Ryan Avent is The Economist's economics correspondent and the primary contributor to Free Exchange, an economics blog
The Lone Star State’s only jobs advantage: 4 fast-growing metros
The entry of Rick Perry, swashbuckling Texas governor, into the contest for the Republican presidential nomination focused the country’s attention on his state’s strikingly anomalous labor market. In the year to July, the Lone Star State was responsible for one out of every five jobs created in America. This success has pundits scrambling to see whether Perry deserves credit and, more importantly, what parts of the “Texas Miracle” can be replicated elsewhere.
The political story that is Rick Perry’s candidacy obscures the metropolitan roots of the Texas story. Texas does most of its job creating in its four large metros: Austin, Dallas, Houston, and San Antonio. Over the past year, Dallas and Houston alone accounted for 10 percent of the net job creation in the United States, according to the Bureau of Labor Statistics. Another BLS survey that tracks country-level employment shows that while Texas’ cities were growing, over two-thirds of the state’s rural counties lost jobs, and rural employment fell by nearly 16,000 over the past year. Growth in Texas has really been about growth in its biggest cities.
In that sense, Texas isn’t unusual. The New York metropolitan area added more jobs over the past year than any other city, including those in Texas. Boston’s employment grew by over 60,000 workers in the past year—a similar performance to Dallas and Houston—which accounted for virtually all of Massachusetts’ new job creation. Around the country, the states adding the most new jobs are those with the metropolitan areas adding the most new jobs. Texas’s great advantage is in having four such metros.
|U.S. Metro Area||Jobs added from July 2010 through July 2011|
|1) New York-Northern New Jersey-Long Island||71,700|
|2) Dallas-Fort Worth-Arlington||65,400|
|3) Houston-Sugar Land-Baytown||65,100|
|7) San Jose-Sunnyvale-Santa Clara||29,600|
|8) Los Angeles-Long Beach-Santa Ana||29,400|
|10) Miami-Fort Lauderdale-Pompano Beach||22,000|
That in itself is worth noting. Texas metros benefit from some idiosyncratic economic features. Rising oil prices slow economic activity in most of the country, but are good for Texas. After a brutal property bust centered in Dallas in the 1980s, the state tightened mortgage regulations, which reduced the incidence of reckless lending during the latest housing boom.
Yet the big secret to success is Texan cities’ willingness to capitalize on their advantages through an extraordinary openness to growth. Relative friendliness to immigration is one source of strength. Between them, Dallas and Houston welcomed over 600,000 new residents from abroad over the past decade. That welcoming spirit extends to other Americans attracted by low housing costs. Houston’s famous willingness to build means that when new residents want to move in, housing supply quickly adjusts and prices stay low.
That’s not how it works elsewhere. Beginning in the 1990s, rising incomes for skilled workers, especially in technology industries, made California’s cities more attractive. Strict local building rules made it difficult to accommodate new housing demand, however, sending prices soaring. Middle-class households have been only too willing to leave pricey San Francisco for affordable Houston, and that constant flow of people helped support the Texas economy through the recession. While construction employment is falling across most of the country, for instance, Texas added 24,000 construction jobs over the past year. Relocation into a city is good for the local economy, increasing demand for things like housing and consumer goods, which translates into new jobs that are conveniently filled by the newcomers.
It is over the long-term, however, that the impact of openness is most keenly felt. The great migrations to Dallas and Houston represent huge flows of human capital that will support economic growth for decades. During the tech boom of the late 1990s, Silicon Valley struggled to attract skilled workers thanks to soaring housing costs. Its too-tight labor market made a poor environment for new businesses; strikingly, Silicon Valley’s entrepreneurship rate was below that for the country as a whole during this period. That translated into missed opportunities for the Bay Area; firms, jobs, and ideas that might otherwise have been created were choked off by the high price of housing. For Houston entrepreneurs, by contrast, housing costs are a recruitment tool rather than an obstacle to overcome.
In Texas, cities see new housing as an investment— a means to keep talent flowing inward—rather than a threat to neighborhood peace. That outlook helped spare the state a bubble and supports its growth now. But it is in faster growth over coming decades that Texas will reap the greatest dividends.