General Motors announced on Friday that it keep it's 5000 workers at the GM Renaissance center in down town Detroit. The company had been considering moving it's workers out to the surrounding area for some time but ultimately decided against it. Far from being a decision to benefit the city, the decision was all business. The move would have cost tens of millions of dollars. Apart from that the city and state governments offered huge incentive packages to the company to stay where it was. Last year the state approved $50 million dollars in incentives for GM to keep just 2000 workers. Detroit Mayor Dave Bing worked hard to negotiate with GM officials and was very pleased with the new decision.
The "decision by GM is great news for the city of Detroit," Mayor Dave Bing said in a statement. "Retaining jobs is a top priority of my administration, and I appreciate their commitment to the city."
Bing, along with Detroit's Down Town Development Authority have somewhat agreed to provide $21 million dollars over seven years to keep GM jobs in Detroit. While the article did not say what type of incentives I have to imagine that they are mostly tax breaks. This story illustrates one of the fundamental principles of economics, people respond to incentives. GM could hardly have turned down all the incentives in received and will receive to stay. However we also learned that incentives skew the market. Where will the government get all that money to give as incentives? I would hope that someone in the city government calculated the amount of money that GM would bring into the city, and to it's residents, and then calculated how much it could afford to give to GM in incentives to still come out ahead. That seems like a good job for an economist. Do you think that these incentives are beneficial or should the invisible hand be allowed to do it's work?
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I think in case like this, incentives are a necessity. Based on what is happening now, I would assume that the there is a market failure. I believe there is a market failure because it creates inefficiency. Inefficiency because when we analyse the production possibilities frontier, it says that when all the inputs of production including the labor force isn't used up, then it results in inefficiency. With this in mind, GM's production would be inefficient because its not making use of all the skilled and available labor force. Consequently, it will not produce as much as it possible can (inefficiency resulting from market failure). The govt steps in to try and alleviate this problem by giving incentives.
ReplyDeleteI agree that incentives are good in this case. But that is a lot of money that the government is giving to GM Motors. I really hope that they accurately calculated their opportunity cost. Who gets the most benefit: the government, citizens or GM? Am not sure.
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ReplyDeleteWhile it's important job-wise that GM stays in Detroit, I also would like to know where the money for the incentives is coming from. Getting GM to stay in the city could be taking money away from the citizens and the city of Detroit, which is just as bad.
ReplyDeleteI think this is a great use of incentives since it will keep jobs in the city, but I agree that the government should be concerned as to where all this money is coming from. I would also be interested to know if there were any other incentives included in the package besides tax breaks. After the bail out, Detroit auto company execs need to learn to cut back just like everyone else. I would hate to see city officials treating them like kings just to keep their business in the Detroit at a time when everyone is struggling. But I guess you do what you have to.
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It seems to me like the best thing for Detroit to do to bring in more businesses would be to drastically reduce the cost of their doing business in Detroit by reducing the taxes that businesses have to pay. As there are far too few businesses in Detroit now, the benefits of potentially attracting new businesses and retaining old businesses(higher employment in a city that's name is synonymous with joblessness) should outweigh the downsides of lower tax revenues (especially considering more employed people means more people paying taxes and less collecting welfare benefits). Any benefits that more businesses bring should in turn be devoted to reforming the Detroit education system, as a more educated workforce would make Detroit an even more attractive place to do business, particularly to the type of company that would make Detroit less dependent on the auto industry.
ReplyDeleteIn my opinion giving GM will certainly provide jobs for the Detroit area but the incentives will most likely be provided by the same workers. We also have to analyze the total opportunity cost because it will be worthless if Detroit’s Down Town Development Authority invested in GM and at the end it would of have been better if it would have invested in something else. We also have to consider new business for Detroit in order to improve the way the city is seen today; it can’t only be a place for automakers but also focus on other specialties. (A.E)
ReplyDeleteI think that it is important to give companies the incentive to stay in Michigan. Right now many companies see it as a risky place to do business and there needs to be a little push to get people engaged in the area. I agree though with Dulce that perhaps a car company is not exactly the type of business we should be pouring as much of our tax dollars into fighting to keep in the city of Detroit. Of course it is important to keep a company as important as GM in Detroit, but it is most likely that over the span of our lifetime, the company will either have to totally revitalize their image to compete for changing tastes of consumer behavior, or that GM cease to be a big company in our country. I wonder how much Americans thought about the fact that we are pouring our tax money into the big automotive industry. Would people still keep on buying imported cars then if they realized more that their money is invested through the taxes in GM?
ReplyDelete(A) Keeping jobs in Detroit feels more important to me than anything else. It's awful how much unemployment exists in this country.
ReplyDeleteI agree with everyone above. I think that it is very important to keep these jobs in Detroit. I feel like it's a way for Detroit to hold on to what they have left of the auto industry legacy. If these jobs were to move away, Detroit would practically lose the small amount of auto pride it has left. Therefore, I also think the incentives are necessary and good for keeping these jobs in the city where they belong. A
ReplyDeleteI believe that this is a good idea to maintain jobs in the city of Detroit. I say this because, if they were to move out of the city, what would Detroit have left? The only thing the city has to hold on to is the auto industry. Without these jobs, I'm not sure what else Detroit would have that could help bring its way out of debt. So I do believe that these incentives are necessary, because the city needs to hold on to the auto industry if it wants to get out of the mess it is in, because not too many other things are bringing money into the city. (A)
ReplyDeleteKeeping jobs in Detroit is a great thing. If the jobs were to have been moved it would've had a great effect on the city. The restaurants were the workers eat would be losing some of their customer base for example. Also the Ren Cen is a Detroit staple. It's up there with Cobo, the Fox and all the sports stadiums. This is a great way to keep Detroit's legacy of being on the forefront of the automotive industry. E
ReplyDeleteThis would be a final blow to Detroit if GM were to move the Ren Cen. Detroits legacy, as Nick said, depends upon something resembling what Michigan once was. This would also effect the local economy in the surrounding areas as well because these people would working there would no longer visit the local businesses surrounding it which make up for what I imagine as a sizeable income. A E
ReplyDeleteI have to admit that these incentives are very beneficially, if those economists did the calculation right. From the government's perspective, in another word, for the city's and residents' benefit, instead of letting GM leave, increasing unemployment, decreasing GDP and creating tons of side effects(e.g the consumption level will be lowered), giving out a proper amount of money to maintain the company here will eventually worth it by keeping people work and create wealth. From GM's perspective, the incentives are obviously beneficial. First, no spendings on building new factories, moving machines, recruiting workers and etc are needed; second, easy money from these sources can help GM keep running without much risk and eventually may recover from the crisis.
ReplyDeleteIf just let the invisible hands to do the work, it won't be efficient at all because GM has to move out initially and might takes many years to recover and get back; workers lost jobs in Detroit also need a long time to find other jobs.