State Employment Trends: Does a Low Tax/Right-to-Work/Low Minimum Wage Regime Correlate to Growth?

It’s interesting how “pro-business” policies do not appear to be conducive to rapid employment growth.

Employment in Governor Walker’s Wisconsin, as in Governor Brownback’s Kansas, has lagged behind that of the United States (and behind that of Governor Dayton’s Minnesota and Governor Brown’s California).


Figure 1: Log nonfarm payroll employment in Minnesota (blue), Wisconsin (red), Kansas (green), California (teal),and the United States (black), seasonally adjusted, 2011M01=0. Source: BLS, and author’s calculations.

Notice that Kansas and Wisconsin, ranked 15th and 17th in terms of the ALEC-Laffer “Economic Outlook Rankings”, are doing equally badly relative to US employment growth. In contrast, Minnesota (ranked 46th) is outperforming the United States and those two states. The cumulative employment gaps are 0.021 and 0.019, since 2011M01 (inaugurations of Governors Brownback, Walker and Dayton). The ALEC-Laffer methodology equally weights 15 measures: Top Marginal Personal Income Tax Rate, Top Marginal Corporate Income Tax Rate, Personal Income Tax Progressivity, Property Tax Burden, Sales Tax Burden, Remaining Tax Burden, Estate/Inheritance Tax Levied, Recently Legislated Tax Changes, Debt Service as a Share of Tax Revenue, Public Employees Per 10,000 of Population (full-time equivalent), State Liability System Survey (tort litigation treatment, judicial impartiality, etc.), State Minimum Wage, Average Workers’ Compensation Costs (per $100 of payroll), Right-to-Work State (option to join or support a union), and Number of Tax Expenditure Limits.

What about California? It is ranked 47th by ALEC-Laffer, and yet is doing the best in terms of employment amongst the four states. This does not deny the relevance of these indices, but for sure the correlation of the index with performance is not obvious to me. (These rankings are persistent — in 2012, Kansas and Wisconsin were ranked 26 and 32 respectively, while Minnesota and California were 41 and 38 respectively.) So, the higher the ranking according to Arthur Laffer, Stephen Moore (currently chief economist of Heritage), and Jonathan Williams, the poorer the employment growth.

Moreover, it is not apparent to me that broader measures of economic performance (i.e., the Philadelphia Fed’s coincident economic indices) tell a different story (see this post).

In terms of Wisconsin’s performance relative to stated goals, private nonfarm employment is projected by the Wisconsin Department of Revenue to fall far short of Governor Walker’s goal (reiterated 8 months ago) of 250,000 net new jobs created.


Figure 2: Wisconsin nonfarm payroll employment (blue), Wisconsin Economic Outlook (March 2014) forecast, quadratic match interpolation (red), and Governor Walker’s goal (black). NBER defined recession dates shaded gray. Source: BLS, Wisconsin Economic Outlook (March 2014), NBER, and author’s calculations.

As of March, employment is lagging goal by 94,300. Using the Wisconsin Department of Revenue employment forecast (interpolated), employment will lag the trend goal by 108,400 in December 2014.

One final point. Some observers have argued that January 2013 is the right point in time to assess the impact of altered fiscal policies in Wisconsin. The annualized month-on-month growth rate in Wisconsin was 1.3% in the first two year’s of Walker’s administration. Since January 2013, the growth rate has accelerated … to 1.3%.

This piece is cross-posted from Econbrowser with permission.