Enterprise Zones may increase employment, but they could just be taking it from somewhere else

6th January, 2016

We’ve launched two new reports today looking at the impact of Area Based Initiatives (ABIs). These are programmes that aim to improve economic growth in a specific, well defined, local area or set of areas.

The first report looks at the impact of EU Cohesion policies. As with so many of our other reviews – the evidence is distinctly mixed. Around half of the studies find positive effects on either GDP or employment. The most important messages to emerge from this set of studies actually relate to the way in which we should try to evaluate the impact of such schemes. In particular, these EU studies demonstrate the limits to evaluating multi-strand ABIs at a large regional scale. It is essentially impossible to say anything on the cost-effectiveness of different types of expenditure from overall evaluations. We think that policymakers would be better off designing specific evaluations of each strand of expenditure, rather than attempting only a single overarching evaluation.

The second report looks at the impact of Enterprise Zones (EZs) and other Area Based Initiatives. We can learn more here, and we suspect that these results of more interest given current debates in the UK, so let me spend a little longer pulling out the main findings and lessons.

Overall, the evidence for EZs is pretty mixed. A little over half the reviews find positive impacts on zone employment, on wages or on poverty. The results tend to be more positive for unemployment.

When assessing the impact of Enterprise Zones and other similar area based initiatives, a key consideration is whether the policy has generated new economic activity, or whether increased activity in the zone is the result of displacement from areas outside the designated zone. If displacement occurs, this reduces the impact of the intervention. This may be of particular concern if displacement occurs from nearby areas (for example, from elsewhere within a city region) as this will reduce the overall impact on the local area. The available evidence suggests that decision makers need to take these concerns over displacement seriously. Displacement is not considered in all studies. But the majority of those that do look for it, find evidence of displacement. Unfortunately, we have little evidence on whether net effects at the wider area level are positive, or whether displacement is the main effect of EZ-type schemes.

What does all this mean for the current round of UK EZs? Unfortunately, it’s hard to know because all of the available evidence relates to US Enterprise Zones, US Empowerment Zones, and French Enterprise Zones. As the report makes clear, the conditions imposed on the ABIs for which evaluation evidence is available make these schemes somewhat different from the current incarnation of Enterprise Zones in the UK. More so than any of our other reviews to date, it is important to consider how the evidence presented here on two sets of schemes from two different countries can provide lessons for UK EZ policy. There are reasons to think that some of the findings, for example on displacement, could be generalised. But it’s also important to note that the outcomes of the current set of English EZs may be different from the historical or international experience (not least because compared with past versions of the policy, current policy aims to locate Zones in higher growth cities and city neighbourhoods). If we want to resolve this uncertainly, we must make progress in the evaluation of the UK-style EZs if we are to say with confidence that they are providing good value for money.

Read the findings of our review, and download the reports, here.

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