A Different View of State Employment Performance

In light of the recently released Goldman Sachs study on comparative state performance during the recession (h/t Michael Leachman; no link, but thanks to study author Zach Pandl for sending me more info on the study) and the widely-quoted analysis at Political Math, both of which use raw employment numbers as their core, I've thought about what a better measure would be.

The problem with raw job numbers, and we see it in the case of Texas, is it makes a state look better than it is if it has a rapidly increasing population that job growth is unable to keep up with. Since December 2007, the state has added 247,000 jobs, but its labor force grew by 739,000 through June 2011, which is why the unemployment rate has gone up by 4 percentage points.

Pandl's study calculates June 2011 employment as a percentage of December 2007 employment, for all states. From the graph he sent me, it appears that North Dakota is tops at about 109%, Alaska next about 104%, DC third at about 103%, and Texas fourth at about 102%. I asked Pandl, what if we use a different dependent variable for your regression analysis, unemployment rate in July 2011 (newly available in the past week) as a percentage of the unemployment rate in December 2007. If we want to know how much worse a state's unemployment got, this is a pretty intuitive measure. I hope Pandl considers this calculation, because it turns out the results are substantially different. The table below ranks the states from best to worst (lowest percentage to highest percentage) on this measure.

State		July 2011 P	Dec 2007 P	Ratio 1
North Dakota		3.3	3.3	100
Alaska		7.7	6.5	118
Oklahoma		5.5	4.5	122
Nebraska		4.1	3.2	128
Arkansas		8.2	5.9	139
Vermont		5.7	4	143
Michigan		10.9	7.6	143
New Hampshire		5.2	3.6	144
Minnesota		7.2	4.9	147
Kansas		6.5	4.4	148
Iowa		6	4	150
Ohio		9	6	150
Maine		7.7	5.1	151
Mississippi		10.4	6.8	153
Wisconsin		7.8	5	156
South Dakota		4.7	3	157
Missouri		8.7	5.5	158
New York		8	4.9	163
South Carolina		10.9	6.6	165
West Virginia		8.1	4.9	165
Pennsylvania		7.8	4.7	166
Kentucky		9.5	5.7	167
Massachusetts		7.6	4.5	169
Oregon		9.5	5.6	170
Illinois		9.5	5.5	173
Virginia		6.1	3.5	174
DC		10.8	6.1	177
Louisiana		7.6	4.2	181
New Mexico		6.7	3.7	181
Connecticut		9.1	5	182
Indiana		8.5	4.6	185
Tennessee		9.8	5.3	185
Texas		8.4	4.5	187
Wyoming		5.8	3.1	187
Colorado		8.5	4.5	189
Maryland		7.2	3.8	189
Hawaii		6.1	3.2	191
Washington		9.3	4.8	194
Rhode Island		10.8	5.5	196
California		12	6.1	197
Arizona		9.4	4.7	200
North Carolina		10.1	5	202
Georgia		10.1	4.8	210
New Jersey		9.5	4.5	211
Delaware		8.1	3.8	213
Montana		7.7	3.6	214
Nevada		12.9	5.8	222
Florida		10.7	4.7	228
Utah		7.5	3.2	234
Alabama		10	4	250
Idaho		9.4	3	313

Sources: http://www.bls.gov/news.release/archives/laus_01182008.pdf, Table 3 (seasonally adjusted); http://www.bls.gov/news.release/pdf/laus.pdf, Table 3 (seasonally adjusted). Note that both figures are the preliminary ones from the initial press release for the month in question; Texas and Massachusetts have both been adjusted downward by 0.1 point for December 2007, for example, but I didn't want to download 51 spreadsheets to make this table. “Ratio 1” is simply the July 2011 rate divided by the December 2007 rate, expressed as a percentage.

As with Pandl's study, North Dakota and Alaska do very well, taking the top two spots. His other two strong performers, DC and Texas, fall slightly below the median (Virginia), however. Four of his five weak performers (California, Florida, Arizona, and Nevada) all do pretty poorly here, but so do states like Idaho (313% of December 2007 unemployment rate), Alabama (250%), Utah (234%), etc. His fifth poor performer, Michigan, actually does quite well (143%) on this metric, though it should definitely be discounted since the state has been losing population overall.

At this point, I don't have an explanation of why some states do better than others, since I don't have Pandl's dataset to run regressions myself. Energy works for the top three states, but not states like Louisiana, Texas, and Wyoming. I don't currently have the data on exposure to subprime mortgages or presence of high-end services (both of which Pandl found to be statistically significant) or for the many variables he did not find significant. But people with access to a lot of state-level data might want to take a look at this, or perhaps Pandl will do so.

The bottom line is that this view of employment performance undermines glib references to a Texas Miracle and challenges us to find an explanation of what really differentiates the states' employment performance. We should recall, too, that employment is not the only dimension of distress in our current economic situation (foreclosures immediately spring to mind), but it is an important one in its own right and contributes to the other major problems as well. Understanding why some states did better than others may give us some clues on what states should do differently, but we may find instead that a non-replicable factor like the energy industry remains statistically significant after controlling for other variables.

Texas Unemployment Worsening Relative to National Average

Michael Leachman at the Center on Budget and Policy Priorities has a new post up today

on why some state economies have weathered the recession better than others, naming Alaska, Texas, and North Dakota as prime examples of this. He cites “a new Goldman Sachs study,” which is apparently subscription-only (I'll follow up with the link if one turns up.) As we saw in my post, “The Massachusetts Miracle,” there are a lot of things worse in Texas than in the state conservatives love to hate, Massachusetts. In fact, in some ways the uninsurance rate in Texas is even grimmer than I painted it: While 26% of the entire population lacks health insurance, a full 33% of adults 19-64 is without insurance, the country's worst, compare to 7% in Massachusetts, the country's best.

According to Leachman, the three things that predicted better performance were the presence of the energy industry, low exposure to the housing bubble (in Texas, strong banking regulation), and having high-end service and technology jobs, which accounted for ¾ of the difference in state outcomes. He notes that the Goldman Sachs study found no effect from low taxes (income or property) and state government spending.

But I want to question the claim that Texas has done all that well. Yes, its unemployment rate is lower than the national average. But its unemployment rate was lower than the national average before the recession. In fact, its relative performance has worsened since the recession began: In January 2008, Texas' unemployment rate was 88% of the national average but in July 2011 it was 92.3% of the national average. See the following table, using monthly data at 6-month intervals.

Date                         Mass. Unemp. Texas Unemp. National Unemp.

January 2008                  4.4%              4.4%                 5.0%

July 2008                        5.3%              4.9%                 5.8%

January 2009                  7.1%              6.4%                 7.8%

July 2009                        8.5%              7.8%                 9.5%

January 2010                  8.8%              8.2%                 9.7%

July 2010                        8.4%              8.1%                 9.5%

January 2011                  8.3%               8.3%                9.0%

July 2011                        7.6%               8.4%                9.1%

Sources: For MA and TX, Bureau of Labor Statistics (http://data.bls.gov/cgi-bin/dsrv?la then, as Matthias Shapiro says, “select the state or states you want, then select "Statewide", then select the states again, then select the metrics you want to see”). For national rate, http://data.bls.gov/timeseries/LNS14000000.

Texas and Massachusetts entered the recession in December 2007 and in January 2008 with the same unemployment rate, 4.4%. The national rate in both months was 5.0%. Contrary to my implication in “The Massachusetts Miracle,” over the entire period of the official recession (December 2007-June 2009), Texas outperformed Massachusetts on the unemployment rate. This continued until January 2010. Since then, however, Massachusetts has had its unemployment rate fall by 1.2 points, whereas Texas' has been stable, even increasing by 0.2 points. Massachusetts now has a significantly lower unemployment rate than Texas, even though they started from the same level pre-recession. Texas' unemployment rate, at 8.4%, is now 92.3% of the national average, while Massachusetts has a rate that is only 83.5% of the national average.

As I stated in my last post, I don't consider Shapiro's argument at Political Math (that growth in jobs and the labor force are the best metrics to analyze employment performance) to be that persuasive: he conflates growth in the labor force with interstate immigration, and I don't see how adding two new unemployed people to the labor force for every new employed person is such a “good problem to have.” As we saw above, Texas' unemployment rate has worsened more than the national average, and the state fares poorly on a whole host of economic and social indicators compared with “Taxachusetts.”

Texas Employment: When Do Conservatives Consider Illegal Immigration a “Good Problem to Have”?

A commenter on my Massachusetts article says I could have saved myself “a decent amount of time and embarrassment” by relying on data from Political Math. As other commenters pointed out, Matthias Shapiro's post was not addressed at anything but job numbers, and hence had not undermined anything I said about income, violent crime rates, uninsurance rates, infant mortality rates, poverty rates, educational attainment, etc.

Shapiro's argument is that we should primarily be judging Texas vs. other states on its job creation. Especially in light of Ross Douthat's endorsement of Shapiro's numbers in his column Monday, it's important to investigate Shapiro's figures. In fact, his post is marred by the failure to see the difference between immigration and labor force growth, and by the fact that nowhere does he tell us how few jobs Texas created relative to its labor force growth.

In my view, Shapiro is overly impressed with Texas's employment growth, saying, “With Texas, we say, 'Damn. Looks like they've recovered already.'” Part of the problem is that Shapiro has confused labor force growth with population growth. He says “people are flocking to Texas in massive numbers,” yet gives no data on migration, only on the size of the labor force. Indeed, the number of people he says “have fled into Texas,” 739,000, exactly matches the growth of the labor force from December 2007 to June 2011 in his Bureau of Labor Statistics data source (http://data.bls.gov/cgi-bin/dsrv?la then, as Shapiro says, “select the state or states you want, then select "Statewide", then select the states again, then select the metrics you want to see.”). A state's labor force can grow for reasons other than in-migration, such as higher birth rates or people moving out of the discouraged worker category back into the labor force by looking for work. Moreover, migration includes lots of non-labor force members, such as dependents. In any case, as Matt Yglesias shows, Texas' population has grown pretty consistently at close to 2% per year for the last 10 years. He points out, “...in good times Texas adds jobs faster than people, whereas in bad times it adds people faster than jobs.” That's the way it is today.

But it is Shapiro's “personal favorite chart” in his post that is the least meaningful. In it, he divides the June 2011 number of jobs by the December 2007 labor force to come up with a notional “unemployment rate” that supposedly corrects for between-state migration. Of course, he does not have data for interstate migration, but only for changes in the state's labor force. This ignores migrants who aren't in the labor force, like dependents, which adds to actual interstate migration; while also ignoring Texas' higher birth rate, movement from the discouraged worker category to the labor force, and, illegal immigration, all of which would have to be subtracted from the 739,000 increase in the labor force to get actual between-state migration of workers.

Besides not actually measuring (and hence not correcting for) interstate migration of workers, the chart is meaningless because it advantages states that attract unemployed workers. What's so great about attracting unemployed workers to the state? Even though they won't collect Texas unemployment insurance since they weren't employed there, these workers' children go to school, their families will receive uncompensated care at emergency rooms, they drive down wages, some will commit crimes, etc.: There are plenty of costs to the state to attracting unemployed people. Yet Shapiro says of adding 739,000 people to the labor force (not mentioning that it only added 246,000 jobs) from December 2007 to June 2011: “Anyone who takes that data and pretends that it is somehow bad news for Texas is simply not being honest. At the worst, I'd call it a good problem to have.”

Really? Adding almost half a million unemployed workers to the labor force is good news for Texas? The state added two unemployed people for every new job holder in the labor force. And when is the last time a conservative said illegal immigration was a good problem to have? Yet that's what Shapiro has committed himself to, since a good portion of the increase in Texas' labor force has been through illegal immigration.

Far from proving the strength of Texas' job performance, the job creation vs. labor force growth numbers show just the opposite.