Former Senior Research Assistant - Hutchins Center on Fiscal & Monetary Policy, The Brookings Institution
Director - The Hutchins Center on Fiscal and Monetary Policy
Senior Fellow - Economic Studies
Opportunity Zones—specific geographic areas in which investors can get favorable tax treatment—were created by the 2017 Tax Cuts and Jobs Act to encourage investment in undercapitalized and distressed communities. What effects has the program had on the job market in the 8,764 census tracts designated as Opportunity Zones (OZ)? Papers presented at the Hutchins Center conference, “Opportunity Zones: The early evidence,” suggest that the program has had at most a modest effect on the labor market outcomes of OZ residents, at least thus far.
To encourage individuals and corporations with unrealized capital gains to invest in property and businesses in designated communities, the OZ incentive allows them to defer and reduce the tax they owe on those gains if they’re invested in a OZ. In addition, any profits on an investment made in an OZ with those gains escape capital gains tax altogether if the investment is held for at least 10 years. Governors chose the zones from a list of eligible tracts provided by the U.S. Treasury.
Using a large dataset of online job postings from Burning Glass Technologies, Rachel M. B. Atkins from NYU Stern School of Business and coauthors evaluate the effects of the OZ program on job vacancies and posted wages. Comparing zip codes with at least one OZ to zip codes with similar characteristics, but without an Opportunity Zone, the authors find no difference in the number of job vacancies from January 2019 to March 2020. However, after the start of the pandemic in March 2020 to September 2020, there were approximately 15% more job vacancies online in zip codes with Opportunity Zones. Zip codes with at least one OZ also experienced a slight increase in posted wages.
In contrast, Alina Arefeva from University of Wisconsin-Madison and coauthors find that the OZ program had a positive effect on job growth. Arefeva and co-authors analyze data at a census tract level, which is how OZs are defined. Using establishment-level employment data for 2015 to 2019 from Your-economy Time Series, a database tracking private and public institutions and their jobs, the authors find that the OZ program increased employment growth by 2.5 percentage points and establishment growth by a bit over 2 percentage points. They find that the effects are concentrated in metropolitan areas; rural areas have seen no impact.
But are there other substantial ways the OZ program has impacted residents beyond employment? Matthew Freedman, Shantanu Khanna, and David Neumark from University of California, Irvine, examine changes in poverty rates in addition to employment and earnings. In their first analysis, using a similar approach to Arefeva et al, they compare employment rates, earnings, and poverty rates in census tracts designated as Opportunity Zones to those eligible but not designated. They find very modest effects; a reduction in poverty rates by 4%, an increase in employment of 1.5%, and very small and insignificant effects on earnings. But upon further examination, the authors find that the differences between designated and non-designated tracts almost entirely reflect trends before OZs were created, suggesting that the OZs have had no effect.
Opportunity Zones were implemented in 2018, and these three papers rely on the limited available data since then. A full evaluation of Opportunity Zones will be possible only with the passage of time and with comprehensive data—not yet available—on which zones got money, how much, and for what purpose. For evidence of the impact OZs are having on property prices, see this post.
For more from the conference “Opportunity Zones: The early evidence,” including video, click here.