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.

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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.

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    1. HOMEBREW THREAD!

      1. Did Ira Stoll provide any ueful information in this article?

  1. taxes are part of it, breadth of govt is part of it, the economic makeup of a state is part of it, and demographics are part of it. The Dakotas and Nevada (Vegas mostly) are not apples to apples or even apples to oranges, more like apples to carburetors. Problem is Vegas is in the construction industry and some with the casinos due to slower business, but construction is the biggie. Doubtful housing was as big a deal in either Dakota.

    Folks want magic bullets and those are hard to come by but smaller govt is a good place to start. Key benefits, obviously, are discouraging the entrenching of an entitlement mentality and having a huge bureaucratic mouth to sustain.

    1. discouraging the entrenching of an entitlement mentality and having a huge bureaucratic mouth to sustain.

      oopsie.

  2. Taxes don’t explain everything. Other factors, such as the presence of oil and gas and of universities that spawn entrepreneurial graduates, also help.

    Or, more likely, the fact that many of those states have a less burdersome regulatory environment. I know that California’s is onerous enough to make whales consider giving birth somewhere else.

    1. You need a permit to do most anything besides men there.

      1. You try to do me you damn well better have a permit.

  3. Wow! The comment section sure looks pretty spartan, now that TPTB have drained the swamp. i like the change. But i haven’t seen Tony since the Great Flush. Did he turn out just to be an aspect of the super-troll? i always thought he was a tedious little pip-squeak, but i always thought he actually existed. WI was different; i couldn’t have cared less if he (she/it?) lived or died. Will the multi-headed hydra find new places to pollute, or like a Japanese monster movie, will she inevitably be back in a sequel?

    1. I think I saw Tony on a thread a day or two ago, but the post was particularly inane, even for him, so it’s anyone’s guess whether it’s a spoof or actually him.

    2. While I don’t like trolls, if I had to have them, I would want them to be like White Indian. He was a dynamic troll, responsive to the claims brought against him. It was still useless to engage his banter from an argument standpoint, but you left knowing that you at least wasted his time, as his responses were still crafted towards the question. If I was in a good mood or on a drug of some sort, I could muster some laughter at his responses. Silly trolls can lead to laughter.

      1. I dunno, I think he had a standard set of 7-8 non-sequiturs which he would then regurgitate in various ways that sometimes vaguely reflected the argument he was responding to.

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  5. Minnesota, which borders the Dakotas…

    To shamelessly steal a joke from upthread.

  6. Damn it, Ira. Why do you say “the Dakotas”? As far as I know, no-one says “the Virginias”, and only weathermen say “the Carolinas”. Do people think they’re interchangeable? I’m from South Dakota, and we aren’t like North Dakota. We don’t play hockey and/or fuck sheep. Perhaps you and your coastal elite buddies could start referring to “the News”; I mean, York, Jersey, Mexico, Hampshire, they all share an adjective, so they must all be the same, right?

  7. Here’s a topic for further study: What effect do different kinds of taxes have on state prosperity? Income taxes drive away people who can earn high incomes. Business taxes are similar, and sales taxes give people reason to shop elsewhere. However, taxes on land, whether as part of property taxes, or through taxes on mineral extraction, do not cause people to take their land elsewhere. Alaska uses its oil revenue, a form of land value taxation, to finance much of government, and pay a citizens’ dividend. Texas has no state income tax, high property taxes, and low unemployment. California has low property taxes — remember Proposition 13 — and high unemployment. Similarly with Michigan; Governor Engler got rid of the property tax to finance schools, and imposed other taxes. Now look at the place. As I say, we should do some systematic comparison.

  8. The problem in Nevada is pretty simple – the government has raised taxes twice since the recession hit in order to sustain high levels of spending that occured because of a tax increase at the START of the housing bubble.

    In other words, Nevada’s government has been trying to keep the party going. Spending wasn’t really cut until about 2010, but not by much and not even close to pre bender spending levels.

    The only state that collects more in taxes (per capita) than Nevada, is California.

    To make matters worse, the Nevada state legislature kicked workers while they were down in 2 ways

    1) a payroll tax on all businesses – the more people you employ and the more you pay them the more you pay in taxes
    2) a minimum wage which is required to be $1 above the US Federal Minimum Wage.

    1. Nevada is also highly reliant on people from California coming there to spend their leisure dollars which has decreased lately from both the recession and the number of Indian casinos now located in California

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