Texas ’economy is constantly growing faster than the nation’s. Since it emerged from the oil bust of the 1980s, the state has surpassed national growth rates. Sure, experts can point to a large, diverse economy and increase fracking and exports, but those factors are just beginning to explain success.
The secret to Texas ’growth lies in its ability to generate and attract businesses, and to attract and retain the workforce needed to feed them. This business dynamism and magnetism of the workers add to what some call the Texas Miracle.
In a recent study published by the SMU Texas-Mexico Center, we examined this issue using 2006-18 Census Bureau data on households and business dynamism.
Texas ranks first among all states in terms of the number of net national migrants (the number of people settling from other states except those who are moving) and the first among the most populous states for net migration rates. We define the migration rate as the number of adults between the ages of 20 and 54 who move to one state per 1,000 adults in the population of the receiving state.
Unexpectedly, we find that Texas ’first ranking is not the consequence of high gross internal migration, but of low gross internal migration. Texas has, in fact, a lower national immigration rate than the rest of the U.S. on average throughout the period we examine.
Despite Texas ’strong economic growth, the state fails to attract people from other states in large numbers in relation to its population. The state outperforms the rest of the country in attracting new immigrants from Mexico, and it certainly attracts other migrants as well (welcome to Texas, Elon!).
However, where Texas is truly exceptional is its lack of migration to other states. Texas is the most sticky state in the nation, with very low national migration by Native Americans, all Mexican immigrants and immigrants. A 2018 Dallas Federal Reserve Bank study noted that Texas has the highest retention rate in any state, with 82% of Texas-born people still living in the state.
Texas is also successful when it comes to business dynamics. We find that Texas has a higher net business training rate than almost all other states, ranking only second after Utah. The high net business formation is largely due to the high start-up rate of the state rather than the low rate of business closures, especially during the energy fall of 2015-16, when hundreds of energy companies failed. Like high start-up rates, Texas ’net job creation rate is also atypical, driven by rapid job creation and, in a typical year, low job destruction compared to rest of the country.
Migration, retention and business formation are a necessary combination to achieve sustained economic growth, particularly in light of current economic and demographic trends. Business start-up rates have been declining for decades, as has productivity growth. Meanwhile, demographic headwinds include an aging population, retiring baby boomers and declining birth rates.
Migration helps companies grow because it channels workers to places where labor is relatively scarce, usually areas where business training also thrives. Specifically, migrants increase the population and labor force growth in an area, provide skills that employers demand, and help solve labor market bottlenecks. In doing so, migration further encourages business training and expansion, leading to greater business investment and faster job creation.
The high retention of the existing workforce in the state may have similar effects, but the skills of those who remain are more directly linked to the state’s educational infrastructure. Whether it’s academic preparation or job training, the quality and diversity of high schools, community colleges, and universities becomes more important in a state that keeps its students in a state that sees them leave. Because Texas relies heavily on its own population, investment and innovation in public education are paramount.
When it comes to migration, it is important to remember that it is both national and international. In the 1990s, most migration to Texas was international. Domestic migrants, a group that includes both Native Americans and immigrants living in another state, became an increasingly important component of migration to Texas in the mid-2000s.
Relying on retaining the workers it has and attracting other workers from other states raises concerns about the future. The aging of the American and Texas workforce and the withdrawal of baby boomers call into question how long these forces can maintain business dynamism, even in regions where other factors favor these activities.
A favorable business climate, relatively low taxes, an advantageous mix of industry and international trade may be insufficient to sustain oversized regional growth in Texas as labor grows. Technological advances will be useful. But to maintain growth in the future we will need to look beyond borders and implement immigration reform.
Pia Orrenius is vice president and senior economist at the Federal Reserve Bank of Dallas and a senior member of the SMU Texas-Mexico Center.
Madeline Zavodny is a professor of economics at the University of North Florida.
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