The Economist: Golden or Lone Star?
By Ray Perryman
Sept. 8, 2012 at 4:08 a.m.
Recently, I was asked to comment on the fact that California has added more jobs over the past year than Texas has gained. This statistic may come as a surprise to you, because we've all seen the headlines about how tough things are in California and how well Texas is doing in comparison to most areas. So what is happening? Is the Golden State or Lone Star State better off by this particular measure?
It is true that California added more non-agricultural jobs between July 2011 and July 2012 (some 365,100) than Texas (with 222,500). Over the period, the next-best performing state was New York, which added 113,300 net new positions; fourth was Ohio with a gain of 100,300, and it drops off quickly from there. One component of the differences is simply the relative size of the respective states' overall workforces; California's 2.6 percent total gain in employment is only slightly better than that of Texas (2.1 percent).
Even though it has seen an uptick recently, California still has a long way to go to regain ground lost over the past few years. Most states are still recovering from the downturn, which hit California far harder than it hit Texas. In fact, the gain in California was only enough to shift the unemployment rate down to 10.7 percent, significantly higher than both the United States as a whole (8.3 percent) and Texas (7.2 percent).
Looking at monthly employment in the Golden State over the past decade tells a fairly grim story. In January 2002, total non-farm employment stood at just over 14.4 million. After bouncing around at basically that level for a couple of years, the state began to gain jobs at a decent pace, reaching just over 15.2 million in July 2007. However, the bottom dropped out during the recession, and California lost almost 1.4 million jobs by the trough in February 2010. The state still has to add some 864,500 jobs to reach that July 2007 peak and, even worse, current employment is some 83,800 (0.6 percent) less than way back in January 2002. In other words, California is less than halfway back from its depths.
By contrast, Texas has gained almost 1.4 million jobs since January 2002 (a total increase of nearly 15 percent). We did, of course, lose employment during the downturn, with total non-farm estimates down about 427,600 from the peak in August 2008 to the trough in December 2009. However, by mid-2011, Texas had recovered virtually all of these jobs and went on to surpass the August 2008 level in December 2011. Currently, employment is 164,300 higher than that previous peak. Texas is all the way back and then some by the jobs measure.
In short, California lost far more jobs in relative and absolute terms during the downturn than Texas. It's certainly good news that the situation is finally improving to some extent, but California has not been able to sustain the strength and stability that we are seeing in Texas.
Looking ahead, Texas and California each have their own strengths and weaknesses, which will affect future performance, and they will continue to compete vigorously. Texas has a lower overall cost of living, some locational benefits for national and global distribution, stronger incentives, and a more favorable regulatory climate. California has a more highly educated workforce, more research universities, a stronger venture capital community, and greater concentrations in some high growth sectors.
Both states have daunting fiscal challenges, though California's is somewhat more severe. Texas has had the lead in attracting new corporate locations and expansions for quite some time, but long-term investments in education and infrastructure (primarily roads and water resource development) will be needed to sustain it going forward.
Dr. M. Ray Perryman is president and Chief Executive Officer of The Perryman Group (perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.