Jobs in Texas--What's Growth Got to Do With It?

Rick Perry, the governor of Texas, announced this weekend that he is running for President, and the pundits expect that his campaign will emphasize the theme that Texas has the answers for America in terms of how to grow jobs. However, in today's New York Times, Paul Krugman offers a correction to that view, and it has a decidedly demographic bent.

So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth.

For this much is true about Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.

But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.

So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.

The key point about this, as Krugman notes, is that other states cannot grow jobs by undercutting every other state in terms of wages and regulations. That would simply lead to a downward spiral for everyone. Of course, if wages dropped to a level as low as in China, then maybe jobs would return to the US...