According to the Bureau of Labor Statistic's (BLS) August state employment report released last Friday, Texas' entrepreneurs added more jobs over the last year than any other state in the nation. To further solidify the state's job creation success, Texas' unemployment rate has now been lower than the national average, and California's, for 80 consecutive months — longer than President Obama has been in office (see below).
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SEE MOREAlthough there remains work to do to create the best entrepreneurial environment for job growth in Texas, this report is a clear indication that other states, and Washington, D.C., can learn from the Lone Star State where there is no state income tax, low level regulations, and relatively limited government spending.
Figure 1: Texas' Unemployment Rate Lower for 80 Consecutive Months
Note: Shaded area indicates the December 2007 to June 2009 U.S. recession.
Although Texas' net nonfarm employment decreased overall by 6,400 in August (one downside to an otherwise outstanding state report), the total number of private sector jobs added was positive after adjusting for the decline in the public sector. To shed better light on the subject, the average monthly number of new hires over the last three months was 9,000, indicating more Texans are able to find jobs.
The lower unemployment rate in Texas (6.4%) compared with the U.S. average (7.3%) is not from a decline in the state's labor force, as has been the case for the decline in the national average's labor force participation rate. In fact, Texas' labor force increase of 1.4% over the last year is almost three times more than the nationwide increase of 0.5%, making the state's labor market data even more impressive.
Since August 2012, Texas' employers added 274,700 new jobs; this astonishing annual total accounts for about 13% of all jobs added nationwide and is 51,000 more than the next highest state: California. The states with the next highest job growth over the last year were Florida (+131,400) and New York (+92,500). Furthermore, the year-over-year employment-growth rate in Texas was approximately 3% and substantially higher than in California and the U.S. average, which has been the case since at least 2007 (see below). These data are nothing but remarkable.
Figure 2: Texas' Annualized Job Growth Shine
1. Industries with the most growth: Education and Health Services (+6,700); Professional and Business Services (+2,900); and Manufacturing (+2,600).
2. Industry that shrank the most: Government (-8,800).
3. Texas’ unemployment rate has declined from 6.8% in August 2012 to 6.4% in August 2013.
4. There are 661,000 more Texans employed than when the U.S. recession started in December 2007. Comparatively, there are 1.9 million fewer people employed nationally over the same period.
Based on the Census Bureau’s newly released report on national income, poverty, and health insurance coverage in 2012, the rates of those without health insurance declined nationally and in many states, including Texas and California.
Considering there is much noise in annual uninsured data, let us consider two-year average data from 2009-2010 to 2011-2012. These data show that across the nation the number of uninsured fell by 1.2 million to 48.2 million, decreasing the uninsured rate by 0.6% to 15.6%.
Between these two periods, California and Texas, the nation's largest economies and populations, also noticed declines in their uninsured rates but for different reasons.
While Texas' total uninsured remained essentially unchanged at 6.3 million, the uninsured rate fell by 0.9% to 24.2%. California's uninsured decreased by 66,000 to 7.1 million, in which its uninsured rate fell by 0.6% to 18.8%. Although the greater decline in California's total uninsured compared with Texas indicates that the Golden State's health care coverage condition improved more than the Lone Star State’s (and this tends to make the headlines), this discounts the fact that the uninsured rate declined faster in Texas (see chart below) and overall does not tell the whole story.
Texas' Uninsured Rate Improves Faster than California's
There are several issues we must consider: 1. Population growth, 2. Uninsured characteristics, and 3. Access to care.
Over these two-year periods, Texas’ population increased by 3.5%, or 911,000, and California’s increased by only 2%, or 767,000. The flood of people looking for more opportunity in Texas also comes at a price of potentially more uninsured. With California’s total population totaling 1.5 times larger than in Texas, this 144,000 greater population increase in Texas reveals more about how substantial the decline in the poverty rate of 0.9% is compared with 0.6%.
We must also consider the make-up of the uninsured. A recent report notes that only a small percentage of Texans who want health insurance cannot afford it. Other uninsured Texans can afford to purchase it but choose not to, are eligible for Medicaid or CHIP but have not enrolled, or are undocumented workers.
Finally, the larger increase in health insurance coverage does not necessarily equate to an increase in health care services. This is clear from California’s Medi-Cal program that has the lowest Medicaid reimbursement rates to doctors in the nation, forcing many doctors to refuse those patients. Despite other states having a lower uninsured rate than Texas, this does not mean that individuals in those states get more health care services.
Some would like to believe that these data reveal how terrible the Texas model is because so many Texans do not have health care coverage. However, even without overlooking the issues above, Texas' health care sector has room for improvement. Through more choice given to individuals and pro-market reforms, Texas' health care services can be the best in the nation.
Last Friday, California's Legislature passed a bill raising the state's minimum wage to $10 per hour by 2016, which will be higher than the federal mandate of $7.25 per hour and the highest in the nation. The increase from the state’s current $8 per hour minimum wage will be in two separate $1 increments over the next three years.
Nationally, only about 10% of the workforce earns a minimum wage. Clearly, an increase in the minimum wage raises the cost of production and further distorts market activity between employers and workers. If there were not already reasons for entrepreneurs to leave California and go to places with lower costs to produce, like Texas, this might be the last straw.
Some may argue that the Texas Legislature should pass a similar law to raise the state’s minimum wage, but let us consider several indicators that may have you singing a different tune.
This map indicates that there are 18 states with a minimum wage higher than the federal mandate.
Next, this one shows the employment-population ratios for all states.
Finally, check here to see the unemployment rate in all states.
It is clear that many states with a higher minimum wage have a lower employment-population ratio and a higher unemployment rate — both indicative of a weaker labor market. This does not necessarily reveal whether a higher minimum wage causes a higher unemployment rate, but it does give a strong relationship between the two.
In a recent paper, Neumark, Salas, and Wascher find that "minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage."
In other words, a minimum wage picks winners and losers not by market forces but by government decree.
In this case, if California raises their minimum wage to $10 per hour and the output of workers in those positions do not equal this 25% cost increase, there will be many unemployed low-skilled workers either now or in the future. Although research in this area is mixed, we must also consider the opportunity costs of a higher wage mandate and the entrepreneurial incentive to move to other states.
Currently, California's unemployment rate is 8.7% and has a minimum wage of $8; whereas, Texas' rate is 6.5% and matches the federal minimum wage of $7.25. If California’s governor signs this legislation and increases this wage margin over the next three years, we will have a good idea where entrepreneurs will decide to innovate, imagine, and employ workers: Texas!
With anticipation of the Bureau of Labor Statistics’ Employment Report on Friday, it is important to appropriately evaluate the national labor market’s status. The fall in the unemployment rate from a high of 10% in October 2009 to its current 7.4% indicates an improving labor market; however, other measures appear more consistent with what millions of Americans are experiencing: a depressed labor market.
According to a recent Wall Street Journal article, only 6 million jobs of the 8 million lost during the last recession were added four years since the recession ended. Clearly, this decline in the number of unemployed contributed to a lower unemployment rate, but the current pace of hiring is too slow to rapidly return the labor market to prerecession levels anytime soon. Unfortunately, this all too often reported, incomplete rate masks this market’s weakness by not including those who are discouraged or those who reluctantly accepted part-time employment.
Some of the decline in the unemployment rate would be expected from the decline in baby boomers’ labor force participation, but nothing close to the steep overall decline in the labor-force participation rate. Moreover, 77% of the total number of jobs added this year have been part-time. Although these individuals will not be unemployed, they are certainly not better off. If you consider the employment-to-population ratio for those 25-54 years old in the figure below, which provides a better signal of the labor market and excludes those baby boomers who are retiring, there has been little labor market improvement.
There are a number of reasons for the depressed labor market, but the most important may be the declining incentives to work or hire because of expanding welfare-based policies and policy uncertainty, respectively.
So, this Friday we should take changes in the unemployment rate with a grain of salt and consider different measures to evaluate the labor market. Drastic federal policy changes are needed to provide an economic environment that promotes job creation; they could learn a thing or two from the Texas model.
Vance Ginn, Ph.D.