April 21, 2019
Casino Bill is About Taxes, Not Jobs
The Indiana General Assembly is wrestling with more changes to the state’s gambling legislation. While it is hazardous to write about the content of bills this late in the session, as I put pen to paper the bill would allow a Gary casino to move to Terre Haute and would legalize betting on sports. I do not know much about sports betting. So, I’ll focus on the casino issue. You see, I only bet on youth soccer. The stakes are small, but the betting pool is large. This is how I pay for my expensive hair stylist.
All kidding aside, the casino discussion is difficult for policymakers. Anyone could scan a map of Indiana’s gaming facilities and conclude that Terre Haute is in want of a casino. So, too, is the northeast corner of the state, but with Ohio’s legislature carefully selecting new casino sites, this may be less profitable. I note, without further comment, that government is ghastly at choosing the location of business.
Still, the Casino industry wants a change and there seems little harm in accommodating them, so the legislation advances. What I wish to do in this column is help the General Assembly understand how little is really at stake in this legislation. In the end, it has nothing to do with employment or earnings. It is, wholly from beginning to end, a matter of tax revenue.
Casinos are among the most studied issues in regional economics. The reason is that the location of casinos are nearly a perfect natural experiment in the effect of an external shock to a local economy. As a result, we know very well what is likely to happen to a local economy when a casino opens and closes. The answer is not much.
A casino, or if it is attached to a horse racing track, a racino, are large affairs. They employ hundreds of workers to operate the betting facilities, provide security, maintain the buildings and operate the restaurants. Typically, consultant studies of casinos – paid for by gaming companies or trade groups – list job creation numbers in the hundreds. The dozens of academic studies of the matter come to a far different conclusion.
Studies that use the natural experiment that casino entrance creates, and account for the movement of workers across industries and counties almost wholly report that the net new job creation of a casino is roughly zero. The reason for this should be quite unsurprising. Casino jobs are really just retail, accommodation and amusements sectors of the economy. So, when a casino opens, it typically absorbs local workers from other sectors.
Casinos do not create jobs; they simply move employees from one business to another. In a study published in 2004, and another published in 2014, I found that casinos clobbered employment and incomes in the retail and services sectors. A new casino in a county between 1970 and 2002 cost that county roughly 32 percent of its retail earnings, as spending shifted from local stores and restaurants to the casino. The effects on other local services were smaller, but significant.
This does not mean a casino is an unwelcome addition to a local economy. Workers are not forced to change jobs, they do so willingly because of better wages. Casinos appear to slightly boost incomes in the county in which they are located, and that should be very welcomed. Further, casinos do appear to reduce incomes in adjacent counties as commerce, especially retail, shifts to be close to the casino. But, as I reported in my 2014 paper, this is a very modest effect.
But, the job growth claimed by casino proponents are just not supported by research on the matter. Trust me, if a professor could find such large benefits and have their study survive peer review, they’d enjoy a thriving consulting business. That the research evidence is so wholly contrary to the benefit of the authors suggests it is true.
The real reason everyone is so concerned about the casino issue boils down to tax revenues. Last month’s tax revenues from supplemental and wagering taxes were $67.7 million. Altogether, gaming and gambling taxes are more than a billion dollars annually in state and local tax revenues. So, the best way to think of gambling and gaming is as a heavily taxed recreational activity. Who gets taxed, and whether there are other effects, is worth another column.
The challenge to the General Assembly with gaming is the declining visits to casinos. Even with the addition of land-based casinos in 2007, visitors to all of Indiana’s casinos are half the levels from the early 2000s. This means a much diminished tax base from which to gather a significant share of state tax revenues. So, the issue today isn’t about reallocating casinos to one city or another to create jobs, but how to allow the industry to adapt so it can continue to pay taxes.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
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