The nation’s shrinking pool of available workers is shifting the economic balance of power in the U.S., with the South surpassing the West as the region boasting the fastest job growth.
During the three months ending in October, employment in the South was up 1.8% from the same period last year, compared with 1.7% in the West, according to an analysis of Labor Department data by Moody’s Analytics. The West had been the undisputed leader since 2012 until the South nosed ahead in June.
“The West is slowing down very quickly,” says Moody’s economist Steven Cochrane.
Cochrane largely attributes the trend to a tight job market — underscored by a 17-year-low in national unemployment — that’s making it tougher for employers to find workers across many industries.
As a result, employment gains are slowing everywhere, though economists expect the government on Friday to report a healthy 195,000 jobs added in November. The crunch is more pronounced in high-tech fields that drove job growth in states like California and Oregon.
Yet it’s more than just a slowdown in the West that has nudged the South ahead. The region is benefiting from lower housing costs, fewer taxes and regulations, a revival of the oil industry in states like Texas and Oklahoma and the migration of many Baby Boomers to retirement havens where hiring has surged.
“Companies are looking for cheaper land, cheaper office space and cheaper employees,” says Moody’s economist Chris Lafakis. The South meets that criteria, he says.
Last year, Jamba, which franchises Jamba Juice outlets, moved its headquarters from Emeryville, Calif., to Frisco, Texas. This year, Toyota is relocating its North American headquarters, along with 3,000 employees, from Torrance, Calif., to Plano, Texas. And CKE Restaurants, which owns the Hardee’s and Carl’s Jr. chains, moved its corporate base from Carpinteria, Calif., to Franklin, Tenn.
Jamba CEO David Pace said that north Texas offers “competitive operating costs, extensive access to skilled restaurant talent” and “an attractive cost-of-living for team members,” among other things. He added that Frisco is a desirable place to work and live.
From 2008 to 2015, about 11,300 companies left California for a more favorable business environment, according to a study by Spectrum Location Solutions, of Irvine, Calif., which advises firms seeking new locations. Spectrum President Joseph Vranich cites California’s “bleak tax and regulatory climate“ as a chief driver. Texas was the No. 1 beneficiary of those moves, with North Carolina, Georgia and Florida ranking in the top 10.
Anecdotal evidence suggests the trend accelerated in 2016, Vranich says, and the limited supply of workers in many California markets, particularly in technology, is often the most significant factor in company decisions.
Other Western states also have gained from California’s losses over the past nine years, including Arizona, Colorado, Oregon and Washington, the Spectrum report shows. But the worker shortage has started to temper job growth in some of those tech hotbeds as well, Cochrane says.
In October, the unemployment rate was 3% in the San Francisco metro area, 2.6% in Denver; 2.8% in Salt Lake City, and 2.7% in Boise, Idaho. Unemployment in some major southern metro areas was higher, at 3.9% in Charlotte and 4.1% in Houston and Atlanta. That means employers can choose from a bigger pool of available workers.
Housing costs, meanwhile, have soared in many Western metro areas. In September, Seattle, Las Vegas and San Diego had annual home price increases of 12.9%, 9% and 8.2%, respectively, topping the 20-city index of S&P CoreLogic Case-Shiller. By contrast, price gains ranged from 5% to 6.2% in Atlanta, Charlotte and Miami.
Many workers are moving to southern states because of the lower costs, a milder climate and a better quality of life, and employers are following, experts say.
“They’re going where the people are going,” says Jeanne Branthover, managing partner of DHR International, an executive search firm. Also, she says, businesses can more easily “attract talent to move to these places.”
Many tech firms are also opening southern outposts to tap a fresh source of labor, says Harley Lippman, CEO of Genesis 10, an information technology staffing firm.
To be sure, the West is expected to continue to attract lots of jobs and workers. It’s blessed with beaches, mountains and a big pool of high-tech workers, despite the recent shortages.
Yet the worker crunch and more expensive housing have pushed wages higher in the region, leading many firms to hunt for less costly labor. Average hourly pay for all private-sector workers in October was $30.57 in California, compared with $25.87 in Texas. Job growth has slowed in California but picked up in Texas the past year.
Freight Motion, a shipping broker, moved from Woodland Hills, Calif., to Austin, Texas, in 2014 largely to escape California’s 6.8% income tax and $1,000 in annual property taxes, says company President Michael Vander Hook.
He now has no state tax and just $54 in property taxes. And he can pay employees half the wages he doled out in California because the cost of living is lower, allowing him to increase his staff from two to six. The workers he hired in Austin have helped boost revenue sixfold since the move, Vander Hook says.
“We’ve tripled our staff… pay less taxes, have better quality people, a better quality of life, and have more money to hire and help others with their dream of working for a quality company,” Vander Hook says.
Also looming large in the South’s ascendance as a job generator is the oil industry’s resurgence since the crude price crash in 2014 and 2015, says Karl Kuykendall, regional economist at IHS Markit. Texas and Oklahoma alone have added about 40,000 mining jobs over the past year.
Kuykebdall also notes that older Americans are again flocking to Southern retirement enclaves now that the housing recovery has lifted their home values in the North, allowing them to sell at a profit. The bull stock market has also fattened their nest eggs.
“That creates demand for a whole bunch of services – going out, leisure activities, housing construction,” all of which bolsters employment growth, he says.