The States and Unemployment

If the governors who have had some success have some wisdom to share on lowering unemployment, the rest of the country sure could use it.

The big news over the long holiday weekend, which is resonating in the stock market, was the national employment and unemployment number.

The national unemployment number for March was 8.2%, down just slightly from the 8.3% reported in February. The rate is seasonally adjusted and subject to all sorts of other massaging by the bureaucrats who collect and issue it, but people, and markets, pay a good bit of attention to it nonetheless, as they do to the payroll survey that counts jobs rather than unemployed workers.

Less noticed, but perhaps more illuminating from a policy perspective, are the state unemployment rates. America, after all, isn't just one unified national labor market. Job creation and economic growth are affected not only by the policies of the government in Washington, but by the policies of the governments in power in 50 state capitals and in local governments across the country.

There are wide variations in these state unemployment rates. The most recently reported ones, for the month of February, range from lows of 3.1% in North Dakota, 4% in Nebraska, and 4.3% in South Dakota to highs of 10.9% in California, 11% in Rhode Island, and 12.3% in Nevada.

At first glance, these differences defy the obvious explanations. Is the secret to low unemployment a Republican governor? The low-unemployment Dakotas have Republican governors, but so does high-unemployment Nevada. Is the secret to low unemployment the lack of a state income tax? Low-unemployment New Hampshire, South Dakota, and Wyoming are all among the states with no state income tax. But high-unemployment Nevada doesn't have an income tax, either.

Still, there are some comparisons that are illuminating, or at least suggestive. Rhode Island has an unemployment rate of 11% and a top state income tax rate of 5.99%; neighboring Massachusetts has an unemployment rate of 6.9% and a top state income tax rate of 5.3%.

New York has an unemployment rate of 8.5% and a top state tax rate of 8.82%; neighboring Connecticut has an unemployment rate of 7.8% and a top state tax rate of 6.7%.

Minnesota, which borders the Dakotas, has a 5.7% unemployment rate and a top state income tax rate of 7.85%; South Dakota has no state income tax and a 4.3% unemployment rate, while in North Dakota, where the unemployment rate is 3.1%, the income tax rate tops out at 3.99%.

North Carolina's top income tax rate, 7.75%, is higher than South Carolina's top income tax, which is 7%. And, sure enough, North Carolina's unemployment rate, at 9.9%, is also higher than South Carolina's, which is 9.1%.

Two other states that border each other are Indiana and Illinois. The 5% state income tax in Illinois is higher than the 3.4% state income tax in Indiana. The 9.1% unemployment rate in Illinois is also higher than the 8.4% unemployment rate in Indiana.

Taxes don't explain everything. Other factors, such as the presence of oil and gas and of universities that spawn entrepreneurial graduates, also help. But it is interesting that the George W. Bush Institute is having a big conference in New York on April 10, just as income taxes are due, on the topic of "Tax Policies for 4% Growth." Not a single declared presidential candidate is a scheduled speaker, but at least five Republican governors — Chris Christie of New Jersey, Mark Fallin of Oklahoma, Sam Brownback of Kansas, Paul LePage of Maine, and Bill Haslam of Tennessee — will be there.

As Justice Brandeis said in a different context: "It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." If the governors who have had some success have some wisdom to share on lowering unemployment and fostering growth, the rest of the country sure could use it.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.