Labor demand is fierce. Why doesn’t Texas create more jobs?

Returning from COVID-19 shock, Texas’ economy was still a bit disconcerting in the early summer of 2021. Many companies trying to recover from the pandemic were frustrated by the difficulty of finding the manpower they needed to resume full operations. . An unusually high number of workers were sitting on the sidelines for various reasons. Consumers were preparing for a post-pandemic spending period, but have encountered delays, shortages and rising prices. Potential home buyers faced an ongoing struggle to find homes for sale, with high and rising market prices.

In short, the Texas economy is emerging from the COVID-19 crisis with more spills than roars.

This was not supposed to be the case, not even in a state that boasted of its high-octane economy, dominated by the private sector and markets.

All state-imposed restrictions on economic activity ended on March 2, when Texas Gov. Greg Abbott issued an executive order to lift mask mandates and open the state economy to 100%. By contrast, the governors of New York and California did not take equivalent action until much later. But even with its inception, Texas is doing nothing better than the nation at large. According to the Bureau of Labor Statistics, employment gains since the April 2020 low were 8.7 percent in Texas and 9.1 percent in the Dallas area, both behind of 10.8 percent of the nation.

Typically, the Texas economy outperforms the nation in job creation, so these are unusual times, with high unemployment and a shortage of labor at the same time. The state’s recovery won’t begin to pick up strength until more jeans get back to work.

The difficulty in hiring employees limits the ability of companies to sell goods and services, forcing some companies to reduce operations. Production cannot keep pace with rising demand, leading to shortages and bottlenecks pushing up prices.

Nothing suggests that the jobs available this summer are any different from the ones the jeans had before the pandemic. So why not fill it up more?

Some workers started businesses, enrolled in college, or found other jobs. Others stay home to care for children who are not yet in school; if they are not vaccinated, they may still be afraid to take COVID-19. In addition, last year’s interruptions undoubtedly left mismatches between workers ’skills and available jobs.

Politics cannot be ignored. To maintain the purchasing power of households during the pandemic, the federal government expanded eligibility for unemployment benefits and charged an extra $ 600 a week in 2020, reducing it to $ 300 a week this year. . The money allowed some workers to postpone employment or be more selective in the job they would accept. Employers have tried higher salaries, bonuses and awards to fill vacancies, with mixed success so far.

Political anecdotes and discussion points can only take us so far. What does the research say? Economists have been studying the effects of unemployment insurance for decades to return to work. They generally consider that more generous benefits tend to prolong the duration of unemployment. The effects of duration are greater when there are few jobs available and are smaller for those with liquidity constraints, for example, for little money in the pocket. Waiting longer to return to work usually led to the acceptance of worse jobs, a sign of workers ’resolution when benefits approached or ended.

Source: Office of Labor Statistics

Previous research has focused on the regular ups and downs of the business cycle, not a global pandemic. This summer may provide new insights into whether unemployment benefits delay a return to work.

Texas is among the 25 states, all led by Republican governors, who chose not to pay the federal government’s $ 300 weekly payment in hopes of getting more people back to work. The other 25 states, all led by Democrats, decided to continue payments until the end scheduled for late summer. Once the data arrives, this natural experiment will be fodder for economic studies on the impacts of good intentions on labor supply.

Among the states, Texas stands out with a proven track record in job creation; for decades, it has maintained low unemployment rates while welcoming the largest influx of new residents to the nation. The pandemic did not change the fundamentals of the Texas economy. These two propositions make the best case scenario for the recent calm in the job market to be only temporary, a brief review of the data before the job-creating mojo returns to Texas.

W. Michael Cox is a professor of economics and Richard Alm is a resident writer at the Bridwell Institute for Economic Freedom at SMU’s Cox School of Business.