econscius

High Lone Star Wages

In Uncategorized on July 27, 2011 at 5:20 am

The Texas economy is in the news lately.  Today’s USA Today pointed out:

“From June 2009 to June 2011 the state added 262,000 jobs, or half the USA’s 524,000 payroll gains” [1]

Additionally, Texas gained an astonishing 4.3 million new residents during the past decade.  The possible Presidential candidacy of Governor Rick Perry may focus on the Texas economy.  As a result, some Democrats are talking down the Texas economy. 

The common put-down is essentially, yes, Texas added a lot of jobs but they are low-wage or minimum wage “bad” jobs.  People then debate if low wage jobs are better than no jobs.  But let us take a step back and ask if it is even true that Texas is “low wage”? 

It is true Texas is a right-to-work state with a pro-business reputation, but it is not particularly low wage.  In fact, average Texas wages are ranked 14th highest in the nation, ahead of traditional high-wage industrial states like Ohio, Minnesota and Michigan.  The $876 average weekly wage in Texas is only 4% below the $916 average in my home state, historically wealthy Illinois. [2]

Texas is a geographically large state, so the next logical question is: even if Texas is overall high wage, are some counties low wage?  The answer is yes.  Texas has 254 counties but only 18 are above the national income average.  There are many small, rural counties with low wages, especially in West Texas and along the Mexican border.  This split holds nationally on a smaller scale, too, as the BLS reports 2/3 of all American counties are below average [3] which tells you the 1/3 that are above average income counties are also the most populous. 

The 18 above average income Texas counties include most of the more populous counties and those with the bulk of the employment and population growth in the past decade.  These include Harris & Brazoria (Houston), Bexar (San Antonio), Travis (Austin), and Dallas, Tarrant & Denton Counties (Dallas-Fort Worth). [3]  It is worth noting more than half of Texas’ 25.1 million people live in these four metro areas of Houston, San Antonio, Austin, and DFW.  When a company like BP North America or Phillips Petroleum relocates to Houston, Comerica Bank relocates to Dallas, LegalZoom relocates to Austin, or Caterpillar and Toyota open major new plants in San Antonio, they are moving to counties with higher than average wages.  Note they are not moving to the lowest wage Texas counties like Webb or Hidalgo.  

Thus, the glib statement companies move to Texas for low wages does not make a lot of sense given that Texas has the 14th highest wages and the booming Texas metros have higher than national averages.  You may notice the new Texas jobs are not moving to the lowest wage states.  Why go to Austin if wages are much lower in Mississippi?  Clearly Texas cities offer more than just low wages.  Where the four big Texas cities may be cost competitive, despite higher average wages, is in direct comparison to the highest wage cities such as San Francisco or Los Angeles.  Texas also has no income tax and lower real estate costs.  Austin has an educated workforce, high quality of life and a concentration of IT talent that make it a logical choice for a California technology company to relocate to. 

USA Today cites an example rationale behind a corporate relocation, demonstrating it is not just about labor costs:

“Jeff Ruiz, head of Medtronic’s Texas operations, says the company was drawn by labor costs that are “significantly lower” than those in Los Angeles and a large, high-quality workforce. Ruiz also points to more affordable real estate and the lack of a state corporate tax, though he says the latter was a minor factor. The company, which also received $14 million in incentives from the state — a figure Ruiz says was comparable with other offers — chose San Antonio from among more than 900 U.S. cities it evaluated.” [1]

Clearly, Texas has been doing something right for many years.  It has energy, yet that is not a full explanation because oil and gas are most significant to Houston and not particularly important for the other big metros.  It was never inevitable the US oil energy companies’ R&D and HQ operations would migrate to Houston when many other states like California had plenty of oil.  Texas also shares a border with Mexico, but so do California, Arizona and New Mexico, yet Texas appears to have better cultivated its border trade.  Rather than launching unsupported attacks on Texas in order to harm Rick Perry’s political chances, the more interesting question is to what extent did Perry cause this explosion of high wage Texas jobs with specific new policies or did he mostly continue pro-business policies that had been in place for decades?

 Flag-map of Texas.svg

[1] http://www.usatoday.com/money/economy/2011-07-25-texas-a-magnet-for-jobs_n.htm

[2] pg. 8 of http://bls.gov/ro6/fax/qcew_tx.pdf

[3] http://bls.gov/ro6/fax/qcew_tx.pdf

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