Texas public policy foundation
Let’s bolster the ‘Texas model’
 
COMMENTARY
 

This commentary originally appeared in the Dallas Morning News on February 19, 2015.

By Vance Ginn and Kolten Morris

With Texas’ extraordinary job creation leading the nation again in 2014, the success from the state’s low-tax, less-regulation and sensible-lawsuit approach provides a model that other states and D.C. would be wise to follow.

With the recent drop in oil prices likely leading to less-robust job growth — though nothing as severe as during the 1980s — the 84th Texas Legislature also should look to strengthen the Texas model.

The U.S. Bureau of Labor Statistics’ recent state-level employment report shows that Texas had the highest net nonfarm job growth of 457,900 in 2014. That outpaced California (320,300) and New York (105,300) — states known for high taxes and regulations — combined.

This extraordinary pace of job creation helped lower Texas’ unemployment rate to 4.6 percent in December — its lowest rate since May 2008. That marked the 96th consecutive month that unemployment has been at or below the national average and the 101st month that the Texas rate was better than California’s.

While these reported unemployment rates (called the U-3 rate) include the share of the labor force that’s unemployed, they exclude those who are underemployed and discouraged workers who stopped their job searches after looking for years during a weak national economic recovery.

Mix in these two types of workers, and it suggests a labor market that clearly is not improving. It also explains why many Americans express anxiety over their job prospects years after the government declared an end to the last recession in June 2009.

The bureau provides the broader U-6 rate that’s a more informative, though typically higher, unemployment measure. Texas’ broader unemployment rate of 9.9 percent in 2014 shows there is room for improvement in the labor market and tells why many feel depressed about their job hunts.

In 2014, the nation’s broader rate was 12 percent, while California’s was 15.2 percent.

The broader unemployment rate in Texas paints a clear picture that the Texas approach works. Even with this success, some doubt the effectiveness of the Texas model and attribute growth instead to an improving national economy and oil production. The numbers tell a different story.

Texas’ total employment is up 1.4 million since December 2007, when the last national recession began. Exclude Texas from the nation’s job creation equation, the rest of the nation still employs 276,290 fewer people in the same period.

Though a substantial drop in oil prices since June is expected to dampen growth in Texas, there’s no reason to hit the panic button. Thanks to a more diversified economy and pro-growth policies, Texas is more resilient to fluctuating oil prices today. Either way, if oil prices remain subdued for an extended period, this will be an area to watch.

To strengthen the Texas model, the Legislature should put the state’s costly business margins tax on a path to extinction by effectively limiting state spending. This would unshackle billions of dollars in personal income and allow more workers to be hired. By getting the government out of the way, the economy would get a boost and counter any slowdown from low oil prices.

Legislators should take these steps to help Texas remain a beacon of opportunity.

Vance Ginn is an economist and Kolten Morris is a research assistant in the Center for Fiscal Policy at the conservative Texas Public Policy Foundation. Reach them atvginn@texaspolicy.com and kmorris@texaspolicy.com.