Texas and California have abundant natural resources, vast open land, rich cities, large tech sectors, long coastlines, and comparable demographics. Given these factors, it would seem like they should have similar employment results. However, new state employment data show that Texas dominates over the last decade from its limited government approach.
By requiring less red tape to start a business and no income tax to penalize hard work and success, Texas’ job creation success continues to provide a stark contrast from the relatively slower jobs recovery in big government California.
The most recent U.S. Bureau of Labor Statistics’ report shows more Texans finding jobs over the last twelve months than Californians, resulting in Texas’ impressive official unemployment rate decline by almost 1 percentage point to 5.7 percent.
Though California’s unemployment rate dropped by over 1 percentage point to 8.1 percent over the last year, its labor force declined by 50,000, making the rate decline look superficially better while it remains painfully high for many.
Remarkably, Texas’ unemployment rate has now been equal to or lower than California’s for 90 consecutive months — or 7 1/2 years. And if those who stopped searching for work or who are underemployed are included in last year’s average unemployment rates, California’s rate of 17.3 percent towers above Texas’ 11.3 percent.
However, many discouraged California workers move out to find work. As they do so, they join the labor force in other states, including Texas, as refugees from big government policies. Thus, the unemployment rate provides a poor labor market comparison.
Better indicators of the labor market include those that look at employment growth.
Texas added 322,400 jobs since January 2013, which is the most jobs nationwide and almost 3,000 more than California. Keep in mind that California’s labor force is about 45 percent larger, so proportionally, Texas added 47 percent more jobs.
With job creation faster than its booming population, the percentage of adults who are employed in Texas, 61.2 percent, hovers above California’s 57.2 percent (and the national average) in January and the last decade.
From their pre-recession nonfarm employment peaks, Texans lost fewer jobs, and the state’s faster job growth led to a quicker rebound that reached the previous peak after 40 months. However, California’s employment level peaked in August 2007, fell dramatically more than in Texas, and remains roughly 160,000 jobs below its peak 78 months later. By contrast, Texas added almost 710,000 jobs since regaining its peak in November 2011.
If that’s not convincing enough of the jobs miracle in Texas, the 2 million jobs created in Texas over the last decade were more than twice that in California.
Why are there such wildly different employment results? A key difference is their governing philosophies.
For example, the California Assembly passed legislation in 2012 to raise their income tax and sales tax rates while the Texas Legislature chose in 2013 to reduce the franchise tax, the state’s business tax. This fiscal policy difference is found throughout both governing bodies and clearly contrasts a job-killing agenda from a pro-growth one.
In general, California lawmakers make it more expensive to start a business by adding regulations and increasing tax rates. By promoting stable regulations and keeping tax rates low, Texas legislators make it easier to start a firm and contribute to the state having the 10th lowest cost of living nationwide.
With cost of living 40 percent higher in California, Texans have more dollars available to hire workers and to purchase goods and services. These extra dollars look to generate another unmatched year of job growth in 2014, according to the Federal Reserve Bank of Dallas.
Casual observers argue the jobs added in Texas primarily pay a low wage and discount evidence to the contrary, such as the Dallas Fed’s recent report showing that jobs were added across all wage groups since 2000 — which was not the case in many states.
The Texas model of limited government supports relatively strong job creation over the last ten years that should be coined “The Texas Decade.”
To reap another decade of success, the Texas Legislature should restrain spending and provide sales tax relief to benefit all Texans.
Wohlgemuth is the executive director and director of the Center for Health Care Policy at the Texas Public Policy Foundation. She served 10 years in the Texas House of Representatives, specializing in health care issues.