10th, TheLoneStarJobsSurge
June 2011
Wall Street Journal
Richard Fisher, the president of the Federal Reserve Bank of Dallas, dropped by our offices this
week and relayed a remarkable fact: Some 37% of all net new American jobs since the recovery
began were created in Texas. Mr. Fisher's study is a lesson in what works in economic policy
and it is worth pondering in the current 1.8% growth moment.
Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state
employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs,
out of the 722,200 nationwide, and by far outpaced every other state. New York was second with
98,200, Pennsylvania added 93,000, and it falls off from there. Nine states created fewer than
10,000 jobs, while Maine, Hawaii, Delaware and Wyoming created fewer than 1,000. Eighteen
states have lost jobs since the recovery began.
The data are even more notable because they're calculated on a "sum of states" basis, which the
BLS does not use because they can have sampling errors. Using straight nonfarm payroll
employment, Texas accounts for 45% of net U.S. job creation. Modesty is not typically
considered a Texas virtue, but the results speak for themselves.
Texas is also among the few states that are home to more jobs than when the recession began in
December 2007. The others are North Dakota, Alaska and the District of Columbia. If that last
one sounds like an outlier at first, remember the government boom of the Obama era, which has
helped loft D.C. payrolls 18,000 jobs above the pre-crisis status quo. Even so, Texas is up
30,800.
What explains this Lone Star success? Texas is a big state, but its population of 24.7 million isn't
that much bigger than the Empire State, about 19.5 million. California is a large state too36.9
millionand yet it's down 11,400 jobs. Mr. Fisher argues that Texas is doing so well relative to
other states precisely because it has rejected the economic model that now prevails in
Washington, we'll and second that notion.
Mr. Fisher notes that all states labor under the same Fed monetary policy and interest rates and
federal regulation, but all states have not preformed equally well. Texas stands out for its free
market and business-friendly climate.
Capitalboth human and investmentis highly mobile, and it migrates all the time to the places
where the opportunities are larger and the burdens are lower. Texas has no state income tax. Its
regulatory conditions are contained and flexible. It is fiscally responsible and government is
small. Its right-to-work law doesn't impose unions on businesses or employees. It is open to
global trade and competition: Houston, San Antonio and El Paso are entrepts for commerce,
especially in the wake of the North American Free Trade Agreement.
Based on his conversations with CEOs and other business leaders, Mr. Fisher says one of Texas's
huge competitive advantages is its ongoing reform of the tort system, which has driven litigation
costs to record lows. He also cited a rule in place since 1998 in the backwash of the S&L debacle
that limits mortgage borrowing to 80% of the appraised value of a home. Like a minimum down
payment, this reduces overleveraging and means Texas wasn't hurt as badly by the housing crash
as other states.
Texan construction employment has contracted by 2.3% since the end of the recession, along
with manufacturing (a 1.8% decline) and information (-8.4%). But growth in other areas has
surpassed these losses. Professional and business services accounted for 22.9% of the total jobs
added, health care for 30.5% and trade and energy for 10.6%.
The Texas economy has grown on average by 3.3% a year over the last two decades, compared
with 2.6% for the U.S. overall. Yet the core impulse of Obamanomics is to make America less
like Texas and more like California, with more government, more unions, more central planning,
higher taxes. That the former added 37% of new U.S. jobs suggests what an historic mistake this
has been.