Texas and Employment
Taking an initial look into the Texas economy.
“We are home to fewer than one in 10 Americans … but four in 10 new American jobs are in our state,” he told a conference of state legislators from around the nation this week.
And, indeed, as CNN Money notes (also the source for the above):
Texas has gained more than 1 million net new jobs in the decade Perry has led the state. And it’s been going strong since the recession ended.
Now, as a Texan by birth, I have a substantial helping of that thing that Texans consider a modest and realistic pride in the land of the Lone Star (but that others in the country seem to regard simply as annoying—go and figure), so I am wired to like the idea of a “Texas Miracle” i.e., the idea that Texas has discovered the cure for our economic woes. However, I am also keen on evidence and such and not just grandiose claims.
If we look, for example, at the unemployment rates in the country as of June 2011 (via the Bureau of Labor Statistics) we find that, in fact, Texas’ unemployment rate, while better than the country as a whole, is smack in the middle of the pack. Specifically, Texas was 26th out of 51 units (the measure includes DC) with an unemployment rate of 8.2%. The national rate as of June was 9.2%. At a minimum, the job creation number has to be discussed in the context of the overall unemployment rate.
Let’s consider some of the states that have better unemployment rates (ranks in parentheses):
Vermont 5.5% (6)
Massachusetts 7.6% (18t)
Pennsylvania 7.6% (18t)
New York 8.0% (23)
I pick these states because they clearly are ones that would hardly fit a Perry model, and these numbers do suggest a more complex situation, than the one that Perry is suggesting, yes? How can high tax, high regulation states like NY and MA have lower unemployment rates than low tax, low regulation Texas? This is a legitimate question because the current policy arguments being made by the GOP are based in the notion that low tax/low regulation is what we need to be doing to create jobs (and not to mention that MA has that universal health care thing going that I thought was supposed to be a jobs killer…).
Back to the CNN Money piece, there are serious issues in Texas that have to be taken into account when evaluating the overall economic story. To wit:
Texas leads the nation in minimum-wage jobs, and many positions don’t offer health benefits. Also, steep budget cuts are expected to result in the loss of more than 100,000 jobs.
Many of the positions that have been created are on the lower end of the pay scale. Some 550,000 workers last year were paid at or below the federal minimum wage of $7.25, more than double the number making those wages in 2008, according to the Bureau of Labor Statistics.
That’s 9.5% of Texas’ hourly workforce, which gives it the highest percentage of minimum-wage hourly workers in the nation — a dubious title it shares with Mississippi.
There is also the fact that roughly 100,000 teacher have lost, or about to lose their jobs due to state budget cuts.
Also, in terms of policies that can be translated from Texas to the nation as a whole (which is what Perry is going to claim he can do), we have niggling problems like:
Rich in natural resources, the state has been benefiting from the high price of oil and the expanded interest in natural gas exploration. Energy employment has soared by 16.8% over the past year alone.
Another thing that has to be taken into account, is that a lot of the job growth has come from luring businesses from other states to Texas, which has lower taxes and is less regulated than many other states. All well and good, but that means that rather than having a secret formula to actually create new jobs, Texas has found a way to siphon new jobs from other states. This is not a policy that can be transferred to the national level. As Paul Krugman noted over the weekend “every state can’t lure jobs away from every other state.” As such, even if Perry can take all the credit for what has happened in Texas, it does not provide a model for a national jobs policy.
One area that has been a clear positive for Texas has been that the state did not suffer as much from the bursting housing bubble as did most of the country. WaPo (h/t: Krugman) had a piece on this in April of 2010 (How Texas escaped the real estate crisis):
Texas’s 3.1 million mortgage borrowers are a breed of their own among big states with big cities. Fewer than 6 percent of them are in or near foreclosure, according to the Mortgage Bankers Association; the national average is nearly 10 percent. The land in Texas might look an awful lot like its Sun Belt sisters Arizona (with 13 percent of its borrowers in foreclosure) or Nevada (19 percent) — flat and generous in letting real estate developers sprawl where they will. Texas was even the home base of two of the nation’s biggest bubble-era homebuilders, Centex and D.R. Horton.
Texan subprime borrowers do especially well compared with their counterparts elsewhere. The foreclosure rate among subprime borrowers in Texas, at less than 19 percent, is the lowest of any state except Alaska.
One reason for this, according to the piece, is that Texas avoided the massive run-up in housing prices seen in places like Arizona and Nevada. Another reason is, actually, regulations (yes, regulations) that affected the ability of Texans to take out home equity loans, which made it more difficult for Texans to take so much cash out of their homes that they ended up underwater once the market collapsed:
A cash-out refinance is a mortgage taken out for a higher balance than the one on an existing loan, net of fees. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans cannot total more than 80 percent of a home’s appraised value. There’s a 12-day cooling-off period after an application, during which the borrower can pull out. And when a borrower refinances a mortgage, it’s illegal to get even a dollar back. Texas really means it: All these protections, and more, are in the state constitution. The Texas restrictions on mortgage borrowing date from the first days of statehood in 1845, when the constitution banned home loans.
A borrower [in Texas] can secure a home-equity line of credit from a bank. And she can refinance her mortgage or take out a home-equity loan. But the total amount of debt on a home cannot exceed 80 percent of its appraised value, and any proceeds cannot be used to pay off other debts.
States like Florida and California, which had a huge run-up in real estate prices also had a lot of such cash-out refis. Also, the bolded part is quite interesting, insofar as such a stricture means that Texans with debt problems could not use their homes to pay of other debts, and therefore the incentive structure would be different for indebted Texans than it was for indebted Californians or Floridians or whomever.
And while I certainly understand a politician claiming credit for something that s/he did not do, it is worth nothing that the lack of a housing collapse helped Texas quite a bit over the last several years and it is ironic (to put it mildly) that government regulation was part of the reason.