In recent months conservatives have been boasting about the strong job growth of red state Texas compared to the much weaker job growth of blue state California. They use this comparison to promote their line that low taxes and pro-business regulations are the key to low unemployment and prosperity. It’s worth taking a closer look.
First, the story is not simply one of Texas growth being driven by oil and gas, although its abundance of energy is clearly a factor. Using the business cycle peak in December of 1981 as a start point, employment has grown by 77.9 percent in Texas compared to just 59.0 percent in California.
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The 1981 start point is a good base of comparison because it was also a period when high energy prices were helping to drive the Texas economy. This means that we are picking up the growth between two energy booms. If instead we looked at the growth between the 1981 business cycle peak the 2000 business cycle peak, a period of low energy prices, California narrowly wins the job growth prize, 48.6 percent to 47.1 percent.
In this sense Texas is a bit like an OPEC country, clearly energy prices are an extremely important factor to its economy. But energy prices are not the whole story, and neither are low taxes and pro-business regulations.
The most obvious difference that would hit anyone comparing California and Texas is the enormous difference in housing costs. To take a couple of examples on the rental side according to the Department of Housing and Urban Development the fair market rent for a two-bedroom apartment in Los Angeles County is $1,398 a month. In Harris County, Texas, which includes Houston, it’s just $926 a month. The fair market rent for a two-bedroom apartment in Santa Clara County, which includes San Jose, is $1,649 a month. It was just $894 in Dallas County in 2010, the most recent year available.
Home sale prices show the same story. According to CoreLogic, the median house price in Los Angeles is $456,000. This compares to a median price of $187,000 in Houston. There is a similar story for other cities across the state.
This enormous gap in housing costs has certainly made a difference in the pace of job growth in the two states. A person working full-time at the national median wage median wage (at $17 an hour) earning $2,720 a month before taxes, could afford a two-bedroom apartment in Texas and could even buy a home. That would not be true in much of California.
The difference in housing prices is explained by differences in regulatory decisions. California has sharply restricted construction in most areas. As a result, the Census Bureau reports that the between 1980 and 2010 the number of housing units in Texas increased by 81.9 percent, compared to just 41.3 percent in California.
Restricting the number of new homes that can be built improves the quality of life for the people who live in the state by making it less crowded, thereby reducing stress on the infrastructure and the environment. It means, for example, that Californians are less likely to see their homes blown up by exploding fertilizer plants. But it also means that fewer people will live there. For this reason it shouldn’t be surprising that Texas would win the job growth derby; California has effectively decided to constrain its growth.
The dividend for Californians shows up in various ways. At 80.8 years, life expectancy in California is well above the national average. The 78.5 year life expectancy in Texas is slightly below the national average. Large chunks of California have been parceled off in protected forests, sea shores, and deserts that people across the globe come to see. There is not much by way of protected nature in Texas.
If you were fortunate enough to buy a home in the state 25 or 30 years ago, you have likely made a huge amount of money. A house that sold for $150,000 in Los Angeles in 1987, would sell for $540,000 today. This implies a gain of $232,500, after adjusting for inflation. By contrast, house prices in Texas have largely just kept pace with the rate of inflation. Of course that is good news if you’re a young person interested in buying a home.
It’s possible to make an argument that a growth path that allows for largely unrestricted development is a better way to go than a path one that tries to constrain growth to protect the quality of life. However it doesn’t make sense to argue the case based simply on the fact that the former path leads to more growth.
There is no doubt that the Texas growth path will lead to more jobs. The question is whether it creates a society where people want to live. Many people are willing to pay lots of money to live elsewhere.