great Recession. The research investigates whether long-standing UEZ status fostered economic resilience—measured by total employment and payroll—relative to comparable non-UEZ areas during a severe economic downturn. It further explores how this buffering capacity is moderated by local socioeconomic factors, specifically community low-income levels and establishment density. This study uses a ZIP code–level panel dataset for New Jersey covering 2002–2016, constructed by merging data from the U.S. Census Bureau and the IRS. To address the non-random placement of UEZs, this research employs Propensity Score Matching (PSM) to construct a control group that is statistically balanced with the treated areas based on pre-recession characteristics. This is followed by a Difference-in-Differences (DiD) framework utilizing PSM weights to ensure rigorous comparability between groups. To further validate the identification strategy, an event study design is implemented to test the parallel trends assumption, confirming the absence of divergent economic trajectories prior to the recession. Furthermore, the analysis incorporates alternative treatment definitions, including a strict ≥10% land overlap threshold, to ensure the robustness of the findings across varying levels of policy exposure. Results consistently show a null effect. While OLS models suggest some gains, these effects disappear in the more rigorous DiD specifications. The estimated coefficients are small and statistically insignificant across both employment and payroll outcomes. For employment, the estimates are generally positive, while payroll effects tend to be negative, but neither is statistically distinguishable from zero. Extending the analysis to heterogeneous effects yields a similar conclusion. Interactions with establishment density and low-income share do not reveal meaningful differences in policy impact. Overall, the results indicate that the UEZ program did not function as an effective recession buffer. Once the recession hit, tax incentives alone were not sufficient to improve local labor market outcomes. In high-poverty areas, where economic conditions were already weak and demand declined further, the policy had limited impact. As a result, the program appears least effective in the communities it was designed to support.

Authors

• Chengcheng Yue, Rutgers University - Camden
  Presenting Author

• Michael S. Hayes, Rutgers University - Camden
  Non-Presenting Co-Author