This Just in: High Taxes Plus High Unionization Correlates to Joblessness!

Matt Welch | April 22, 2009

Speaking of state-budget shenanigans, over at the Volokh Conspiracy Jim Lindgren reads the latest Bureau of Labor Statistics numbers and concludes that:

3 of the 6 states with the highest unemployment (California, Oregon, and Rhode Island) have both high marginal income tax rates and high union representation. Michigan has high unionization but moderate marginal income tax rates, and the Carolinas have high marginal income taxes, but low unionization rates.

Among the 6 states with the lowest jobless rates, 4 have low unionization rates and no state income tax or modest marginal rates and a fifth (Nebraska) has average income tax rates and low unionization. The exception is Iowa, which has average unionization rates (13%) and high marginal income taxes (8.98%).

I would put less emphasis on my analysis of the LOW unemployment states because they are all in the upper Great Plains. But the HIGH unemployment states are otherwise quite diverse (from the West Coast to New England to the upper Midwest to the Carolinas). What they share are high marginal income taxes or high unionization or both.

As readers of our May cover story (pictured) will also point out, in anger more than sadness, during the relative good times of 2002-2007 state governments doubled their spending, from $1 trillion to $2 trillion (that's 81 percent in adjusted terms). Now they're busy taxing their recession-addled residents in order to fill budget gaps entirely of their own creation. If the figures above (let alone common sense) are any indication, that likely won't end well.

UPDATE: Early commenters are unimpressed with Lindgren's extrapolations.

UPDATE II: L-i-n-d-g-r-e-n. Sorry.

Comments

EcoDude|4.22.09 @ 12:18PM|#

Although the analysis is suggestive, it is by no means exhaustive. There are probably many factors that have to be taken into consideration to draw this conclusion. Perhaps regulatory burdens also explain part of this pattern, etc.

Mike in PA|4.22.09 @ 12:34PM|#

I agree with the premise, but "3 out of 6", "4 out of 6"?

There are a lot more factors that go into these numbers. You could take the same data and make an argument in the opposite direction.

Mike in PA|4.22.09 @ 12:40PM|#

I'm just saying...

We shouldn't be manipulating data to support our pre-identified conclusions; that's what the government and its enablers do.

|4.22.09 @ 12:45PM|#

There are too many other factors to make any conclusion.

Oregon has a high income tax but we have no sales tax. I think our problem is that we have the second highest minimum wage.

Michael M.|4.22.09 @ 12:47PM|#

Oregon has fairly low taxation in comparison with most other states ... I don't have the exact rankings lying around, but Oregon residents pay less of their money to the state than more than half of U.S. states. The income tax is higher because Oregon has no sales tax.

I think Mr. Lundgren's interpolations are extremely limited at best, and probably worthless.

|4.22.09 @ 1:07PM|#

Agree with those that point out that Lundgren's analysis is adjacent to useless. If it made a similar calibur of argument in the other direction, we'd have ripped it to shreds by now.

Doesn't mean he's wrong, just that he hasn't proven (or even made a good argument) that he's right.

|4.22.09 @ 1:11PM|#

This early commenter is unimpressed with everyone's inability to spell Jim Lindgren's name correctly. Lungren?

|4.22.09 @ 1:11PM|#

This is how those 12 states ranked on the Mercatus Center's recent rankings of economic freedom"

Michigan - 15
Oregon - 36
South Carolina - 22
California - 48
North Carolina - 26
Rhode Island - 42

Iowa - 12
Utah - 14
South Dakota - 1
Nebraska - 27
Wyoming - 20
North Dakota - 4

Charles Fuchs|4.22.09 @ 1:19PM|#

Common sense says he is on the right track as these factors always are a detriment to progress. Takes time but the account comes due sooner or later. There isn't a business in the world that would succeed under the premises that these idiots use!

|4.22.09 @ 1:33PM|#

There's also obvious correlation/causation problems here.

This one in particular is one highly susceptible to possible "reverse causation."

I also think that in the current situation of a federal government with as massive a scope as this one, that being able to separate the states for individual evaluation is very problematic.

|4.22.09 @ 1:35PM|#

It seems that the "articles" here are getting to the point where they're written mostly to generate snark, derision and smugtastic comments.

robc|4.22.09 @ 1:38PM|#

If the data for all 51* states, then we can calculate an r^2 for both factors. And some other higher level statistical tests.

That would show us how much of the differences are due to other, uncovered factors.

*including DC

|4.22.09 @ 1:40PM|#

It seems that the "articles" here are getting to the point where they're written mostly to generate snark, derision and smugtastic comments.

You forgot "suicidal despair".

|4.22.09 @ 1:42PM|#

While it is certainly true that correlation does not equal causation, it is equally true that causation cannot exist in the absence of correlation.

Given that the current Powers That Be in DC purport to address our current economic crisis and unemployment with policies to both

(a) increase unionization and
(b) increase taxation,

can we not safely conclude that the data indicates that these policies will at best fail to reduce unemployment?

The Wine Commonsewer (You can |4.22.09 @ 2:10PM|#

I love that cover. Seeing Schwarzzengroper's dour mug right next to the big blue letters that spell out:

FAILED STATES

is pretty nigh on perfect.

Foxtrot Bravo!

ChrisO|4.22.09 @ 2:28PM|#

As a guy who grew up in Oregon, I'd say the biggest factor in that state's unemployment is its lack of economic diversity. Oregon has almost always had higher than average unemployment because it relied so heavily on timber and fishing. These industries are dead right now, and the high tech industry that was supposed to take its place hasn't taken root well enough to make up the difference.

Add in the fact that Oregon is not a very business friendly jurisdiction compared to other states surrounding California, and you have a problem. The income taxes and unionization are more a symptom than a cause.

|4.22.09 @ 2:35PM|#

Add in the fact that Oregon is not a very business friendly jurisdiction

Which might have something to do with the lack of diversification in its economy, no?

There is a Ph.D., if not a minor best-seller, out there for whoever can write a comparative history of Madison, WI, and Austin, TX. Both are state Capitols with major universities. 30 or 40 years ago, they were probably essentially the same town.

Madison was taken over by anti-business leftists in the '70s, and is virulently anti-business. Austin, not so much. Now, Madison is stagnant, and Austin is a massive economic success story.

kinnath|4.22.09 @ 3:17PM|#

Iowa has low unemployment because everyone left the state in the 80's and it's just the clean-up crew left now.

kinnath|4.22.09 @ 3:18PM|#

Or maybe it's because of all those evil farm subsidies.

|4.22.09 @ 3:19PM|#

This article needs to be moved to /dev/null because it advocates a 'policy without theory'.

@Voros McCracken: you got it right!

@RC Dean: you got it wrong:

Since more people die in hospitals than anywhere else, your conclusion would suggest that going to a hospital is a bad idea if you're sick.

On the other hand, if all the physicians in hospitals cure dandruff by decapitation...

ChrisO|4.22.09 @ 4:18PM|#

Which might have something to do with the lack of diversification in its economy, no?

That's certainly true in recent years. Historically, I'm not sure that many businesspeople even thought of Oregon as a place to do business. It was way off the beaten path.

I oversimplified, too. Portland had a thriving industrial sector until about 30 years ago. Alcoa was a major employer. But the state as a whole was about timber and fishing, with some agriculture thrown in. Boom-and-bust cycles have always been more severe in Oregon as a result.

At the moment, though, Oregon competes with Idaho, Washington, Arizona and Nevada to get all of the business fleeing California, and it doesn't do a very good job of it. I don't see unionization as so big a factor as I do heavy-handed regulation, particularly in Portland.

|4.22.09 @ 4:57PM|#

One fact missing is the net federal spend that each state gets. The states listed with lower taxes and unemployment also receive more in federal tax dollars then they contribute. So can we also conclude that they are welfare states living off the higher taxes states who receive lower amounts then they pay in.

|4.22.09 @ 5:07PM|#

Since more people die in hospitals than anywhere else, your conclusion would suggest that going to a hospital is a bad idea if you're sick.

OK, Team, if a correlation between high taxes, unionization, and unemployment doesn't falsify the thesis that higher taxes and more unionization will cause the unemployment rate to fall, what would?

|4.22.09 @ 5:17PM|#

since most of the states with the low numbers are agricultural rather than industrial..isn't that suggestive....of something?? less people to lay-off, perhaps..or that that garden on the white house lawn might be worth emulating??

|4.22.09 @ 5:32PM|#

Portland no longer has a thriving industrial sector because they've been deliberately driving away businesses and increasing traffic congestion for decades. The making of filthy lucre through voluntary transactions upsets Portland's stuffy liberals.

I would argue that Austin's current population isn't all that much less anti-business than Madison or San Francisco.

|4.22.09 @ 6:51PM|#

Most of the job losses in Oregon have nothing to do with unionization or high taxes.

Tech jobs are getting hammered in Oregon, this sector is not unionized and businesses typically enjoy significant tax breaks form the state.

Construction jobs are getting hammered in Oregon, this sector has very little unionization, and no punitive taxes special to the sector.

An interesting aspect to Oregon's unemployment is that the labor force increased significantly over the past 12 months, even as jobs were declining. Apparently people would rather be unemployed here than employed elsewhere.

linky

Gene Berkman|4.22.09 @ 9:32PM|#

The inclusion of South Carolina among high unemployment states, and the reference to high taxes in the Carolinas does take a little shine off the Mark Sanford for President boomlet.

|4.23.09 @ 10:54AM|#

I don't like cross-state comparisons in these kinds of exercises, because there are persistent differences in employment/unemployment trends across urban and rural areas. States in America are far more differentiated via being primarily urban or rural than they are by taxation or unionization. Metropolitan areas are more comparable, more cohesive labor markets.

Also, I don't think income taxes can necessarily be asserted as being more or less distortionary than other forms of taxes on individuals--or businesses, for that matter. States can levy other taxes and borrow, too.

For this and other reasons, I think a simple test along these lines would do better to make some variable substitutions:

Government expenditures as a percentage of Gross State Product for state income taxes (though this is fundamentally different in assuming state-government spending to be the potential culprit rather than marginal tax rates)

Metropolitan unemployment rates for state unemployment rates (though the data are not as reliable at the substate level, and metropolitan areas cross state lines in some cases (data is available breaking this down, but I worry about the potential of commuters to "escape" detrimental state policies in these areas))

Unfortunately, unionization data isn't available below the state level, nor is GDP at the metropolitan level. However, I think both of these are intended as proxies for government policies independent of local circumstances (the asymmetrical impact of the recession on different sectors of the economy nationwide (independent of state-level policy) is reflected in states that have the preponderance of these sectors) and should suffice.