So I wrote a post recently about the supposed Texas job boom. My argument essentially agreed with the Paul Krugman conclusion that Texas was creating more jobs than others because it had a booming labor supply (created by a lot of immigrants who had a lot of kids who drove down wages, along with a low cost of housing and living in general that attracted people without underwater mortgages from other parts of the country).
Another way to think of this, and I think possibly a more intuitive one, is to think of the US not as a single country but as more like a continent, but with a common language and no controls on the flow of labor across borders. The continent of America has both a unified labor market (the unemployment rate for the entire area is a rough reflection of its health), and an individual labor market for each of the 50 states. In a sense, aside from the language barriers and lack of transfer payments from a central governing authority, we could think of the US as EU-West for the purpose of this argument. Now, labor market numbers are hard to find, but Texas generally has a reputation for cheap labor compared to other states. Housing there is especially cheap (due in part to a lot of open land, in part to mortgage industry regulations that came out of the Savings & Loan Crisis in the 80's, and in part due to lax zoning laws compared to places like New York), and that drives down the cost of living. Which, as I mentioned in the last post, drives down the wages that workers can demand. But, again as I mentioned before, companies pay wages in constant-value dollars. So a company that makes widgets and employs a lot of unskilled labor is significantly better off basing its operations in Texas than in, say, New York. Another way to think of it is if the Euro-zone had a federal government and factories could jump from Germany to Greece to take advantage of low labor costs. In a sense, it's a textbook case of deflation to restore competitiveness (wages fall to counter improved productivity in other places).
Now, none of this is to criticize that aspect of the Texas model. There are certainly good arguments to be made for cheap-housing policies like loose zoning laws and regulation of the mortgage industry, and I mostly agree with both of them. But the narrative coming from the "Texas has a job miracle" crowd is that Rick Perry's deregulation and low taxes are creating tons of jobs, and every other state should do it, too. That part of the claim is baloney, for a simple reason. The US, as a whole, still has over 9% unemployment. Say California were to decide the Texas plan was the best way to fix its job issue. People start having lots and lots of babies. The cost of living magically deecreases as home prices collapse. Taxes are cut and wages drop, so workers stop moving from California to Texas. Hallelujah! Jobs for everyone! Right? Nope. In part, one consequence of people not moving from California (and elsewhere) to Texas is that downward pressure on wages is alleviated. That means that more jobs may be created in California, but fewer jobs will be created in Texas. The flow of labor slows, but the total number of jobs isn't changing. And all of this ignores higher-paying jobs and debt overhangs-- a glut of lawyers on the market won't drive law firm jobs lower because a very big chunk of those young fresh out of law school lawyers are sitting on six figures of debt. If law firms start paying workers $60,000 a year instead of $160,000, some will gladly take the job, but the next generation of bright Ivy League grads isn't gonna see Harvard Law School as such a desirable destination anymore.
Now, here it's useful to address the counter-argument. That Rick Perry's "pro-business" policies are creating job gains in Texas that they aren't in "liberal" states like California and New York. I think the way to think about this is in terms of a labor market model. Implicit to the pro-Perry camp's claim is the idea that jobs are being created that wouldn't otherwise exist. In other words, that businesses are seeing greater demand for their product as a result of their policies, and are hiring workers. Imagine a labor market with a downward-sloping demand curve and an upward-sloping supply curve like this one (sorry, I'm lazy and don't want the hassle of posting images, but there's nothing controversial about it-- that's how those curves look in Econ 1 and everywhere else). The pro-Perry claim is that the demand curve for labor is shifting out, which would mean that both the quantity AND the price of labor would rise. The supply-side explanation (that it's cheap housing, a lot of kids being born/people moving there and loose zoning laws) says that there are relatively more jobs because there's an outward shift in the supply curve. In that case, we'd also expect to see a rise in the quantity of labor, but the price (wages) would fall.
Now, I don't have Texas wage data available to me, but I suspect that wages in Texas haven't been shooting through the roof since the recession started...
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