Sept. 19, Pia Orrenius, Senior Fellow at SMU’s Texas-Mexico Center (and co-author Madeline Zavodny) for a piece explaining how the Texas economy maintains business growth and labor sources, especially from Mexico. Published in the Dallas Morning News under the heading The secret to Texas growth isn’t what you think: https://bit.ly/3CowPNy
The Texas economy consistently grows faster than the nation’s. Since emerging from the 1980s oil bust, the state outpaces national growth rates. Sure, experts may point to a large and diverse economy and booms in fracking and exports, but those factors only begin to explain the success.
The secret to Texas’ growth lies in its ability to generate as well as attract businesses, and to draw and retain the workforce needed to power them. Such business dynamism and worker magnetism add up to what some call the Texas Miracle.
In a recent study published by the SMU Texas-Mexico Center we look at this question using Census Bureau data on households and business dynamism spanning 2006-18.
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By Pia Orrenius and Madeline Zavodny
The Texas economy consistently grows faster than the nation’s. Since emerging from the 1980s oil bust, the state outpaces national growth rates. Sure, experts may point to a large and diverse economy and booms in fracking and exports, but those factors only begin to explain the success.
The secret to Texas’ growth lies in its ability to generate as well as attract businesses, and to draw and retain the workforce needed to power them. Such business dynamism and worker magnetism add up to what some call the Texas Miracle.
In a recent study published by the SMU Texas-Mexico Center we look at this question using Census Bureau data on households and business dynamism spanning 2006-18.
Texas ranks first among all states in the number of net domestic migrants (the number of people moving in from other states minus those moving out) and first among the most-populous states for net migration rates. We define the migration rate as the number of adults ages 20 to 54 who move into a state per 1,000 adults in the receiving state’s population.
Quite unexpectedly, we find that Texas’ top ranking is not the consequence of high gross domestic in-migration but rather low gross domestic out-migration. Texas actually has a lower domestic in-migration rate than the rest of the U.S. on average during the entire period we examine.
Despite Texas’ strong economic growth, the state fails to attract people from other states in large numbers relative to its population. The state does outpace the rest of the country in attracting new immigrants from Mexico, and it certainly attracts some other migrants, too (welcome to Texas, Elon!).
Where Texas is truly exceptional, however, is its lack of out-migration to other states. Texas is the nation’s stickiest state, with very low domestic out-migration by U.S. natives, all immigrants, and Mexican immigrants. A 2018 Federal Reserve Bank of Dallas study noted that Texas has the highest retention rate of any state, with 82% of people born in Texas still living in the state.
Texas is also successful when it comes to business dynamics. We find that Texas has a higher net business formation rate than almost all other states, ranking second only to Utah. High net business formation is due largely to the state’s high rate of business startups rather than low rate of business closures, especially during the energy bust in 2015-16, when hundreds of energy firms failed. Much like the high startup rates, Texas’ net job creation rate is also an outlier, pushed up by rapid job creation and, in a typical year, low job destruction as compared with the rest of the country.
Migration, retention and business formation are a necessary combination to achieve sustained economic growth, particularly in light of current economic and demographic trends. Business startup rates have been trending down for decades, as has productivity growth. Meanwhile, demographic headwinds include an aging population, retiring baby boomers and waning birth rates.
Migration helps businesses grow because it channels workers to places where labor is in relatively scarce supply, typically areas where business formation is also thriving. Specifically, migrants boost an area’s population and labor force growth, bring skills that are in demand by employers and help resolve labor market bottlenecks. In so doing, migration further spurs business formation and expansion, leading to increased business investment and faster job creation.
High retention of the state’s existing workforce can have similar effects, but the skills of those who stay are more directly linked to the state’s educational infrastructure. Whether it’s academic preparation or workforce training, the quality and diversity of high schools, community colleges and universities takes on greater significance in a state that keeps its students than in a state that sees them leave. Since Texas relies extensively on its homegrown population, investment and innovation in public education is paramount.
When it comes to migration, it’s important to remember that it is both domestic and international. In the 1990s, the bulk of migration to Texas was international. Domestic migrants, a group that includes both U.S. natives and immigrants who live in another state, became an increasingly important component of migration to Texas in the mid-2000s.
Relying on keeping the workers it has and attracting additional ones from other states raises concerns about the future. The aging of the U.S. and Texas labor force and retirement of the baby boomers call into question how much longer these forces can sustain business dynamism, even in regions where other factors favor these activities.
A favorable business climate, relatively low taxes, advantageous industry mix and international trade may be insufficient to maintain outsized regional growth in Texas as labor grows more scarce. Technological advancements will be helpful. But sustaining growth in the future will require looking beyond borders once again and implementing immigration reform.
Pia Orrenius is a vice president and senior economist at the Federal Reserve Bank of Dallas and a senior fellow at the SMU Texas-Mexico Center.
Madeline Zavodny is an economics professor at the University of North Florida.
