Job Creation, Unemployment and the Texas Miracle

The latest jobs numbers have propelled talk of a “Texas miracle” as Gov. Rick Perry continues to consider a run for the presidency. But Texas’ unemployment rate is higher than that of all four states bordering it — and it’s up slightly from last year. So why does everyone keep touting Texas, and Perry in particular, for its strong economy?

The short answer: job creation. 

According to data released this month by the federal Bureau of Labor Statistics, Texas gained more jobs in June 2011, 32,000, and more jobs this year, 220,000, than any other state in the country. To put these numbers in perspective: The Federal Reserve Bank of Dallas told the Fort Worth Star-Telegram earlier this week that 237,000 out of the 496,000 jobs added to the national work force since June 2009 were in Texas. That’s more than a hefty share.

But BLS data also shows that Texas’ unemployment rate remained relatively stable, going up from 8.1 percent in 2010 to 8.2 percent in June, while the unemployment rate in nearby states remained lower or dropped. Oklahoma’s rate fell the most, from 7 percent to 5.3 percent.

 

“What is almost certainly happening is that although Texas has created far more jobs that any other state, it has also seen workforce expansion at a rapid rate due to both demographics (a growing pool of young people entering the job market) and migration due to the perception of better opportunities here,” Ray Perryman, CEO of an economic research and analysis firm based in Waco, said in an email to the Tribune.

 

Because the unemployment rate measures the percentage of unemployed people in the workforce, if both the size of the workforce and the number of jobs increase simultaneously, the unemployment rate will stay relatively stable.

Like most things in Texas, the workforce (i.e., the number of people working or actively searching for a job) is larger than in neighboring states. The Texas Workforce Commission says the combined workforce of the four states bordering Texas is 6 million — less than half the size of the Texas workforce, which is 12.2 million. And the labor forces in Louisiana, New Mexico and Oklahoma all declined in size from June 2010 to June 2011, while Texas’ increased by 140,600.

 

Don Baylor, senior policy analyst at the Center for Public Policy Priorities, said the number of jobs created in Texas may sound like a lot, but Texas’ unemployment rate is still high by historical standards. Even adding 350,000 jobs a year won’t bring it down to 5 percent, which is the standard measure of full employment, he said.

Because unemployment rates shift depending on the estimated size of the labor force, many economists say the number of jobs created is a more accurate indicator of economic growth. And it’s job creation that Perry is getting credit for — as nine different stories posted on Perry’s campaign blog will tell you.  

“The governor, as far as I’m concerned — and I’ve worked with six governors in the economic development business — has done more for economic development than all other governors combined,” said Angelos Angelou, chief economist and principal executive of Angelou Economics, an economic development consulting firm. Perry’s economic policies — increasing state revenue, while cutting expenditures in the budget and continuing to fund business incentive programs — “are things that we need to be doing at the national level,” he said. “It gives a certain confidence level on the part of the business community and creates more of a pro-business environment for companies to locate here.”

The Texas Enterprise Fund and the Emerging Technology Fund, both created during Perry’s tenure and the subjects of praise and criticism, enable state lawmakers to award one-time financial incentives to businesses looking to relocate or expand in Texas. Angelou said government incentives are a “necessary evil” that allow Texas to compete with other states for new businesses and that the funds have been a “key catalyst” for Texas’ economic growth.

The most recent company to take advantage of the funds is General Electric, which plans to open a locomotive plant in Fort Worth, creating 500 new high-tech manufacturing jobs. Facebook, eBay, Petco and several other companies have also taken advantage of the incentives and moved to Texas.

The Emerging Technology Fund, which focuses specifically on attracting high-tech jobs, is an example of how Perry is promoting growth of the technology industry in Texas, said Lucy Nashed, a spokeswoman for the governor. “The governor is really focused on making Central Texas the next Silicon Valley and attracting those kinds of high tech jobs.”

 

But Baylor argued the role of the incentive funds is “more headline-grabbing” and that their real impact on Texas’ economy is “marginal at best.” A company’s decision to relocate or expand in Texas is “really about demand and access to markets,” he said. “The idea that a one-time payment is going to make or break your decision whether or not to create jobs is kind of hard logically to really get behind.”

Analysts at the CPPP, a liberal nonprofit policy analysis and research group, maintain that current job growth is a long-term effect of increasing investment in education in the 1980s — which Perry voted in favor of when he was a member of the Texas House.

Dick Lavine, senior fiscal analyst at CPPP, said this legislative session's budget cuts to public and higher education could possibly stand in the way of Perry’s dream of a Texas-size Silicon Valley. Tier-one research facilities at Stanford and Berkeley Universities were essential to the economic-technological success of the region, he said, and budget cuts could reverse the University of Texas' momentum. “If UT is no longer an attractive place for faculty, good graduate students won’t be attracted and then they won’t be here to go off and create new companies.”

But the verdict is still out on how budget cuts — and the public sector layoffs that go with them — will affect Texas’ economy in the long haul.

Government layoffs on the national level have already increased the national unemployment rate (currently at 9.2 percent), but over the long term, cutting government jobs will have a positive effect on the economy and “eventually free up resources for the private sector,” Angelou said. And barring unforeseen national and global economic circumstances, he said, Texas’ unemployment rate should dip down in the coming year. 

“The governor has always said that tax dollars do more to create opportunity in the hands of small businesses and employers,” Nashed said.

Perry's policies may be integral to Texas’ economic success, but some observers remain unimpressed. Paul Krugman of The New York Times recently argued the numbers just don't add up to Perry's credit, and that other factors, like demographics, are at play. 

“While the ‘Texas Miracle’ is very real, its causes are complex and multi-faceted,” Perryman said. “Moreover, future success is going to require ongoing investments in education, infrastructure, and other essential public services.”

Texas Tribune donors or members may be quoted or mentioned in our stories, or may be the subject of them. For a complete list of contributors, click here.