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America's 50 Growth Laboratories

Article by Bernard L. Weinstein April 2, 2013 //   4 minute read

Last week, the Texas Workforce Commission reported that the state added 80,600 new jobs in February, a one-month record. Over the past 12 months, Texas has added 360,000 jobs — an increase of 3.3%. By contrast, the job growth rate for the U.S. has been a paltry 1% over the past year, and 3.5 million fewer people are employed today than in 2007. Only 14 of the nation’s 100 largest metropolitan areas report more jobs now than in 2007, and six of them are in Texas: Austin, San Antonio, El Paso, McAllen, Dallas, and Houston. Other cities on the list include Oklahoma City, Omaha, Salt Lake, Pittsburgh, San Jose, Knoxville, Washington, and Charleston (SC). Not surprisingly, these same areas were among the fastest-growing in population as well.

To some degree, the good economic fortunes of most the above-mentioned cities (including Pittsburgh, which has become a staging area for the Marcellus shale play) can be attributed to the ongoing energy boom. Since 2009, the oil and gas industry has added 430,000 jobs, with Texas, North Dakota, Oklahoma, and Pennsylvania capturing the lion’s share. But much more is going on. With the exceptions of San Jose and Washington — special cases in any event — all of America’s fastest-growing cities are located in “business friendly” states with comparatively low tax rates and a light hand of government regulation.

In a recent Wall Street Journal Op-Ed, economists Arthur Laffer and Stephen Moore neatly summarize the difference between fast- and slow-growing states:

Workers and business owners are responding to clear economic incentives in the Southeast and Sunbelt. [These states are] reducing tax rates and easing regulations. They also offer right-to-work laws as an enticement for businesses to come and set up shop. Meanwhile … states of the Northeast, joined by California, Minnesota and Illinois, are … raising taxes on businesses and the wealthy to fund government ‘investments’ and union power.

California and New York, the first and third largest states by population, currently record jobless rates of 9.6% and 8.4% respectively, well above the national average. Both have been pursuing anti-growth policies for decades, with the result that the Golden State has recorded net-outmigration of more than 4 million over the past 20 years while the net outflow of people from the Empire State has exceeded 2 million.

Ironically, both states have the potential to reinvigorate themselves by joining the shale revolution. The Monterey Shale in California holds an estimated two-thirds of the country’s shale oil reserves, and a recent study by the University of Southern California calculates that development of the formation could generate a half million new jobs by 2015 and 2.8 million by 2020. Similarly, the southern tier of New York State sits atop one of the “sweet spots” of the Marcellus and could become the major supplier of natural gas to the 22 million residents of greater New York City. But California prohibits virtually any new drilling while New York has imposed a moratorium on hydraulic fracturing.

America’s 50 states are not only our “laboratories of democracy” but also our laboratories for economic development. Recent growth trends suggest that states with large and expanding public sectors, coupled with rising taxes and more stringent regulations on business, are losing people and jobs to states with a more modest taste for government-provided goods and services and less regulatory interference with private decision-making.