Editorial Board

Closer Look Proves the Texas Path to Job Growth Isn’t Best: View

The June jobs report released today shows how hard it is for the U.S. to shake free of persistently high unemployment. The meager numbers -- only 18,000 new jobs, far less than forecast, were created and the unemployment rate rose to 9.2 percent from 9.1 percent -- should intensify the search for pockets of growth. That search will inevitably lead to Texas, one of the few spots in the country where people are finding work.

It’s easy to be charmed by Texas, but it would be a mistake to think the state might serve as a national model. Texas created almost 250,000 jobs in the past two years, nearly as many as the other 49 states combined. Texas leaders, including Republican Governor Rick Perry, credit that success to low taxes and a business-friendly regulatory approach.

Yes and no. Those factors played a role. To a sizable degree, however, the state’s booming payrolls are the result of hard-to-duplicate factors, such as a fast-growing population, and unusually low wages.

Consider this: Texas is one of the youngest U.S. states, with a median age of 33, almost four years below the national average. That means it is blessed with a consumption-driven economy, full of young adults renting their first apartments. As families expand, their shopping appetites create thousands of jobs in retailing and manufacturing.

Each year brings more. The population of Texas is growing 2 percent a year, double the national average. Some of that growth comes from other states and immigration, chiefly from Mexico. A bigger share reflects a high birth rate.

In high-skill professions, such as management and petroleum engineering, Texas salaries often exceed national norms. For unskilled labor and service employees, austerity rules. The Texas Workforce Commission, a state agency, says hourly workers have earned 4 percent to 7 percent less than their counterparts nationwide for most of the last decade. For 2009, the U.S. Census Bureau placed Texas third among states in income inequality.

Dishwashers in Texas averaged $7.90 an hour in 2009, 10.3 percent below their peers nationwide. Texas sewing-machine operators made do with $9.35 an hour, 12.6 percent below the 50-state average. Some 9.5 percent of hourly workers subsist at or below the federal minimum wage of $7.25 an hour, according to the U.S. Bureau of Labor Statistics. That leaves Texas tied with Mississippi for the largest share of the population earning no more than the minimum wage.

Texas’s wage gap “matters a lot” in fueling job growth, says Mark Dotzour, chief economist at Texas A&M’s Real Estate Center, an academic research group financed with real-estate license fees. As he explains it, companies are leaving higher-cost states and moving to places where they think their expenses will be lower. Texas is working that trend to its advantage, but this is hardly a formula that the other 49 states could, or should, copy.

Favorable demographics and low wages are one way to build an economy. There are better paths to follow. Congressional ratification of pending free-trade agreements with Colombia, Panama and South Korea is one. The trade deals will open new markets for U.S. exports and spur job growth. The hang-up is the expansion of trade-adjustment assistance that President Barack Obama insists on attaching to the Korean pact but that Republican senators oppose. Obama should drop his demands and trim the size of the assistance program, which studies show is outdated and ineffective.

Congress should also allow companies sitting on overseas profits to bring those earnings home at a corporate-tax rate lower than the current 35 percent, in exchange for increasing worker head counts. An alternative to a profit repatriation holiday is a payroll-tax credit, which would go to employers for each worker added.

Another promising initiative is the Layoff Prevention Act, which Democratic Senator Jack Reed introduced this week, to encourage more states to have work-share programs like the one in his home state of Rhode Island. The Reed measure would allow states to channel federal unemployment money to companies that reduce workers’ hours instead of laying them off. In return, workers would make up some of the lost wages with partial unemployment benefits. Similar programs have worked well in Germany, where the jobless rate is 7 percent, below the level at the start of the global downturn.

Congress should also consider increasing spending on public works to repair crumbling roads and bridges and to get idled construction workers, many of whom have been unemployed for a year, back onto payrolls.

All these solutions can work across America. They’re replicable in a way that Texas’s solutions -- no matter how praiseworthy -- are not. Those interested in an antidote to long-term joblessness will have to look elsewhere.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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