Texas Tales

http://www.nytimes.com/roomfordebate/2011/07/17/the-texas-jobs-juggernaut

http://krugman.blogs.nytimes.com/2011/07/18/texas-tales/?emc=eta1

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"Talent wins games, but teamwork and intelligence wins championships." (Michael Jordan)

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Paul Krugman begins his Monday post ("Texas Tales") this week with a reference to the Times running a "Room for Debate" on the Texas "jobs juggernaut." I've attached the "Room for Debate" that he was referring to as well as his post. And, he references that Texas has been adding jobs faster than the rest of the U.S.

So, what's going on that makes Texas so special? Krugman offers three "informal models." Since Krugman is a Nobel Prize winning economist, and writes well, I read what he says.

Model 1 - Demographics

Here we assume the population of Texas ( and therefor its workforce) continues to rise: high birth rates among past immigrants, because of immigration from Mexico, etc. This will push wages down which creates employment growth but the driving force will be "supply" - more people looking for jobs, not demand.

Model 2 - Zoning

Here we assume that Texas loosens up land-use regulations so that housing becomes cheaper relative to a state like New York. In that case, workers will move to Texas, even if they receive somewhat lower wages than New York, because of the lower cost of living. So, what happens next is that the increased supply of labor pushes wages down, which leads to job growth - just as in the demographically driven case. In this case, however, it's a "benign" thing. BUT, it's about housing policy, not a pro-business environment in the general sense.

Model 3 - Supply-side Marvels (The Goodhair Doctrine)

Finally, suppose that Rick Perry's policies actually have led to a surge in business productivity. Then we'd expect to see the demand for labor rise; this would pull up wages and draw workers into Texas, leading to high job growth. So, what do we see?

According to Krugman, everything we know about Texas points to some combination of Models 1 & 2. Wages in Texas are low, and have probably fallen relative to those in slower-growth states. On the other hand, the cost of living is low thanks to cheap housing. WHAT WE DON'T SEE is either the productivity surge or the wage surge we would have expected if the "Goodhair Model" was at all right.

Within Krugman's post, you can click on Ryan Avent's article in "The Economist" which basically shows Texas real GDP per capita has actually grown very slowly.

Krugman's ending asks "... how should we think about Texan performance in the recession and weak recovery?" (What Recovery?) His answer is that we should measure that performance around the trend that reflects the forces that describe Models 1 & 2. Texas has faster job growth than the rest of the country but it always does. The question is whether relative to that trend the state has done remarkably well. And, as Krugman says, it has not: the unemployment rate in Texas is slightly higher than New York.

Once again, Krugman sheds some light.