Economic Development Subsidies Create a Lot of Jobs—Mostly for Lobbyists

State governments often argue that it’s necessary to give subsidies to private companies to encourage economic development. In return, they say, those companies will make investments that create jobs.

“Unfortunately, these claims are largely unfounded,” Russell S. Sobel, professor of economics at The Citadel, wrote in 2024. “There is now a large literature that examines the data and clearly brings into question the effectiveness and accountability of these programs, finding they do not lead to statistically significant improvements in tax revenue, employment, economic growth, or personal income.”

A new study found that economic development subsidies actually do create jobs—specifically, in lobbying.

“Entrepreneurship is a key driver of economic growth, and governments actively promote policies aimed at fostering it,” begins the study, published in the academic journal Small Business Economics. “However, these policies may also incentivize rent seeking by shifting relative economic returns from what is productive to what is not, accomplishing the very opposite of the stated intention.”

The authors—economists Sobel, Gary A. Wagner of the University of Louisiana at Lafayette, and Peter T. Calcagno of the University of Charleston—examined hiring trends of 40,000 lobbying firms across all 50 states between 1997 and 2019, comparing them to the states that awarded large economic development subsidies.

“We find that after a state awards its first ‘extraordinarily large’ business incentive,” the authors wrote, “employment at lobbying firms increases by 3.6%, with gains concentrated in state capital counties where lobbying employment rises 5%.”

The authors defined “extraordinarily large” as “a single subsidy to one firm that is 3500 times larger than their historical median award.” But whether the multiplier was 2,000 or 5,000, they noted, the effects were the same: more jobs for lobbyists, specifically around the state capital. “Very few industries are so highly geographically concentrated as lobbying,” they wrote.

Oddly, this trend only holds true for lobbyists themselves, not their employers. “Importantly, no new lobbying firms emerge; existing firms simply hire more staff,” the authors noted. “This suggests that extraordinarily large incentives shift entrepreneurial effort from productive innovation toward unproductive rent-seeking activities.”

Of course, just because successful lobbying begets more lobbyists, it doesn’t automatically mean the deals don’t also provide positive private sector job growth. But unfortunately, that also happens to be true.

“Although the lobbying industry is a small share of overall economic activity in capital counties,” the authors found, “employment concentration significantly increases after the awarding of the state’s first extraordinarily large incentive”—specifically, by 5.8 percent, even as the number of lobbying firms remains unchanged. “This implies that existing lobbying establishments in the capital counties capture the ‘gains’ in unproductive activity that result from states awarding their first extraordinarily large incentive.”

In other words, not only are there more lobbyists, but their share of total private sector employment increases—and more people becoming lobbyists means fewer people going into more productive work that doesn’t involve soliciting special favors from the government.

This has been the case for a long time: Each year, states spend tens of billions of their taxpayers’ dollars on economic development subsidies, and yet even by the states’ own metrics, they get very little for the money.

It should come as no surprise that central economic planning has counterproductive effects. In his first term, President Donald Trump imposed numerous tariffs, including on steel and aluminum. The stated intent was to protect beleaguered industries from foreign competition, but in practice, the industry that benefited most was lobbying, as firms petitioned the government for tariff exemptions.

In his second term, when Trump imposed double-digit tariffs on nearly every other country, the same thing happened: Lobbying firms saw an economic boom as American companies jockeyed for tariff relief.

“No voter ever asked for a job creation program focused on lobbying firms in and around their state capitol,” writes Maxine Adelson of the American Economic Liberties Project, “but it turns out that’s what they’re receiving instead of programs that focus on local workers, businesses, and their actual needs.”