Jobs and Population Growth

My view is that Texas’ robust job growth is a consequence of its robust population growth so if you want to replicate Texas results on a national basis then you need some story about increasing America’s population growth rate. An alternate story, being pressed on me via email over the weekend, is that people are moving to Texas because that’s where the jobs are. I have two reasons for doubting this, one empirical and one theoretical.

Empirically speaking, it’s just not the case that Texas has an unusually low unemployment rate. If people were trying to move toward labor market opportunities they’d be leaving Texas and moving to the Great Plains. The basic point is illustrated by the fact that Texas has consistently maintained a faster population growth rate than Iowa even though Iowa has always had a lower unemployment rate. In some sense the labor market “wants” people to move to Iowa. But in practice, people want to move to Texas. And in the aggregate, jobs are moving to Texas where the people are:

Theoretically, America has an overwhelmingly service driven economy. People sell things to each other. In China, entrepreneurs to build factories in places with “factory friendly” locations and then people move there. But this is not how the American economy works. It’s more like the reverse. If you run Darden Restaurants and you decide you have reason to believe that population growth is going to surge in West Virginia then you say to yourself “with more people living in West Virginia, there will be more business opportunities for the Red Lobster in West Virginia.” Then you go about building restaurants, creating construction jobs and cook jobs and waiter jobs. Along with restaurants, the people moving to West Virginia will need accountants and lawyers and doctors and big box stores. They’ll need houses to live in. The new, larger population will pay more in taxes and will require more police officers and teachers and DMV clerks. Population growth, in other words, will lead to job growth.

The opposite isn’t going to work. If the Governor of West Virginia rings up Darden HQ in Orlando and says “hey, we have a really business friendly environment you should open up some more restaurants” the answer is going to be “well, no, you have a poor state with a declining population.”

Now I don’t want to deny that it’s impossible for job creation to lead to population growth. If the Defense Department relocates its headquarters to West Virginia, people will move to West Virginia. If they discover diamond mines in West Virginia, people will move to West Virginia. But in the contemporary United States most people earn a living providing services to other people, so population movements should create jobs more than job-creation leading to population movement. This is why, I think, we see strong population growth in Texas amidst meh unemployment performance even as people remain reluctant to move to low unemployment plains states.