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Where Jobs Come From

Monday, March 19, 2012

By Chris Gergen

With all of the discussion about the economy, jobs, taxes, and the business climate in Oregon, I think it wise that we address the one question that keeps coming up in the national media and local debates in Salem—who creates jobs?  Generally, debaters of this issue take one of two sides:  the government creates jobs or the private sector (specifically, the rich and those trying to get rich) and small business owners—create jobs.  Those who advocate one side over the other argue passionately in favor of their position. What’s more, both sides of the argument have legislators and political influencers who, just as passionately, believe their position is correct. Would you believe both of them are ignoring a significant factor in “job creation?” And it’s a factor that is crucial to understanding why Eugene, Lane County, and Oregon lag in job creation.

Let me tell you what they’re missing

Regardless of who holds power at the state or national level, most (if not all) government economic expansion programs focus on providing tax breaks or subsidies to companies to entice them to move from one state to another.  This was a significant factor in the robust job creation from 2000 to 2009 in Texas. 21.6% of these jobs were the result of employers moving in from other states. An additional 23.7% can be attributed to international migration (1). Thus more than one fifth of the jobs created in Texas were the result of jobs lost in other states because Texas offered an environment that was highly attractive to out of state companies.

Here are two other relevant facts:

  • Between 2004 and 2007, 61 California companies moved to Austin alone (2).  Why? Reasons often cited are low taxes & labor costs, less union control, ease of obtaining permits, and less stifling regulations.
  • A survey of U.S. executives revealed that Texas is number one among states in offering a friendly business environment (California, New York and Illinois bring up the rear) (3). Many attribute this to the elements mentioned immediately above. In an era wherein capital and labor are highly mobile, job migration is a factor that states ignore at their peril.

All of us would be happy to have jobs shuffled to Oregon and, especially, to Lane County.  And given the length of time the Oregon unemployment rate has been above the national average (25 of the last 30 years leading up to 2008 [4]), I would agree that any job growth would be good job growth.  However, I would caution that any jobs created by shuffling jobs to Oregon from somewhere else could be shuffled out of Oregon just as quickly with the passage of anti-business and anti-wealth legislation such as Measures 66 and 67.

Let’s focus on some of the damage, either already caused or anticipated, as a result of Measures 66 & 67:

  • According to the Cascade Policy Institute, Measures 66 and 67 will result in the loss of at least 70,000 jobs (5).
  • According to Kiplinger, because of the high tax rates imposed by Measures 66 and 67 (for its effect on passive income) Oregon is the fourth most unfriendly state for retirees. For those retirees with taxable income of $250,000 or more, Oregon shares with Hawaii the dubious honor of imposing the highest income tax rate in America. Taken together, these policies have earned Oregon  a place on its “do not live here in your second act” list (6).
  • The year following the passage of Measures 66 and 67, Oregon dropped six places on the Tax Foundation’s list of states based upon business climate (7).
  • Besides damaging both business and consumer climates, Measures 66 & 67 have missed their revenue projections by a staggering 50% (8). The “cure” for Oregon’s budgetary woes has left the State with continuing, huge budgetary challenges.

Clearly, the Oregon Legislature has failed to create an environment that would entice businesses to move to the state, let alone create sufficient jobs without such migration.

Will Oregon and Eugene absorb these lessons? Will they learn that high taxes, stifling regulations and difficulty in obtaining permits here are a formula for job creation – in Texas?

Next month we’ll discuss the role of the rich and small business owners in creating jobs. Be sure to come back – you’ll be very surprised.

Sources:

  1. http://www.factcheck.org/2011/08/texas-size-recovery/
  2. http://www.myfoxaustin.com/dpp/video/Is-Texas-Stealing-California-Jobs?20120119-ktbcw
  3. http://www.bizjournals.com/dallas/blog/morning_call/2011/09/texas-has-top-business-     environment.html
  4. http://www.bls.gov/.  http://www.statesmanjournal.com/assets/pdf/J0131639327.PDF
  5. http://cascadepolicy.org/projects/more/measures-66-and-67-will-cost-70000-oregonians-their-jobs/
  6. http://www.kiplinger.com/slideshow/TaxUnfriendlyStatesRetirees/5.html#top (10 Tax-Unfriendly States For Retirees 2011)
  7. http://www.taxfoundation.org/news/show/25680.html
  8. http://www.oregonlive.com/news/index.ssf/2010/08/measure_66_tax_revenue_coming/2382/comments-2.html

Chris Gergen is a Springfield based financial advisor and is the author of The Quality Paradigm: Why You and Your Business Need it to Succeed.  He blogs at Be Epic.Daily. He can be reached via email at chris@chrisgergen.com.

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