Ten-Gallon Economy. Edited by. Pia M. Orrenius, Jes ú s Ca ñ as, and. Michael Weiss. Sizing Up Economic Growth in Texas

Transcription

1 Ten-Gallon Economy

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3 Ten-Gallon Economy Sizing Up Economic Growth in Texas Edited by Pia M. Orrenius, Jes ú s Ca ñ as, and Michael Weiss

4 TEN-GALLON ECONOMY Copyright Federal Reserve Bank of Dallas, Softcover reprint of the hardcover 1st edition All rights reserved. First published in 2015 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / Library of Congress Cataloging-in-Publication Data Ten-gallon economy : sizing up economic growth in Texas / edited by Pia M. Orrenius, Jesús Cañas, Michael Weiss. pages cm Includes bibliographical references and index. 1. Economic development Texas. 2. Texas Economic policy. 3. Banks and banking Texas. 4. Texas Commerce. 5. Labor market Texas. I. Orrenius, Pia M., editor. II. Cañas, Jesus, editor. III. Weiss, Michael, 1954 editor. HC107.T4T dc A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: September

5 To the people of the Eleventh Federal Reserve District, our hope is that analysis of conditions in our region, as well as reflections on past experiences and future challenges, will inform and enlighten citizens and lawmakers.

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7 Contents List of Illustrations About the Title P re fa c e Ac k n o wl e d g m e nt s ix xiii xv xvii Pa r t I I nt ro duc t ion 1 Tipping Our Hats to the Ten-Gallon Economy 3 Pia M. Orrenius, Jes ú s Ca ñ as, and Michael Weiss Part II Public Policy and Business Climate 2 Increasing Jobs and Income from Work: The Role and Limitations of Public Policy 15 David Neumark 3 Why Texas Grows Faster: The Role of Smaller Government 33 Jason Saving 4 The Shortcomings of the Texas Margin Tax 47 Alan D. Viard Part III Human Capital and Labor Markets 5 Texas Education Challenge: A Demographic Dividend or Bust? 61 Marta Tienda 6 Oil Boom Lowers Human Capital Investment in Texas 79 Anil Kumar 7 Employment Growth and Labor Market Polarization in the United States and Texas 91 Melissa LoPalo and Pia M. Orrenius Part IV Industry and Exports 8 Texas Real Estate: From the 1980s Oil Bust to the Shale Oil Boom 109 John V. Duca, Michael Weiss, and Elizabeth Organ

8 viii CONTENTS 9 The Evolution of Texas Banking 119 Kory Killgo and Kenneth J. Robinson 10 The Impact of Changing Energy Prices on the Texas Economy 139 Mine K. Y ü cel, Michael Plante, Amy Jordan, and Nicole Lake 11 Texas Comparative Advantage and Manufacturing Exports 159 Jes ú s Ca ñ as, Luis Bernardo Torres Ruiz, and Christina English Part V Border and Economic Development 12 So Close to Mexico: Economic Spillovers along the Texas Mexico Border 183 Roberto Coronado, Marycruz De Le ó n, and Eduardo Saucedo 13 Border Economic Recovery Lags Rest of State 199 Keith R. Phillips and Christopher Slijk 14 Las Colonias along the Texas Mexico Border 213 Jordana Barton, Emily Ryder Perlmeter, Elizabeth Sobel Blum, and Raquel R. M á rquez Contributor Biographies 231 In d e x 237

9 Illustrations Figures 2.1 E ff ects of State Hiring Credits on Employment Growth, Range of Estimated Employment Effects of E nt er pr i s e Z one P rog r a m s Averages of Estimated Effects on Growth Rates of Changes from Fortieth to Tenth Position in Rankings of Components of Tax- and Cost-Related Business Climate Indexes, and Comparisons to Nonpolicy Factors Contributions of Business Climate Index and Control Variables to Employment Growth (QCEW), a Relationships Between Economic Growth, Change in Inequality and Rankings on EFI Business Climate Index, : State GDP Growth Versus Change in the Gap b Relationships Between Economic Growth, Change in Inequality and Rankings on EFI Business Climate Index, : State GDP Growth Versus Change in the Gap Earned Income Tax Credit by Income and Number of Children, E s t i m at e d E ffects of State Earned Income Tax Credit on Probability that Family Earnings are Above Poverty Line or One-Half of Poverty Line Texas Consistently Grows Faster than the United States Texas Population Growing at Twice National Rate Texas Leads Nation in Exports Since Texas State and Local Per Capita Tax Burden Lower than National Average Texas State and Local Per Capita Outlays Also Below National Average No Clear Relationship between Tax Burden and Per Capita Output Growth No Clear Relationship between Government Expenditures and Per Capita Output Growth, Either Texas State Margin Tax Revenue D i s p a r it y i n E ffective Tax Rates in a Simplified E c onomy a US A ge E duc at ion a l At t a i n me nt P y r a m id, b US A ge E duc at ion a l At t a i n me nt P y r a m id,

10 x ILLUSTRATIONS 5.2 Percentages of Full-Time, First-Time Freshmen Receiving a Bachelor s Degree Within Six Years of Enrollment at a Texas Public University Population Ages and with a Bachelor s Degree or Higher: Selected OECD Nations and Texas, Texas and US Age Education Profiles, Texas Age Education Profiles: Anglos and Hispanics, Oil Price Boom and Bust from 1970 to Change in Mean Real Hourly Wages (Texas Versus Rest of Un it e d St at e s) D i ff erence in Share with College Education in 2010 (Boom Cohort minus Pre-Boom Cohort) Change in Employment by Wage Quartile, Change in Employment Shares by Wage Quartile, Job Growth by Wage Quartile and Decade in Texas Job Growth by Wage Quartile for Large States, Change in Employment Shares for Full-Year, Full-Time Workers Change in Employment Shares by Wage Quartile, Texas Job and Wage Growth by Industry, United States Minus Texas Job and Wage Growth by Industry, Job Growth in Texas Usually Outpaces the United States, Especially During Energy Booms Texas Employment Trends Up Strongly After 1980s Oil Bust Unemployment Rate in Texas Usually Below National Rate During Energy Booms Texas Residential Construction Outpaces the United States, Particularly During Energy Booms Banking Institution Failures Concentrated in Texas During Savings and Loan Crisis, not in Recent Crisis Low Inventories Consistent with Rising Inflation-Adjusted House Prices in Texas National Banks in Texas, Private Banks in Texas, Assets in Texas National and State Banks, Liquidation Rate at Texas State Banks, Special Assessment on Texas State Banks, Disposition of Insured Deposits at Failed Texas State Banks, Annual Return on Average Assets Nonperforming Loans as a Percentage of Total Loans Bank Failures as a Share of All Banks Relative Growth in Banks and Branches at Year-End Percentage of Banks with a Texas Ratio Greater than 100 Percent Texas Crude Oil and Natural Gas Production Texas Employment Follows Changes in Oil Prices 140

11 ILLUSTRATIONS xi 10.3 Location of Major Shale Formations by Railroad Commission District Oil Production Picks Up, Reversing Decades-Long Trend New Technology Changes Distribution of Texas Natural Gas Texas Exports Growing Faster than the Nation Texas Main Country Competitors in World Markets a Petroleum and Coal Products b Computer Equipment c Motor Vehicle Parts d Fabricated Metal Products Share of World Manufacturing Exports, Selected US States a Petroleum and Coal Products Manufacturing b Computer and Electronics Product Manufacturing c Transportation Equipment Manufacturing d Fabricated Metal Product Manufacturing Border Metros Except El Paso See Faster Job Growth than Texas Business-Cycle Indexes Show Varying Degrees of Volatility Across Border Metros Weak Employment Growth in Chihuahua Accounts for Some Slower Growth in El Paso Real Government GDP Growth Higher on Border than in State Federal Government Job Growth Much Faster on Border than in Rest of Texas Home Health Care Employment Share Higher in Rio Grande Valley, Border than in State Border Employment Growth Usually at or Above Texas Rate until South Texas Border Metros See Weak Housing Recovery After Bust Medicaid Enrollments Picking Up Sharply in Border Counties Infrastructure Improving in Border Colonias Poverty and Near-Poverty Rates, Colonia Versus County Populations Public Assistance Recipiency: Colonias and Counties Median Household Income by Area, Educational Attainment by Area, Persons 25 Years and Older Earnings Gap Remains with Increased Education for Hispanics Along Border 223 Tables 5.1 Selected Educational Indicators: Texas and United States, Texas Racial and Ethnic Disparities in College Readiness, Percentages of 25- to 34-Year-Olds with a BA or Higher: Texas and United States,

12 xii ILLUSTRATIONS 6.1 Worker Percent Share by Educational Attainment: Oil and Gas Versus other Industries in the United States Worker Percent Share by Educational Attainment: Texas Versus Un it e d St at e s Real Hourly Wage in Texas Versus United States Real Hourly Wage of Workers with High School Versus College Degrees in Texas Versus United States Percent of Population in 2010 with College Degree or Any College Wage Quartiles in the 1980 Census Capital Requirements on Texas State-Chartered Banks Ten Largest Banking Organizations in Texas Long-Run Variance Decomposition of Texas Nonfarm Employment in the Oil Model Long-Run Variance Decomposition of Texas Nonfarm Employment in the Natural Gas Model Employment Responses to a 10 Percent Increase in Oil Prices Employment Responses to a 10 Percent Increase in Gas Prices Employment Responses to a 10 Percent Increase in Oil Production State GDP Responses to a 10 Percent Increase in Energy Prices Texas Shares of World Exports Texas Revealed Comparative Advantage a Ratio of Texas Revealed Comparative Advantage with Respect to Illinois b Ratio of Texas Revealed Comparative Advantage with Respect to California c Ratio of Texas Revealed Comparative Advantage with Respect to Ohio a Texas Market Gain Versus Illinois b Texas Market Gain Versus California c Texas Market Gain Versus Ohio List of US Mexico Border City Pairs Employment Growth in US Border Cities by Sector, Average Annual Growth in Maquiladora Wages and Employment in Mexican Border Cities, Employment Estimation Results for US Border Cities, Employment Estimation Results for Texas Border Cities, Employment Regressions for US Border Cities with Industry-Varying Coefficients, Employment Regressions for Texas Border Cities with Industry-Varying Coefficients, Employment Regressions for US and Texas Border Cities Under Different Specifications, L o c at ion Q uot ient s: E mploy me nt Government Transfer Payments as a Share of Personal Income Te x a s C olon i a s C l a s si fication System 216

13 About the Title I n Texas, a ten-gallon hat refers to a large cowboy hat with a tall crown. Linguists believe that the term, rather than referring to ten gallons of liquid, may have originated from the Spanish phrase tan gal á n, meaning very gallant or really handsome. Thus, the hat conveyed those characteristics on its wearer.

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15 Preface T he body of research making up this edited volume was assembled in celebration and recognition of the Federal Reserve Bank of Dallas centennial year. The papers that form the basis of this book s chapters were first presented at the Dallas Fed s regional centennial conference on November 7, 2014, almost 100 years to the day since the creation of the Bank. Forged out of the Federal Reserve Act in 1913 and established the following year, the Dallas Fed and the other 11 Reserve Banks share responsibility for monetary policy with the Federal Reserve Board of Governors in Washington, DC. This unique central bank structure reflects the federalist values that underlie many American institutions and grounds US monetary policy in the experiences of regional economies around the nation. This volume offers an in-depth examination of the largest part of one of these regions, Texas. The volume s contributors include the Dallas Fed s own economists, many of them renowned in their fields of expertise. They are joined by some of the nation s foremost minds in regional economics and public policy (David Neumark), tax policy (Alan Viard), and education (Marta Tienda). No single industry or public policy explains Texas successes, and no one future challenge looms transcendently large. While the state s triumphs may reflect a combination of adept decisions and good fortune, the key throughout its recent economic history has been Texas ability and willingness to change. Market forces thrive in the state, guiding investment and fueling growth. But where the market s reach ends, nimble policymaking must often intervene to help leverage past achievement into an equally remarkable future. Texas has set a high bar by which success is measured. If the past provides any guidance about the future, the state and its burgeoning population are up to the challenge.

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17 Acknowledgments W e thank all the authors who contributed their time and expertise to the production of the research highlighted in this volume. We thank Mine Y ü cel, in particular, who is both a contributor and the Federal Reserve Bank of Dallas Director of Research; this project would not have been possible without her support. We also thank Richard Fisher, our former Bank President, for his encouragement and support of our regional economics team during his time leading the Dallas Fed. We also owe a debt of gratitude to First Vice President Helen Holcomb, whose backing for the centennial conference and the compilation of this volume ensured we had the resources and collaboration of Bank staff to successfully carry out this project. The logistics of the compilation of this volume required the assistance of copy editors, research assistants, and administrative assistants. We thank Jennifer Afflerbach, Kathy Thacker, and Carol Dirks for their thorough editing of all the manuscripts. We thank Sarah Greer, Emily Gutierrez, and Kristin Davis for compiling tables and figures. We thank Michele Brown for helping assemble all the pieces of this volume for submission to the publisher. Pia Orrenius expresses her deep appreciation to her coeditors, Jes ú s Ca ñ as and Michael Weiss, who worked tirelessly to ensure the quality and readability of every manuscript. She also thanks Leila Campoli at PalgraveMacmillan, whose enthusiasm and sense of urgency sped this process along, ensuring a timely publication. Pia Orrenius, Jesús Cañas, and Michael Weiss