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The Face of Texas
Jobs
People
Business
Change
FEDERAL RESERVE BANK OF DALLAS • OCTOBER 2005
The Face of Texas
Jobs, People, Business, Change
The only constant is change itself. A Greek philosopher wrote those
words more than two millennia ago, at a time when events probably didn’t
move as rapidly as they do today. Accepting the inevitability of change still
leaves us the task of understanding the often bewildering world around us.
Most of us need help in deciphering the meaning of the changes we can see
and identifying the changes we can’t see. That is the purpose of this collection
of essays — to give our readers solid, useful perspectives that will assist in
Table of Contents
1 Introduction
Mine Yücel
3 Texas in the Most Recent
Recession and Recovery
Mine Yücel
6 Why Did Texas Have a
Jobless Recovery?
Pia M. Orrenius, Jason L. Saving
and Priscilla Caputo
12 Industry Clusters in Texas
Laila Assanie and Mine Yücel
understanding the changing Texas economy.
The new century finds Texas in transition — no longer booming on
high oil prices, finally rebounding from the late 1990s technology bust and
17 Economic Progress in
the Texas Economy
Robert W. Gilmer
still looking for the next economic driver. Our times are complex. Texas’
economy is being reshaped not only by what’s happening in the state and
nation but also by a globalizing world, an important part of which lies just
over the Rio Grande.
24 Texas Border Benefits from
Retail Sales to Mexican Nationals
Keith R. Phillips and
Roberto Coronado
These essays explain the recent past, give a textured picture of the
current landscape and offer a glimpse of what changes may be over the
horizon. Our goal is straightforward: We want to promote a fuller
understanding of Texas’ evolving economy, so the state’s citizens will be better
27 Texas Border Employment
and Maquiladora Growth
Jesus Cañas, Roberto Coronado
and Robert W. Gilmer
equipped to take advantage of opportunities that lie ahead.
33 Do Higher Oil Prices Still
Benefit Texas?
Stephen P. A. Brown and
Mine Yücel
Harvey Rosenblum
Executive Vice President and Director of Research
Federal Reserve Bank of Dallas
37 The Changing Face of Texas:
Population Projections
and Implications
D’Ann Petersen and Laila Assanie
this recession was a major factor in the
state’s prolonged downturn.
Pia Orrenius, Jason Saving and
Priscilla Caputo survey the weak jobless
recovery after the most recent recession
and suggest that it may be caused by
structural change in the Texas labor market. They note that structural change is
not new to Texas. The state went through
structural change in the 1980s after the oil
bust and may be going through another
one now. They show that the high-tech
and apparel industries are undergoing
structural losses, while the health care,
education and government sectors are
undergoing structural gains. But, just as
the oil industry decline paved the way for
the diversification and growth of the Texas
economy a decade later, the structural
change going on today will pave the way
for a more dynamic and prosperous Texas.
Introduction
Mine Yücel
Oil’s Impact
T
The economic landscape of Texas is
changing. The state lost more than
200,000 jobs during the tech bust and
recent recession. A majority of these jobs
were in the high-tech sector, which was
the main driver of the Texas economy in
the 1990s. With the decimation of the tech
sector, which industry will be the driver of
the Texas economy in the future? This
monograph doesn’t attempt to answer
that question, but we explore some of the
ways the Texas economy has been changing and some of the current issues facing
it.
The state has gone through boom and
bust cycles before, but each downturn has
been followed by a stronger and more
diverse economy. The oil bust was particular to Texas and hurt the state’s economy,
while low oil prices helped the rest of the
nation. The tech bust, on the other hand,
was experienced similarly in Texas and
the nation. Texas bore a larger brunt
because it had a higher share of high-tech
manufacturing and service industries
than the nation.
While the drivers of the economy may
change, one constant is the close relationship the state has with the Mexican economy. The interconnection is crucial to the
border economies and is a big factor in
the changing demographics of Texas.
Structural Change
The articles in this publication discuss some of the changes in the economic
landscape of our state. Mine Yücel looks at
the Texas economy’s performance during
the most recent recession and explains
why it was different from previous recessions. She argues that unlike previous
recessions, the most recent recession was
primarily due to a high-tech bust rather
than an oil price shock. Although oil
prices were relatively high during the
recession, they did not benefit Texas as
much as in the past because the state has
diversified away from oil. In addition, she
shows that the high-tech sector grew very
fast in Texas in the 1990s, to a share higher
than the national average. Texas’ higher
share of industries that were hit hard in
The oil industry has been undergoing
change for the past 20 years, shrinking
while other sectors of the Texas economy
have grown. The Texas economy’s diversification away from energy and the energy
sector’s declining importance prompt
Stephen Brown and Mine Yücel to ask
whether high oil prices are still a benefit to
the Texas economy. They show that higher
energy prices still benefit the state —even
though it is by less than in the boom years
of the 1970s and early ’80s. They also find
evidence that the Texas economy has
become less sensitive to fluctuations in oil
prices than it was in the ’70s and ’80s.
First, oilfield activity has become less sensitive to fluctuations in energy prices. Second, the energy industry makes up a
smaller share of the Texas economy than it
used to. Together these factors mean that
Texas output is about 15 percent as sensitive to oil price fluctuations as it was from
1970 to 1988. Texas employment no
longer seems to be positively affected by
oil price fluctuations.
Business Mix
Laila Assanie and Mine Yücel outline
the importance of industry agglomeration
to an economic growth. They highlight the
key clusters in Texas and its six major metropolitan areas through economic base
analysis. They find that oil and gas extraction and its support activities, pipelines,
natural gas distribution, refining and oil-
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
1
Texas’ population is
faster growing,
younger and more
ethnically diverse
than the nation’s.
The Hispanic
population will
be the dominant
force in Texas
by 2020.
field-machinery manufacturing are still
agglomerated in Texas. However, hightech and transportation industries have
been added to this mix. Computers,
telecommunication services, semiconductors and air transportation firms now
have a larger presence in Texas than in the
nation as a whole.
Bill Gilmer analyzes per capita income growth in various regions of the
Texas economy. He shows that the state
economy has been growing rapidly since
1969, either matching or exceeding the
nation’s growth. But the Texas Triangle
cities of Houston, Dallas/Fort Worth,
Austin and San Antonio grew faster than
average. Outside the Texas Triangle,
income growth was much slower,
although population growth was not.
Especially after 1989, the Texas Triangle
cities contributed three-fourths of the
state’s income growth. Gilmer notes that
the Mexican border area represents a
challenge to state economic development
because the border cities’ average per
capita income is only 50 to 60 percent of
the national average. The border saw
explosive gains in the ’90s following the
passage of NAFTA and the growth of the
maquiladora industry, but high population growth and high in-migration rates
kept income per capita low in this area.
The article also explains that the growth in
wages and salaries after 1989 came
through a change in industry mix as the
economy shed low-wage jobs and
replaced them with better-paying ones.
Border Influence
Texas border cities are a unique blend
of U.S. and Mexican cultures, languages
and customs and follow the ups and
downs of the Mexican and U.S.
economies. Keith Phillips and Roberto
Coronado look at how border cities on the
Texas side benefit from cross-border traffic by consumers from their sister cities on
the Mexican side. They estimate retail
sales in four metro areas along the
Texas – Mexico border. They find that in
2001, retail sales to Mexican nationals
accounted for nearly 20 percent of retail
sales in border metros. Laredo had the
highest share, with 41 percent of its retail
sales going to consumers from across the
border. Phillips and Coronado also show
that unexpected changes in the peso’s real
value affected these border metros
2
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
because retail sales strength varied closely
with peso strength, especially in Laredo
and McAllen.
Another perspective on border cities
is presented by Jesus Cañas, Roberto
Coronado and Bill Gilmer. They show how
expansions and contractions of the maquiladora industry have affected Texas
border cities. NAFTA’s passage and the
peso devaluation in the early ’90s led to
maquiladora growth and the relocation of
component parts and material suppliers
to Texas cities along the border. Texas border cities developed rapidly in the ’90s as
part of this supply chain. Cañas, Coronado and Gilmer observe that proximity to
the U.S. market becomes a crucial advantage for the maquiladoras when there is a
short inventory cycle, when the weightto-value ratio of goods is high, when there
is frequent retooling, when quality is more
important than price and when intellectual property rights are critical. However,
they note that the state is unlikely to
repeat the banner performance of the ’90s
as foreign competition slows the growth
of Texas border-city suppliers to the
maquiladora industry. Hence, Texas may
see less stimulus in the future from
maquiladora expansion.
Population Shift
Finally, D’Ann Petersen and Laila
Assanie discuss Texas’ changing demographic makeup and how it will shape the
economy. Texas’ population is faster
growing, younger and more ethnically
diverse than the nation’s. The Hispanic
population will be the dominant force in
Texas by 2020. The authors demonstrate
that there are large disparities between
ethnic groups in income and education.
Such disparities may imply a decline in
real income and a lower-skilled and lesseducated labor force in Texas compared
with the nation. On the other hand, the
young and fast-growing population also
means Texas’ housing market may continue to be vibrant even as the baby
boomers age. Texas’ challenge is to reduce
the disparities and make our differences
work for us.
Yücel is a senior economist and vice president in the Research Department of the
Federal Reserve Bank of Dallas.
Texas in the Most Recent
Recession and Recovery
Mine Yücel
What are the
reasons for
Texas’ prolonged
downturn? Why
did the state
lose its edge?
A
After decades of faring better than the
rest of the country, Texas’ economic
growth has lagged both the nation’s and
its own past performance for almost three
years.
The most recent U.S. recession was
short-lived, beginning in March 2001 and
ending that November, according to the
National Bureau of Economic Research. It
took Texas another 20 months — until July
2003 — to bottom out, based on the Texas
Coincident Index.1 Employment growth
picked up in Texas in 2004. But while the
1.7 percent increase put Texas on par with
the nation, it still left the state below its
historical pace. What are the reasons for
Texas’ prolonged downturn? Why did the
state lose its edge?
Past Performance
Texas employment growth, on average, exceeded the nation’s from 1970
through 2004, with a 2.8 percent rate to
the country’s 1.8 percent (Chart 1). The
Chart 1
Texas Bests U.S. Employment Growth for More Than 30 Years
Percent
8
7
6
5
Texas
4
Texas average
3
U.S. average
2
1
0
United States
–1
–2
’71
’73
’75
’77
’79
’81
’83
’85
’87
’89
’91
’93
’95
’97
’99
’01
’03
’05
NOTES: Data are year-over-year, seasonally adjusted, annualized rates. Shaded bars signify national recessions.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas; National Bureau of Economic Research.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
3
Chart 2
Texas Economy Follows Oil Prices
Detrended Texas employment
2005 U.S. dollars per barrel
90
8
80
6
70
Employment cycles
4
60
2
50
0
40
30
–2
20
Oil price
–4
–6
’73
’75
’77
’79
’81
’83
’85
’87
’89
’91
’93
’95
’97
’99
’01
10
’03
’05
0
After oil prices crashed,
Texas diversified and
the industry became a
much smaller share of
the state’s economy.
NOTE: Employment data are seasonally adjusted and have had the time trend removed.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas; Department of Energy.
state’s ability to dodge national recessions
is one reason Texas has done so much better. Eight of the 10 post–World War II
recessions followed oil price shocks. And
unlike the nation as a whole, Texas benefited from high oil prices, especially in the
1970s through early 1990s. As can be seen
in Chart 2, the Texas economy followed
changes in oil prices fairly closely, with
employment rising and falling with the oil
price. The Texas employment cycle started
diverging from oil-price movements in
the 1990s as the economy diversified away
from oil and gas.
High oil prices were a boon to the
Texas economy and helped it grow, even
during national recessions, as seen in
Chart 3. Oil prices that nearly tripled from
$4 to above $10 per barrel (refiners’ acquisition cost) sent the United States into
recession in December 1973 but boosted
output and employment in Texas (Chart
3 a ). Oil prices started creeping up again
in the late 1970s and rose from around $12
per barrel in 1978 to almost $30 when Iraq
invaded Iran in September 1980. The U.S.
economy went into recession — again,
without Texas (Chart 3b ).
But just as high oil prices helped
Texas, low ones hurt it. The nation went
into recession again in August 1981, and
Texas followed 10 months later, the result
of oil prices that began falling from record
highs in March 1982 and the pull of the
national downturn (Chart 3c ).
Texas had its own recession in 1986,
when oil prices collapsed and the real
4
estate boom cratered. Low oil prices benefited the national economy but sent
Texas into a steep decline. However, Texas
skirted the national recession again in
1990, when West Texas Intermediate
crude spiked to $45 per barrel with the
Iraqi invasion of Kuwait (Chart 3d ).
This Time Around
Texas looked much more like the
nation in the 2001 recession than it did in
past downturns, for two reasons (Chart 4).
First, although oil prices were high, this
recession was primarily due to a high-tech
bust, not an oil price shock. Second, high
oil prices do not help the Texas economy
as much as they have in the past.
The collapse of high tech in the
recent recession was greatly felt in Texas.
The state had a larger share of high-tech
employment than the U.S. average, so job
losses in those industries were relatively
higher. From March 2001 through July
2003 (the Texas recession), 39 percent of
the jobs lost nationwide were in high
tech — 426,800 of them in manufacturing
and 610,000 in services. Fifty-one percent
of the 208,900 jobs lost in Texas were in
high tech —51,900 of them in manufacturing and 55,500 in services.
The events of September 11 also contributed to Texas’ steep downturn. The
transportation industry is important to
the state’s economy and has a larger share
of total employment than in the nation.
Transportation was especially hard-hit by
fallout from the terrorist attacks, with the
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
sector losing 280,000 jobs nationwide
from March 2001 to July 2003. These job
losses plus those in high tech constituted
50 percent of the total U.S. employment
decline. Texas lost 21,200 transportation
jobs, which, combined with its high-tech
losses, accounted for 62 percent of the
state’s total.2
Chart 5 illustrates Texas’ high-tech
roller coaster. California is included as a
comparison, along with the United States.
High tech grew very fast in the 1990s but
came back down just as fast. High-tech
production in Texas grew six times as fast
as the state’s overall output. During the
recession, Texas high-tech manufacturing
lost 107,400 jobs, nearly a third of its
employment. Even though California
started with a higher base and therefore
grew less in percentage terms, more jobs
were created in Texas. During the buildup, total high-tech manufacturing jobs
increased by 47,000 in Texas, while they
rose by only 17,000 in California. In semiconductors, for example, California added
22,000 jobs, while Texas added 35,000.
Texas also grew faster than the nation in
telecom services, adding 50,000 jobs during the ’90s, then losing 30,000 during the
recession.
Elsewhere in this publication, “Do
Higher Oil Prices Still Benefit Texas?” discusses how the relationship between oil
and the Texas economy has evolved.
When the industry was a larger share of
the Texas economy, higher oil prices were
always a net benefit to the state. That
Chart 3
Texas and U.S. Economies in
Previous Recessions
a. Texas Skirts Recession in the 1970s…
(Total nonfarm employment)
Index, December 1973 = 100
110
108
106
U.S. recession
December 1973 – March 1975
Texas
104
102
United States
100
98
96
94
June Sept Dec. Mar. June Sept. Dec. Mar. June Sept.
’73 ’73 ’73 ’74 ’74 ’74 ’74 ’75 ’75 ’75
b. …and Again in 1980
(Total nonfarm employment)
Index, February 1980 = 100
110
U.S.
108
Texas
recession
106
February –
July
1980
104
102
United States
100
98
96
94
Aug. Oct. Dec. Feb. Apr. June Aug. Oct. Dec. Feb. Apr. June
’79 ’79 ’79 ’80 ’80 ’80 ’80 ’80 ’80 ’81 ’81 ’81
c. Texas Follows Nation into Recession in 1981…
(Total nonfarm employment)
Index, August 1981 = 100
110
108
U.S. recession
106
August 1981 –
104
November 1982
102
100
98
96
94
Feb. May Aug. Nov. Feb. May Aug. Nov. Feb.
’81 ’81 ’81 ’81 ’82 ’82 ’82 ’82 ’83
changed in the late 1980s, when volatile
energy prices helped erode the prominence of energy-intensive and energyproducing industries.
After oil prices crashed, Texas diversified and the industry became a much
smaller share of the state’s economy. For
example, oil and gas output, which
accounted for nearly 20 percent of total
Texas output in 1981, accounts for only
about 6 percent today. Similarly, oil and
gas jobs account for only 2 percent of
Texas employment, down from a high of
about 5 percent in 1982. The upshot is
that rising oil prices benefit Texas much
less now than they did in the past.
Texas is still a large producer and
exporter of oil and gas, and when prices
go up, it helps producers, royalty owners
and the state through increased severance
taxes. So, unlike the rest of the country,
Texas gets an offset. But that offset is
much less now than it was 25 years ago.
In sum, Texas’ economic performance has been below par the past three
years. Unlike other downturns, the 2001
recession was primarily due to a high-tech
bust, not an oil price shock. And although
oil prices were relatively high, they did not
benefit Texas as much as in the past
because the state economy has diversified. In addition, high tech grew very fast
in Texas in the 1990s, to a share that was
higher than the national average. Texas’
higher share of industries that were hardhit in the recent recession was a major
factor in the state’s prolonged downturn.
Texas
United States
May Aug. Nov
’83 ’83 ’83
Yücel is a senior economist and vice president in the Research Department of the
Federal Reserve Bank of Dallas.
1
The Texas Coincident Index aggregates the
movements of key regional indicators —
employment growth, the unemployment rate
and gross state product—to gauge the state’s
overall economic direction.
2
One point to note is that both high-tech and
transportation employment were falling even
before the onset of the recession. The two sectors were responsible for 73 percent of all job
losses in Texas from December 2000 to July
2003.
(Total nonfarm employment)
Index, August 1990 = 100
104
Texas
100
U.S.
recession
August 1990 –
March 1991
96
Index, April 2001 = 100
102
101
United States
U.S. recession
April – November 2001
United States
100
99
Texas
98
97
Oct. Mar. Aug. Jan. June Nov. Apr. Sep. Feb. July Dec.
’00 ’01 ’01 ’02 ’02 ’02 ’03 ’03 ’04 ’04 ’04
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of
Dallas; National Bureau of Economic Research.
Chart 5
The Boom and Bust of High-Tech
Manufacturing…
Jobs: Index, January 1990 = 100
160
Texas
140
United States
120
100
80
60
California
’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05
…and Telecom Services
Jobs: Index, January 1990 = 100
210
190
Texas
170
United States
130
110
90
70
Notes
98
(Total nonfarm employment)
150
d. …but Dodges the 1990 Downturn
102
Chart 4
Texas Looks More Like the Nation
California
’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of
Dallas.
94
Feb. May Aug.
’90 ’90
’90
Nov.
’90
Feb.
’91
May
’91
Aug. Nov.
’91
’91
Feb.
’92
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas;
National Bureau of Economic Research.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
5
Why Did Texas
Have a Jobless Recovery?
Pia M. Orrenius, Jason L. Saving and Priscilla Caputo
I
In early 2001, the U.S. and Texas
economies fell into recession. While the
National Bureau of Economic Research
Business Cycle Dating Committee
declared the U.S. recession over in
November of that year, job growth did not
resume until June 2003. Texas job growth
broke into positive territory two months
later, and there is evidence that, like the
nation, economic activity in the state
picked up long before that.
Following a typical recession,
employment begins to rise at about the
same time output does. But in the two
years after the 2001 recession, U.S. real
output growth averaged 2.5 percent, while
employment growth was essentially zero.
The divergence between output and
employment was even more pronounced
in Texas, where real output — as measured
by gross state product — grew faster than
the nation’s, but employment fell at
an average annual rate of 0.2 percent.
Clearly, something was different this time.
Many explanations have been offered
for the unusually weak labor market performance, including problems with measuring employment, high productivity
growth, widespread uncertainty in the
wake of 9/11 and corporate scandals, and
6
structural change in the economy. While
much has been written on the nation’s
experience during this period, there is little information on what caused the jobless recovery in Texas. For this reason, it’s
important to examine these explanations
to see which of them can shed light on the
state’s experience.
Employment Statistics?
Two Bureau of Labor Statistics (BLS)
surveys are the primary source for
national and state employment data. The
establishment, or payroll, measure — officially, Current Employment Statistics —
surveys about 400,000 work sites each
month. Critics contend this survey understates job creation at economic turning
points because it misses employment in
the new firms created during a recovery’s
initial stages. The alternative, householdbased Current Population Survey contacts
individuals directly about their employment status. According to this survey,
there has been little jobless about the
recovery: Jobs have grown each year since
the 2001 recession.1
The household survey might seem
sounder than the payroll survey because
it is not limited to wage and salary work-
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
ers on firm payrolls. However, the household survey has a much smaller sample
size and depends on population estimates
that are not always reliable, mainly
because of uncertainty about immigration rates. Given these weaknesses and
the adoption of a statistical method to
compensate for missed job growth in
start-up firms, most experts — and the
BLS — consider the payroll survey the better gauge of employment.
Productivity Growth
or Uncertainty?
If the data are sound and the country
did experience a jobless recovery in 2002
and 2003, could high productivity growth
or substantial uncertainty have been the
cause?
U.S. productivity growth averaged 4.3
percent during this period, and some
experts believe that increase — well above
the post – World War II average of about
2 percent — enabled companies to step
up production without hiring more workers. Others believe the uncertain environment that followed various corporate
accounting scandals and the 9/11 attacks
led to a wait-and-see approach by employers.
These factors likely played an important role in the jobless recovery. But job
growth in 2002 – 03 was far below what
Texas and the nation saw in earlier periods of relatively high productivity growth,
such as the late 1990s, and substantial
uncertainty, such as the late 1970s. So
there is more to the story.
Structural Change?
A widely read article from the Federal
Reserve Bank of New York offers another
explanation for the jobless recovery.2 Erica
Groshen and Simon Potter consider two
types of effects that could shake up labor
markets: (1) short-term cyclical adjustments that vary with the business cycle,
and (2) longer term structural changes, in
which some industries decline while others grow.
The economists contend that an
unusually large amount of structural
change in the labor market, as opposed to
temporary cyclical adjustments, hindered
the resumption of employment growth in
2002 and 2003. When jobs shift across
industries, new positions have to be created and filled, which takes far more time
than simply recalling workers to their
jobs, as might occur with cyclical change.
So if structural change is on the rise, it
could explain the jobless recovery.
The kind of structural change
Groshen and Potter consider can result
from a myriad of factors that cause some
industries to decline as others grow. These
factors include technological and demographic change, reorganization of production, trade and outsourcing — any one
of which can permanently alter a state’s or
nation’s industrial mix. Cyclical job losses,
by contrast, move with the business cycle.
As the economy enters a recession, jobs
are temporarily lost in response to softening demand. They are added back as the
economy picks up again.
Looking at job growth by industry,
Groshen and Potter find that structural
factors played a much greater role in the
United States during 2001 – 02 than in
earlier U.S. recoveries. They attribute this
to a changing labor market in which cyclical job losses have been minimized and
structural changes are more pervasive.
This conclusion has important implications for public policy. The traditional safety net in the United States, with
such elements as unemployment insur-
Chart 1
Texas Employment Tracks the Nation’s in 2001 and After
Index, 2000 = 100
110
100
United States
90
80
Texas
70
60
50
40
’78
’80
’82
’84
’86
’88
’90
’92
’94
’96
’98
’00
’02
’04
NOTE: Data show total nonfarm employment.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
ance, is largely designed around the needs
of the cyclically unemployed — people
who need short-term help with income
sustenance while they search for a job.
The system is generally not designed to
provide longer term retraining for displaced workers whose sectors permanently shrink. Public job-training programs are becoming more common, however. Lawmakers recognized the effects of
structural change in the labor market in
passing such bills as the Workforce Investment Act of 1998 and the Trade Adjustment Assistance Reform Act of 2002.
Assuming structural change has
accelerated at the national level, can the
same be said for Texas? Taking the
Groshen – Potter approach, we compare
recent patterns to earlier recessions to see
if structural change has increased in Texas
and, if so, whether it helps explain the
state’s recent experience.
Measuring Structural Change
To measure structural job change,
Groshen and Potter compare employment growth in the recession and the
recovery.3 They make this comparison for
each major industry over the length of the
recession as designated by the National
Bureau of Economic Research (NBER)—
March 2001 to November 2001.4 The recovery is defined as the 12 months following
the business cycle’s trough in November.
Pinpointing recession dates for Texas
is more complicated. Economic analysts
often look to payroll employment growth to
date state recessions because this is the
most timely and reliable data available at
the state level. In a jobless recovery, however, the traditional relationship between
employment growth and overall economic activity breaks down. This means
payroll employment data may not have
accurately reflected the state’s overall economic health during 2002–03, making it
impossible to date the Texas recession
using those numbers.
The NBER solves this conundrum for
the nation by using several variables in
addition to employment — such as industrial production and, especially, gross
domestic product — to date U.S. business
cycles.5 Most of these numbers are not
available in a timely fashion at the state
level, and they are not available at all on a
quarterly or monthly basis, which would
be needed to date the Texas recession.
We use the national dates for a baseline analysis of Texas. After all, Texas employment closely tracked the nation’s in
2001 and thereafter, suggesting that similar factors drove both economies into
recession (Chart 1 ). Texas output also
tracked the nation’s reasonably well in
2001 and 2002 (Chart 2 ). That said, estimates of real output at the state level are
subject to a higher degree of uncertainty
than at the national level, and there is
anecdotal evidence Texas emerged from
the recession after the nation. To check
the validity of our findings, we repeat the
analysis using an end date of March 2003
rather than November 2001.6
Chart 3 shows how Texas job growth
fared during the 2001 recession and the
12-month recovery for each one-digit
industry, the broadest category in the
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
7
Chart 2
Texas Real Output Tracks the Nation’s in 2001 and After
Index, 2000 = 100
110
100
90
United States
80
Texas
70
60
50
40
’78
’80
’82
’84
’86
’88
’90
’92
’94
’96
’98
’00
’02
’04
NOTE: Data show real U.S. gross domestic product and Texas gross state product.
SOURCES: Bureau of Economic Analysis; Federal Reserve Bank of Dallas.
Chart 3
Structural Change Prevalent Among Texas Industries in 2001–02
Job growth in recovery (percent)
4 Procyclical flows
Structural gains
3
Government
2
Health services
Construction
Other services
1
0
FIRE
–1
Nondurable
manufacturing
–2
Retail
trade
Durable manufacturing
–3
TCPU
Wholesale
trade
Mining
–4
–5
Countercyclical flows
Structural losses
–6
–5
–4
–3
–2
–1
0
1
Job growth in recession (percent)
2
3
4
5
NOTES: TCPU is transportation, communications and public utilities. FIRE is finance, insurance and real estate. The recession is dated
March to November 2001; the recovery is dated December 2001 to November 2002.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
Standard Industrial Classification (SIC)
system.7 All growth rates are relative to the
average for total Texas employment during the relevant period. For example, if an
industry grew 5 pecent slower than the
Texas economy as a whole during the
recession, its growth rate is – 5 percent.
Likewise, if an industry grew 5 percent
faster than the Texas economy during the
recovery, its growth rate is 5 percent.
The horizontal axis on Chart 3
measures the relative growth rate during
the recession; the vertical axis measures
the relative growth rate during the recov8
ery. If an industry grew slower than the
statewide average in each of the two periods, it falls in the southwest portion of the
chart, labeled “structural losses” because
these industries lose jobs regardless of
overall economic conditions. If an industry grew more rapidly than the statewide
average during both intervals, it is in the
northeast portion of the chart, labeled
“structural gains” because such industries
gain jobs regardless of the overall economy.
The remaining quadrants deal with
industries that rise and fall with the busi-
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
ness cycle. Industries that grew slower
than the statewide average during the
recession but faster during the recovery
are in the procyclical flows quadrant
because they move with changes in the
business cycle. Industries that grew faster
than the statewide average during the
recession but slower during the recovery
are in the countercyclical flows quadrant
because they tend to add jobs when the
rest of the economy declines but lose jobs
when the rest of the economy does well.
The size of each industry’s bubble on
the chart represents its share of total Texas
employment in March 2001, when the
recession began. The larger the bubble,
the larger the industry’s share of the state’s
workforce at that time.
The results suggest that the recent
business cycle has been dominated by
structural gains and losses, as most major
industries fall into the structural change
quadrants in Chart 3. Manufacturing of
both durable and nondurable goods suffered the largest structural losses,
whereas health services and government
had the biggest structural gains. Overall,
about 75 percent of March 2001 employment was concentrated in industries that
subsequently underwent structural
change. The next section breaks down
these major industries to take a closer look
at job adjustments.
Industries with Structural Loss. Industries in Chart 4 are classified according to
subsectors in the North American Industry Classification System (three-digit
NAICS codes). The southwest portion of
Chart 4 includes a number of high-tech
sectors, among them computer and electronic product manufacturing (includes
semiconductors); electrical equipment,
appliance and component manufacturing;
telecommunications; and Internet service
providers (ISPs), search portals and data
processing services. High tech’s presence
in the structural loss quadrant is not surprising, since the 2001 recession kicked
off a prolonged retrenchment and restructuring for the sector in Texas, a
process from which the state has not fully
emerged.
Apparel manufacturing also falls in
the structural loss quadrant. In contrast to
high tech, the apparel industry has been
declining in the United States and Texas
for many years. Indeed, apparel experienced the largest job losses in percentage
terms during both the recession and the
recovery.
The northeast quadrant of Chart 4
shows the industries that grew faster than
total Texas employment during the recession and recovery. This quadrant consists
mainly of sectors related to the provision
of health care and education, including
local government.
Given recent policy and demographic
developments, this trend is understandable. Rapid advances in medical technology, coupled with an aging population,
are producing an increased emphasis on
health care, regardless of the business cycle.
The rise in the economic return to
education, the burgeoning youth population and renewed public attention to educational quality have produced an increased emphasis on education that
doesn’t ebb and flow with economic conditions, either. Since local government is
the largest provider of K – 12 education, it’s
not surprising that employment in this
sector rose during the recession, as well as
the recovery.
Countercyclical Industries. The southeast corner of Chart 4 consists mainly of
industries in the energy sector. Rising
energy prices were a contributing factor
to the 2001 recession.8 As home to a major
share of the U.S. energy industry, Texas
benefits from high oil prices (although to
a lesser extent than when the industry
constituted a much larger part of the
state’s economy).
Since energy prices were higher during the 2001 recession than during the
2002 – 03 recovery, it makes sense that
energy is categorized as countercyclical
for this period.9 Natural resource and mining industries in this quadrant include oil
and gas extraction and mining support
activities.
One notable countercyclical industry
that doesn’t fit into the natural resource
category is real estate. What high oil prices
did for natural resource industries during
the recession, low-interest loans likely did
for homebuyers.
Procyclical Dating. Despite expectations of “normal” cyclical losses, few industries fall into the procyclical category
during and after the 2001 recession. The
northwest quadrant of Chart 4 consists of
only about 9 percent of total employment.
Among the industries in this quadrant are
retail, transportation-related sectors and
accommodations.
It may be surprising that so few industries fall into the cyclical category, but
it’s important to remember that we are
comparing each industry to the overall
state economy. If an industry’s employment fell slightly during the recession and
rose slightly during the recovery, it’s categorized as countercyclical because its
employment fell by less than the state
average during the recession and rose by
less than the average during the recovery.
Recession Dating. What if the Texas
recession was longer than the nation’s and
did not end in November 2001? If so, the
analysis so far biases the findings toward
structural change by attributing 2002 job
losses to the recovery instead of to what
may have been a continuing recession. To
check our results, we repeat the exercise
under the assumption that Texas emerged
from the recession in March 2003 — much
later than the nation and about four
months before employment growth
resumed in the state.
A few industries move from one quadrant to another, but the overall picture is
one in which structural change still dominates cyclical change (Chart 5). About twothirds of employment is concentrated in
industries undergoing structural change,
compared with three-fourths when November 2001 is used as the end date.
Comparing Texas Recessions
Is structural change a bigger factor
today than in the past?
Groshen and Potter conclude that for
the United States as a whole, it is. More industries in the recent recession fell into the
structural-change quadrants, compared
with earlier recessions. They find that 79
percent of U.S. employment was in industries affected more by structural than
cyclical shifts in the 2001 recession, up
from about 50 percent in previous downturns.
It’s a somewhat different story for
Texas. Chart 6 shows job adjustments by
major industry during the recession and
recovery of the early 1980s.10 That recession was more severe than the recent one,
with several large industries — such as
durable manufacturing and mining —
experiencing double-digit job losses. Nevertheless, except for government, education and health services, the losses were
fairly concentrated in the structural categories. In fact, Texans were about as likely
to work in structural-change sectors in the
1982 – 83 recession as they were in 2001.
The share of structural job losses was
about 72 percent during the earlier
period, compared with 76 percent in the
2001 recession. While the relationship can
be seen a bit more easily in Chart 3 than in
Chart 6, the two graphs confirm that
Chart 4
Structural Change Prevalent in 2001–02: A Look at More Detailed Industries
Job growth in recovery (percent)
20
Procyclical flows
15
Rail
transportation
10
Transportation
equipment
5
Structural gains
Warehousing &
storage
Ambulatory
health services
Waste
management
Local govt.
Clothing
stores
Accommodations
0
Air
transportation
-5
Real estate
–10
Computer & electronic
product mfg.
–15
Apparel mfg.
–20
–25
ISPs
Electrical
equipment,
Telecommunications
appliance &
component mfg.
Mining support activities
Pipeline
transportation
Funds, trusts
& other
financial
vehicles
Countercyclical flows
Structural losses
–20
Oil & gas
extraction
–15
–10
–5
Job growth in recession (percent)
0
5
10
NOTES: The recession is dated March to November 2001; the recovery is dated December 2001 to November 2002. Educational services is
behind local government in the northeast quadrant.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
9
Chart 5
Structural Change Prevalent with Alternate Recession End Date
inventory, production and employment.
Additional contributing factors are a
Job growth in recovery (percent)
decline over time in the severity of energy
15 Procyclical flows
Structural gains
and food supply shocks and the deregulaMining
Highway, street &
support
bridge construction
tion of financial markets.
10
activities
Electronics &
Ambulatory
But does structural change really
appliance stores
health care
explain the jobless recovery? Structural
5
Warehousing
change, as measured here, was about as
0
prevalent in Texas in the 2001 recession
Local
Computer &
and ensuing recovery as in the early 1980s
government
electronic
–5
recession and recovery. The difference
product mfg.
between the two periods is the severity of
–10
State government
Pipeline
Telecommunications
the change. Job losses were much deeper
transportation
–15
in the 1982 – 83 downturn (and worse yet
in 1986). Nevertheless, employment
Apparel
–20
mfg.
rebounded with a short lag, and there was
nothing like the jobless recovery experiCountercyclical flows
Structural losses
–25
–50
–40
-30
–20
–10
0
10
20
30 enced post-2001.
Job growth in recession (percent)
Another possibility is that the investment
bust that characterized the 2001
NOTES: The recession is dated March 2001 to March 2003; the recovery is dated April 2003 to March 2004.
recession
and its aftermath may have
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
driven both structural losses in the labor
market and the jobless recovery. The
investment bust followed the investment
boom that had characterized certain fastChart 6
growing industries — led by high tech —
Structural Change a Major Factor in 1982–84
during the 1990s. In Texas, for example,
Job growth in recovery (percent)
post-2001 venture capital commitments
8 Procyclical flows
Structural gains
fell sharply to about 20 percent of their
Other services
2000 levels. The investment bust likely
6
delayed employment growth during the
recovery in the sectors that had been
Retail trade
4
FIRE
booming. If this was the case, sectors that
were fast-growing before the recession
2
Durable mfg.
would fall into the structural loss category
Construction
in our analysis. These industries may or
0
Educational
may not belong there, depending on
Nondurable
services
mfg.
whether they will eventually resume
–2
above-average job growth.
Health services
The data suggest that the investment
Mining
TCPU
Government
–4
Wholesale
bust played an important role in Texas
trade
during the recent business cycle. In fact,
Structural losses
Countercyclical flows
–6
of the state’s 16 fastest-growing industries
–20
–15
–10
–5
0
5
10
15
in the 1990s, 10 appear in the structuralJob growth in recession (percent)
loss quadrant of Chart 4, meaning they
NOTES: TCPU is transportation, communications and public utilities. FIRE is finance, insurance and real estate. The recession is dated
shed jobs both during and after the 2001
March 1982 to March 1983; the recovery is dated April 1983 to March 1984.
recession. Groshen and Potter show that
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
for the nation, seven of the 18 fastestgrowing industries fall into the structural
structural change, as defined by Groshen international trade. A decline in the role of loss category.
It is likely that as these industries’
cyclical change, meanwhile, has been
and Potter, is not new to Texas.
linked to factors such as improved mone- expansion fell short of expectations,
tary policy, which appears to have less- investment dried up and employment
More Sectors Undergo
ened the duration and severity of U.S. declined. The industries include several
Structural Change
Several explanations have been business cycles.11 Better supply chain man- high-tech subsectors, such as telecomoffered for the growing role of structural agement has also allowed firms to munications and ISPs, search portals and
change in the U.S. economy, including respond more quickly to changes in data processing services. Not all fasttechnological change and increasing demand and avoid sudden large swings in growing industries fall into the structural
10
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
loss quadrant, however. Three of Texas’
fastest-growing industries in the 1990s are
in the structural gain category — warehousing and storage, ambulatory health
services and social assistance.
Little New About
Structural Change
The Texas economy has undergone
fundamental restructuring as the state
has diversified away from agriculture and
energy and become more like the nation.
These trends began in earnest in the 1970s
and intensified in the 1980s with the drop
in oil prices and collapse of the banking
sector. The 1990s saw tremendous growth
of the state’s high-tech industries and further consolidation in the energy sector. In
both the 1970s and again in the 1990s,
Texas’ economic growth was characterized by large inflows of workers who
brought different skills and education
with them and contributed to the state’s
economic transformation.
The decline of industries paves the
way for diversification and the growth of
new sectors as workers, capital and knowhow are freed up to pursue better ends.
For example, at one time, 90 percent of the
U.S. labor force was engaged in farming.
Today, that number is a mere 3 percent.
While this transformation is clearly
beneficial in the long run, in the short to
medium term, this type of change is not
without its critics. People may primarily
see the negative connotations of structural change, without seeing the benefits.
This may be because certain advances in
trade and technological change have large
benefits that are spread across many people, such as all U.S. consumers, while the
costs of such advances can be small but
concentrated on a select few (such as laidoff textile workers).
Texas has not been immune to the
forces of trade and outsourcing. Semiconductor production has moved out of
Austin and Dallas to Asia, for example,
and major computer companies have
concentrated their software development
in India, outsourcing thousands of jobs
there. Big retailers and national banks
continue to expand in the state, often displacing or absorbing local businesses in
the process.
At the same time, the state’s economy
has many strengths. Workers and
investors continue to flock to Texas, home
construction is at record levels, freed-up
capital and labor are moving into sectors — such as education and health—
where structural growth is most pronounced. Exports to China are booming,
and the border economy is thriving as a
result of freer trade with Mexico.
Summary
The aftermath of the 2001 recession is
often described as a jobless recovery. It
took Texas and U.S. employment almost
four years to reach their respective prerecession levels, which they finally did in
January 2005. Many factors contributed to
labor market weakness in 2002 and early
2003, including high productivity growth,
the war on terror and corporate scandals.
In their New York Fed article, Groshen
and Potter highlight another potential
source of labor market weakness—structural change. The economists imply that
because new industries are replacing old
ones, jobs are being created and filled at a
slower rate than in past business cycles, in
which workers were simply laid off and
rehired by the same or similar employers.
Applying the Groshen – Potter methodology to Texas, we find that structural
change also dominated cyclical change in
the state during the last business cycle. We
do not find, however, that the amount of
structural change has increased over time,
as Groshen and Potter argue is the case for
the nation.
Structural change is an enduring feature of the state’s economy. But while
Texas labor markets experienced structural change in earlier recessions, they did
not experience drawn-out weakness once
a recovery was under way. In other words,
the recent jobless recovery remains a bit
of a mystery. The investment boom and
subsequent bust may have had something
to do with it. Many of the 1990s’ fastestgrowing industries ended up with the
largest relative and most persistent job
losses. The extent of the state’s high-tech
investment boom and subsequent bust
may help explain why the effect on Texas
employment growth was so significant
and lasting.
Notes
1
Annual household employment was lower in 2002
than 2001, but yearly job growth is calculated
December-over-December and was 0.26 percent
in 2002.
2
“Has Structural Change Contributed to a Jobless
Recovery?” by Erica L. Groshen and Simon Potter, Federal Reserve Bank of New York Current
Issues in Economics and Finance, August 2003.
3
Alternative measures of structural change are
discussed at length in “Can Sectoral Reallocation Explain the Jobless Recovery?” by Daniel
Aaronson, Ellen R. Rissman and Daniel G. Sullivan, Federal Reserve Bank of Chicago Economic
Perspectives, Second Quarter 2004.
4
Groshen and Potter compare employment
growth in the recession and the recovery for
two-digit industries as defined by the Standard
Industrial Classification (SIC) system. SIC codes
were replaced by the North American Industry
Classification System (NAICS) in 2002.
5
In a statement announcing the dating of
the 2001 recession, the NBER called real GDP
“the single best measure of ‘aggregate economic activity.’” See www.nber.com/cycles/
recessions.pdf.
6
Texas payroll employment began to grow in
August 2003, while retail sales began to grow in
September 2002. As a compromise, we selected
March 2003 as an alternative end date for the
state recession. Eleventh District Beige Book
accounts also suggest the second quarter of
2003 may have been the turning point for Texas.
7
SIC codes are used in Charts 3 and 6 so that
employment by industry can be compared over
time. The newer, three-digit NAICS codes are
used in Charts 4 and 5.
8
See “Do Energy Prices Threaten the Recovery?”
by Stephen P. A. Brown, Federal Reserve Bank of
Dallas Southwest Economy, May/June 2004.
9
In 2004, oil prices rose again, and they are currently higher than they were during the 2001
recession. Natural gas prices have also
remained high.
10
The 1982–83 Texas recession is assumed to
have lasted from March 1982 to March 1983.
This period roughly corresponds to the downturn in both state output and employment.
11
See “New Economy, New Recession?” by Evan
F. Koenig, Thomas F. Siems and Mark A. Wynne,
Federal Reserve Bank of Dallas Southwest Economy, March/April 2002.
Orrenius and Saving are senior economists
in the Research Department of the Federal
Reserve Bank of Dallas. Caputo worked on
this article while an economic analyst at
the Bank.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
11
Industry Clusters in Texas
Laila Assanie and Mine Yücel
A
Advances in technology have dramatically reduced transportation and communication costs. Access to distant goods,
services and even labor has become much
easier. Increased access to markets has
also brought increased competition, pressuring firms to reduce costs to maintain
profitability. In this age of globalization, as
Michael Porter notes, the importance of
generalized urban economies diminishes,
and agglomeration economies become
much more important.1
12
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
An agglomeration economy, also
known as a cluster, is defined as a geographically concentrated group of industries related by technology or skills, with
close linkages among buyers and suppliers. Clusters are important because they
provide their participants with easy and
lucrative access to knowledge and specialized resources required to operate efficiently. This enhances participants’ productivity and spurs innovation. Clusters
also attract new business and investment
to the region. It is this increased efficiency
and the ability to innovate and attract outside investment that give cluster participants a competitive advantage.2 A good
example of an industry cluster is the Dallas telecom corridor that attracted hundreds of high-tech manufacturing and
services firms to the metro during the
high-tech boom in the 1990s.
Industry clusters lead and shape the
economic growth of a region. One simple
way of determining industry clusters is
through economic base analysis. The economic base of a region is defined as
industries whose external demand generates outside revenues and stimulates local
economic growth. The assumption is that
nontraded goods and services tend to be
uniformly distributed, do not bring outside income into the region, and therefore, do not form the region’s economic
base.
To determine which goods and services produced in Texas and its major metropolitan areas are basic, or exportable,
we use location quotients (LQ), a tool
commonly used to analyze the economic
base of a region. Location quotients compare the local economy with a reference
economy (for example, the Dallas economy with the U.S. economy) to identify
areas of specialization. The quotients are
computed as follows:
local employment in industry i/
LQi = U.S. employment in industry i
total local employment/
total U.S. employment
Location quotients higher than 1
indicate that the regional concentration
of these industries is greater than their
national concentration and so they are
likely to be part of the economic base of
the region. The greater the location quotient, the higher the concentration and
the more certain we are of the basic
nature of the industry.3
Our location quotients are computed
using 2000 census employment data from
Integrated Public Use Microdata Series
(IPUMS) files.4 We first analyze Texas’ economic base and compare the state’s geographic dispersion of industries with that
of the nation.5 We then look at the basic
activities of the six major metropolitan
areas in Texas and compare the degree of
Chart 1
Texas Compared with the United States
Location
quotients
6
Oil and gas extraction
5
Support activities
for mining
Petroleum refining
4
Pipeline transportation
3
2
1
0
Natural gas
distribution
Electronic components
and products mfg.
Communications
equipment mfg.
Chemicals
mfg.
Aircraft
and parts
mfg.
Oilfield
machinery mfg.
Petroleum and
products
Wired telecom
Computer and peripheral
Air transportation carriers
equipment mfg.
Services incidental
Other
Computer systems
to transportation
Truck
telecom
design and related services
transportation
services
Home health
care services
SOURCE: 2000 Census IPUMS data; authors’ calculations.
agglomeration with both Texas and the
United States.
How Texas Compares
With the United States
Historically, Texas has been known for
oil, cotton and cattle. But in recent
decades the state’s image has changed
substantially. Today, the economic base is
more diverse and includes transportation,
computer, semiconductor and telecommunication firms.
Chart 1 plots the location quotients of
Texas with the United States as the reference region.6 The chart shows that even
though Texas has diversified, the energy
industry is still a large part of its economic
base. Oil and gas extraction and its support activities, pipelines, natural gas distribution, refining and oilfield-machinery
manufacturing are still agglomerated in
Texas. However, high-tech and transportation industries have been added to
this mix. Computers, telecommunication
services, semiconductors and air transportation firms now have a larger presence in Texas than in the nation.
Looking first at energy-related industries, the state’s share of employment in
oil and gas extraction and mining is nearly
six times the national share. Much less
dramatic, yet significant, are the location
quotients for high-tech manufacturing
and services. The share of computer and
peripheral equipment manufacturing in
Texas employment is 78 percent higher
than in the nation, wired telecommunication services 50 percent higher, other tele-
com services 21 percent greater and electronic components manufacturing, which
includes semiconductor manufacturing,
is 44 percent higher than in the nation.
Finally, the nation’s employment share in
air transportation is approximately 60
percent less than that of Texas. Moreover,
the high-tech, oil and gas, and air transportation industries are the largest employers in Texas, confirming their importance to the state’s economic base.
Since higher concentration indicates
the presence of clusters, or specialization,
these industries are the central drivers of
the Texas economy. The prominence
of these industries—high tech, telecommunication services and air transportation—helps to explain why the state’s
economy fared worse than the nation’s
during the recent downturn. Despite the
high-tech bust, high-tech manufacturing
and service sectors remain clustered in
Texas.7
Based on location quotients, nearly 35
percent of Texas’ employment is in industries that can be classified as “basic” or exportable. In these basic industries, 17 percent of Texas’ workforce produces goods
and services that satisfy nonlocal demand.
Texas Major Metros
The major metropolitan areas in
Texas account for more than two-thirds of
the state’s employment, so the sectors that
lead these metro economies determine
the state’s overall economic base. The
composition of economic activity varies
significantly among Texas’ major metros.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
13
Chart 2
Dallas Compared with the United States
Location
quotients
5
Communications, audio and
video equipment mfg.
4
Oil and gas
extraction
3
Electronic components
and products mfg.
Structural clay
products mfg.
Aircraft and
parts mfg.
Computer and peripheral
equipment mfg.
Wired telecom
services
Computer
systems
designs and
related services
Radio, TV and
computer sales
2
1
Other
telecom
services
Air
transportation
Data
processing
services
Railroad
mfg.
Nondepository
credit and
related
activities
Management of
companies and
enterprises
0
SOURCE: 2000 Census IPUMS data; authors’ calculations.
Chart 3
Austin Compared with the United States
Location
quotients
12
Computer and peripheral
equipment mfg.
10
8
Electronic components
and products mfg.
6
Radio, TV and
computer stores
4
Computer system designs
and related services
Other information
services
2
Legal services
Data processing
services
0
Public finance
activities
Adminstration of
human resource
programs
Executive offices
and legislative bodies
Colleges and
universities
SOURCE: 2000 Census IPUMS data; authors’ calculations.
Chart 4
Houston Compared with the United States
Location
quotients
14
12
Support activities
for mining
10
8
Oil and gas
extraction
Pipeline
transportation
Petroleum
refining
Petroleum and petroleum
products, wholesale
Oilfield machinery mfg.
6
4
2
Natural gas
distribution
Metals and minerals, except
petroleum, wholesale
Chemicals mfg.
Petroleum and
coal mfg.
Computer and
peripheral equipment mfg.
Water
transportation
Air
transportation
0
SOURCE: 2000 Census IPUMS data; authors’ calculations.
14
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
Management of
companies and
enterprises
Architectural and
engineering services
Each metro area specializes in a unique
set of industries, diversifying and strengthening the state’s economy.8
Dallas. Location quotients for Dallas
confirm the metro is the high-tech mecca,
transportation hub and telecommunication nexus of Texas. Dallas’ share of workers in other telecom services, air transportation services, communications
equipment manufacturing and computer
systems design and services is twice or
more when compared with the overall
state. This concentration of high tech
becomes even more striking when the
metro is compared with the United States
(Chart 2 ). Employment shares of communications equipment manufacturing are
four times greater than in the nation,
while those of telecom services (both
wired and other) and air transportation
exceed the national shares by three times.
Moreover, although Dallas doesn’t have
much energy industry concentration
compared with the state, oil and gas extraction is — surprisingly — Dallas’ fifthmost-concentrated industry in comparison with the nation. Despite the recent
downturn, high-tech manufacturing and
services firms remain key contributors of
the metro’s economic base.
Austin. High tech and state government compose Austin’s economic base.
This is evident from the metro’s location
quotients, which surpass the state’s
employment shares in computer and
peripheral manufacturing (6.4 times),
electronic components manufacturing
(4.8 times), public administration of environmental quality programs (3.8 times),
public finance activities (3.6 times), and
executive and legislative bodies (3.3
times). Compared with the nation,
Austin’s larger presence of computer and
chip makers is even more pronounced
(Chart 3 ), and the metro’s share of workers employed in these industries significantly exceeds the national share (11.5
and 6.9 times, respectively). Although the
recent high-tech bust hit Austin hard,
semiconductor and computer manufacturing industries remain key elements of
the metro’s economic base.
Houston. Houston is Texas’ oil and gas
capital and home to the sixth largest seaport in the world. Not surprisingly, the
location quotients convey a similar story.
Five of the 10 most geographically concentrated industries compared with the
state as well as the nation are related to oil
and gas production, drilling and oil services (Chart 4). Given that the oil and gas
industry is more prevalent in Texas than in
the United States, Houston exhibits much
stronger oil- and gas-related industry
clusters in reference to the nation than to
Texas. Location quotients for both
upstream and downstream oil and gas
activities such as extraction, support
activities for mining, pipeline transportation, petroleum refining and wholesaling
of petroleum products more than double
when the base region changes from Texas
to the United States. Downstream activities such as petroleum refining and chemicals manufacturing also bolster port
activity. Hence, the share of water transportation employment is twice as high in
Houston when it is compared with the rest
of Texas (2.6 times) as well as the nation
(2.4 times). Also, because Texas has a high
share of computer manufacturing, Houston’s edge over the nation in computer
and peripheral equipment manufacturing
(2.5 times higher) is larger than its edge
over Texas (1.4 times higher).
San Antonio. San Antonio’s economic
base thrives on tourism and the presence
of large insurance firms, electric and gas
production and distribution firms, and
four military bases. Also, the metro has a
significant presence of health care organizations and recently has become home to
several telemarketing companies (Chart
5 ). The metro exhibits similar employment share ratios when compared with
the state or nation. First, San Antonio’s
share of employment in national security
and international affairs is more than five
times that of the nation as well as the
state, largely because of the strong military presence in the metro. Second, there
is sizable specialization of insurance
providers and electric and gas producers
and distributors. Third, San Antonio has
more than twice the share of its aggregate
labor force employed in scientific research and development compared with
the country and Texas. Last, specialization
in industries related to tourist activity —
general merchandise stores, restaurants
and traveler accommodation services — is
at least one and a half times higher in the
metro than in the state and nation. The
only vivid difference is the concentration
of workers in wired telecom services; the
metro’s share of these workers exceeds the
Chart 5
San Antonio Compared with the United States
Location
quotients
6
National security
and international
affairs
5
Footwear mfg.
4
Not specified
utilities
3
2
Natural gas
distribution
Textile product
mills
Electric, gas,
Petroleum
and other utilities
refining
Savings institutions
General
including credit unions
merchandise
stores
Wired telecom
carriers
Electronic
shopping and
mail-order houses
1
Insurance
carriers and
related activities
Business
support
services
Scientific
R&D
services
Restaurants
and other
Home
health care food services
services
Traveler
accommodation
0
SOURCE: 2000 Census IPUMS data; authors’ calculations.
Chart 6
Fort Worth Compared with the United States
Location
quotients
7
Aircraft and parts mfg.
6
5
4
Communications, audio
and video equipment mfg.
Oil and gas
Aerospace
products and
parts mfg.
3 extraction Paperboard boxes
and containers mfg.
2
1
0
Support activities
for mining
Oilfield machinery mfg.
Machinery mfg.
Railroad rolling stock
Air transportation
Rail
transportation
Warehousing
and storage
Electronic components
and mfg.
Wired
telecomm
carriers
Travel arrangements
and reservations
services
Computer systems
design and related
services
SOURCE: 2000 Census IPUMS data; authors’ calculations.
national share by 112 percent and the
state share by merely 38 percent. Job
losses during the recent downturn were
mitigated in San Antonio because of the
metro’s low concentration of high-tech
industries. Thus, the concentration of the
metro’s base industries has held steady.
Fort Worth –Arlington. Fort Worth–
Arlington is a major air and rail transportation hub in Texas with historic ties to
oil, aircraft and aerospace product manufacturers. Fort Worth’s employment shares
in aircraft, aerospace products and parts
manufacturing, communications equipment manufacturing as well as air and rail
transportation are two to four times higher
than the state’s shares. This agglomeration
becomes more prominent when compared with the nation (Chart 6 ). Fort
Exportable goods and
services are important
because they generate
out-of-state revenue and
stimulate state growth.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
15
Michael E. Porter, Economic Development Quarterly, vol. 14, February 2000, pp. 15–34.
Chart 7
El Paso Compared with the United States
3
Although the use of location quotients is prevalent, this measure of the economic base can
have shortcomings. Some of the pitfalls of
regional analysis using location quotients are
underestimating the degree of geographic concentration if the reference region is a net
exporter of the good or service and overestimating the degree of geographic concentration if the
reference region is a net importer of the good or
service.
4
Integrated Public Use Microdata Series: Version
3.0, by Steven Ruggles, Matthew Sobek, Trent
Alexander, Catherine A. Fitch, Ronald Goeken,
Patricia Kelly Hall, Miriam King and Chad Ronnander, Minneapolis, Minn.: Minnesota Population Center, 2004. For more information, see
www.ipums.org.
5
The economic base is computed by adding surplus service-export employment (individuals
employed in producing services in excess of
local demand) to total manufacturing and mining employment. Therefore, the share of Texas
employment included in the export base is
Location
quotients
12
Footwear mfg.
10
8
Household
appliance mfg.
Cut and sew apparel mfg.
6
Nonferrous metal
production and processing
Plastic
products mfg.
4
2
0
Natural gas
distribution
Leather tanning
and products mfg.
Agricultural
implements mfg.
Electronic
components
and products mfg.
Truck
transportation
Warehousing
and storage
Services incidental
to transportation
Department
stores
Restaurants
Savings
National
and other
institutions
security and
food
including
international
services
credit unions
affairs
Radio,
TV and cable
broadcasting
services
Justice and public
order activities
SOURCE: 2000 Census IPUMS data; authors’ calculations.
Worth–Arlington’s employment shares in
these same industries is more than three
to six times those of the nation. Since the
recent recession, the composition of Fort
Worth’s leading industries has remained
unchanged.
El Paso. El Paso specializes in manufacturing, trade and transportation
because of its close ties with Mexico
(Chart 7 ). More recently, the metro has
seen substantial growth in its high-wage
manufacturing and service sector. Generally, the trade sector displays limited specialization. As a result of El Paso’s location
along the U.S.–Mexico border, however,
the metro’s employment share in warehousing and storage is twice that of Texas
as well as the nation. The metro’s employment shares in footwear, cut and sew
apparel, textile and household appliance
manufacturing are more than 10 times
higher than the state’s employment
shares. These shares are also high when
compared with the nation. Cut and sew
apparel, footwear and household appliance manufacturing exceed national
shares by eight times. Despite the high
shares, the passage of NAFTA has led to
much of this manufacturing going across
the border. Thus, the number employed in
these industries makes up only 4 percent
of El Paso’s total employment. The largest
employers in El Paso today are still closely
tied to the maquiladora industry across
the border but are a different set of industries, including plastic products manufacturers, electronic component and product
manufacturers, department stores, trucking, warehousing and storage firms.
16
Conclusion
The Texas economy thrives on a
diverse mix of industries. Once known as
the land of oil, cotton and cattle, Texas has
developed into a high-tech hub. Hightech and energy sectors are the state’s
densest clusters, but Texas has many
other industries whose shares in the state
are higher than their shares in the nation
and thus contribute to the state’s economic base. Nearly 35 percent of Texas’
employment is in industries that can be
classified as basic, or exportable. In these
basic industries, slightly less than half the
workers are engaged in producing goods
and services that satisfy nonlocal
demand. Exportable goods and services
are important because they generate outof-state revenue and stimulate state
growth. Moreover, because clusters
improve efficiency and innovation, the
formation and growth of clusters are
important for Texas to maintain its competitive edge in this era of globalization.
Assanie is an assistant economist and
Yücel is a senior economist and vice president in the Research Department of the
Federal Reserve Bank of Dallas.
Notes
1
See “Competitive Advantage, Agglomeration
Economies and Regional Policy,” by Michael E.
Porter, International Regional Science Review,
vol. 19, no. 1 & 2, 1996, pp. 85 – 94.
2
For more information on what clusters are and
how they affect competition and innovation, see
“Location, Competition and Economic Development: Local Clusters in a Global Economy,” by
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
total manufacturing employment + total
mining employment + {sum of [(LQ – 1/LQ) ×
employment] for all service-providing sectors
with LQ above 1.1}
total Texas employment.
6
For Texas and all its major metropolitan areas,
industries with high location quotients, which
have been referenced in the text as key contributors of their respective economic bases, were
also the largest employers in the state and its
major metros, unless otherwise noted.
7
Evidence from the 2000 and 2004 Bureau of
Labor Statistics data shows that the recession
did not change the ordering of Texas’ basic
industries. The location quotients of several
high-tech industries declined slightly, but their
shares are still higher than U.S. shares.
8
For an in-depth analysis of the attributes of the
Texas major metros and how each of them grew
during the 1990s, see, “Economic Recovery
Under Way in Major Texas Metros,” by D’Ann
Petersen and Priscilla Caputo, Federal Reserve
Bank of Dallas Southwest Economy, March/
April 2004.
Economic Progress
in the Texas Economy
Robert W. Gilmer
Table 1
Growth of Population and Personal Income in Texas and the United States
(Average percent per year)
Population
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 –2001
1.1
2.3
2.4
3.4
4.1
1.9
2.8
1.7
1.0
1.9
3.0
1.9
3.8
2.1
2.5
1.2
1.2
2.0
2.6
2.3
3.9
1.8
2.5
1.3
In terms of personal
income, Texas has
moved from the sixth
largest state economy
in 1969 to the third
largest today, behind
California and New
York.
Personal Income
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 –2001
3.7
6.0
5.4
8.0
2.3
4.7
6.5
5.2
3.0
3.0
4.7
2.4
5.6
4.2
3.8
1.7
2.9
4.3
4.7
5.1
8.3
4.0
5.0
2.9
S
Since 1969, the Texas economy has
grown rapidly, consistently matching or
exceeding the growth of the national
economy from one decade to the next.
Real personal income growth rates in
Texas matched the U.S. rates even during
the oil bust years of 1979–89 and
exceeded U.S. rates in 1969–79 and
1989–2001 (Table 1). Measured by total
population, growth in Texas was substantially greater in all periods.
The state’s largest metropolitan
areas—Dallas–Fort Worth, Houston,
Austin and San Antonio, which together
make up what is known as the Texas Triangle — have contributed the largest part
of this growth, especially since 1979. Outside the Texas Triangle cities, real income
growth has failed to match U.S. growth
since 1979, although population has
expanded somewhat faster.
This growth has improved Texas’ economic position relative to the rest of the
United States. Texas moved from the
nation’s fourth most populous state in
1969 to second in 2001, trailing California
but ahead of New York and Florida. In
terms of personal income, Texas has
moved from the sixth largest state economy in 1969 to the third largest today,
behind California and New York.
The state’s large metropolitan areas
have similarly moved up the ranking of
the nation’s largest cities.1 Dallas–Fort
Worth, Houston and San Antonio made
most of their climb through these rank-
NOTE: Based on 1999 metropolitan area definitions of the Office of Management and Budget. Dallas–Fort Worth
and Houston use the consolidated metro area definition.
SOURCES: Bureau of Economic Analysis; author’s calculations.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
17
Table 2
Rank of Texas Triangle Metro Areas in United States by Population and Personal Income
Population
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
1969
1979
1989
2001
12
13
75
37
4
9
10
63
33
4
9
10
63
33
4
8
9
39
32
3
1969
1979
1989
2001
13
16
86
45
9
10
9
69
39
4
9
10
55
38
3
8
9
37
35
3
Personal Income
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Texas Per Capita Income
SOURCES: Bureau of Economic Analysis; author’s calculations.
Table 3
Contribution to Texas Personal Income Growth
Percent
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 –1999
1989 – 2000
1989 – 2001
100.0
23.6
28.5
4.1
6.3
62.6
37.4
100.0
31.9
23.8
6.0
8.1
69.8
30.2
100.0
30.7
28.2
8.7
7.1
74.6
25.4
100.0
31.3
28.6
8.6
6.9
75.4
24.6
100.0
30.6
29.7
8.3
7.0
75.5
24.5
SOURCES: Bureau of Economic Analysis; author’s calculations.
ings between 1969 and 1979 (Table 2).2
Since 1979, Dallas–Fort Worth and Houston have shared the eighth through tenth
spots in population and personal income,
while San Antonio moved slowly upward
to 32nd in population and 35th in personal income.
Austin, however, made steady and
dramatic gains. In 1969, at No. 75 in population, Austin was the size of
Canton, Ohio, or Fort Wayne, Ind. But by
2001, at 39th, Austin’s population compared favorably with that of Nashville or
New Orleans. During the same period,
Austin surged from 86th to 37th in personal income.
Table 3 summarizes the contribution
of these different metro areas to Texas’
personal income growth. Except for the
oil bust years, Houston contributed
nearly 30 percent of growth, and Dallas–
Fort Worth’s growth exceeded Houston’s
by the late 1970s. San Antonio’s growth
contribution held steady at 6 to 8 percent,
while Austin’s doubled from 4.1 percent to
18
success of the Texas economy not by its
size, growth rates or ranking, but by the
state’s ability to improve the welfare of its
citizens. In particular, we will look at the
state’s ability to raise its per capita income
levels to those of the nation — to join and
perhaps outperform the nation’s mainstream. Income per person presents a
number of flaws as a measure of general
welfare, but it serves here as a widely recognized and useful summary of the standard of living.3
8.3 percent. The combined metro areas,
collectively designated the Texas Triangle
in the table, accounted for three-fourths
of the state’s income growth between 1989
and 2001.
In this article, we will measure the
In 1969, per capita income in Texas
was $3,373, or 87.7 percent of the U.S.
level. Fueled by the oil boom after 1973,
Texas’ per capita income grew rapidly to
briefly exceed that of the United States by
1981– 82 (Chart 1). The 1980s oil, banking
and real estate bust quickly erased these
gains, and by the end of the decade, state
per capita income had returned to 87.9
percent of the U.S. level.
The 1990s brought new advances relative to the nation as oil, high tech and a
free trade- and maquiladora-inspired
boom along the Texas –Mexico border
produced another burst of Texas economic growth. By 1998, Texas per capita
income returned to 94.4 percent of U.S.
levels and made no further progress
through 2001.
We can examine Texas per capita
income growth both geographically and
by the components of income—wages
and salaries, proprietor’s income, property income, transfers and other sources.
By component, the most interesting
Chart 1
Convergence of Texas to U.S. Per Capita Income Levels
Index: U.S. per capita income = 100
120
Triangle cities
110
100
Texas
90
80
70
Rest of Texas
60
50
’69
’73
’77
SOURCE: Bureau of Economic Analysis.
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
’81
’85
’89
’93
’97
’01
results come from the growth of wages
and salaries and proprietor’s income. The
geographic designation focuses largely on
the Texas Triangle cities, which have
fueled both the state’s growth and most of
its recent convergence to U.S. per capita
income levels.
Framework for Analysis
The general framework used here is
shown in Table 4, which summarizes per
capita income growth in Texas by component of income, geographic area and time
period from 1969 to 2001.4 The data are
presented as percentage point contributions to average annual real per capita
income growth in each region and time
period.5
For example, the growth of per capita
income in Texas from 1969 to 1979 averaged 3.6 percent per year, with most of the
growth (3 percent per year) coming from
wages and salaries per capita and smaller
contributions from property income (0.2
percent), transfer payments (0.2) and
other per capita income (0.4). Proprietor’s
income per capita grew more slowly than
other components, reducing the growth
rate by 0.2 percent.
The components of income definitions follow standard conventions for
accounting for personal income in the
national income and product accounts.
The definitions are fairly obvious: nonfarm wages and salaries; farm and nonfarm proprietor’s income earned by sole
proprietorships, partnerships and taxexempt corporations; property income
from dividends, rent and interest; and
transfer payments for no current services
rendered. The “other income” category is
a residual made up mainly of benefits
paid to wage and salary workers, but it
also includes a residence adjustment for
workers who live and work in different
areas.
The rationale for the geographic focus
on the Texas Triangle has partly been discussed above, primarily because threefourths of the region’s personal income
growth came from these metro areas after
1989. Also, most of the forces driving
income convergence have come from the
Triangle cities. While per capita income
levels were, on average, well above
national norms and rising through the
1990s within the Triangle, they were
falling back to near 70 percent outside of it.
Table 4
Growth Rate of Real Per Capita Personal Income and Factors Contributing to Its Growth
(Average percent per year)
Component Percentage Point Contribution Per Capita
Personal
income
Nonfarm wages
and salaries
Proprietor’s
income
Property
income
Transfer
payments
Other
income
1969 –1979
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
El Paso
Texas Triangle
Rest of Texas
2.6
3.6
2.9
4.4
3.4
2.7
1.4
3.5
3.4
1.6
3.0
2.1
4.2
2.7
1.3
.9
2.9
2.8
–.1
–.2
.1
–.1
–.1
.1
.2
0
–.5
.3
.2
.2
–.1
.3
.3
.3
.1
.4
.4
.2
.2
.1
.1
.4
.6
.1
.3
.4
.4
.4
.3
.5
.6
–.6
.4
.4
1979 –1989
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
El Paso
Texas Triangle
Rest of Texas
2.0
1.1
1.6
.5
1.9
2.0
1.7
1.2
.6
1.4
.2
1.1
–.8
1.7
1.1
.2
.3
–.6
0
0
.1
.5
–.6
.1
–.2
.2
–.5
.7
.7
.4
.6
.6
.7
.7
.6
1.1
.1
.2
0
.2
0
.1
.1
.1
.4
–.1
0
–.1
0
.1
.1
.9
0
.2
1989 – 2001
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
El Paso
Texas Triangle
Rest of Texas
1.7
2.2
2.0
2.7
2.9
2.2
1.7
2.4
1.6
1.8
2.4
2.4
2.3
4.2
2.1
.9
2.5
1.5
.1
.4
.2
1.0
.1
.7
.8
.5
0
–.1
–.4
–.3
–.6
–.7
–.3
–.2
–.4
–.4
.2
.1
.1
.1
–.1
.2
.5
.1
.4
–.2
–.3
–.3
–.2
–.6
–.5
–.3
–.3
0
SOURCES: Bureau of Economic Analysis; author’s calculations.
Chart 2 shows the path of the four
cities since 1969 in terms of income
growth relative to the nation’s. The gains
and losses of the boom and bust in oil and
real estate are visible in all four cities, but
most notably in Houston and Austin. All
cities made gains in the 1990s, especially
Austin. San Antonio made the least
progress, despite beginning from the lowest per capita base. The two high-tech
metros began losing ground in relation to
the United States well before the national
recession began in 2001, with Austin
peaking at 110 percent of U.S. levels in
1999 and Dallas–Fort Worth at 112 percent in 2000. Houston reached 115 percent of U.S. per capita income in 2001.
San Antonio stood at 88 percent.
The fact that the four cities have such
different income levels and very different
behavior over time might seem surprising
in light of their geographic proximity. But,
in fact, it may be this very proximity that
guarantees their different personalities.
Because no pair of cities in the Texas Triangle is more than 240 miles apart, each
has assumed a role in the state economy
that sets it apart and makes it distinct
from the others.6
Dallas–Fort Worth. Dallas–Fort Worth
is a major inland transportation hub and
distribution center for Texas, Louisiana,
Arkansas and Oklahoma and claims the
world’s fifth busiest airport. Following the
oil bust, Dallas emerged as the state’s
banking and financial center. Dallas and
Fort Worth also have a significant presence
of oil-related activity, notable on any
standard except that set by Houston.
High-technology industries, especially
telecommunications, became a major
center of growth in the 1990s.
Houston. Houston’s bread and butter
remains oil and natural gas, with oil pro-
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
19
Chart 2
Convergence of Texas Triangle Cities to U.S. Per Capita Income Levels
Index: U.S. per capita income = 100
140
130
Houston
120
Dallas–Fort Worth
110
Austin
100
90
San Antonio
80
70
’69
’73
’77
’81
’85
’89
’93
’97
’01
SOURCE: Bureau of Economic Analysis.
The fact that the four
Texas Triangle cities
have such different
income levels and
very different behavior
over time might
seem surprising
in light of their
geographic proximity.
20
ducers, oil services and machinery companies, refineries and petrochemicals
directly or indirectly accounting for half
the metro area’s jobs. The Texas Medical
Center and Johnson Space Center, along
with companies such as Continental Airlines, American General Insurance and
HP/Compaq, help define the non-oil part
of Houston’s economy. Houston is the
state’s major deepwater port—the second
largest in the country based on tonnage —
and home to the state’s international business community.
Austin. Because it is the state capital
and site of the University of Texas’ main
campus, Austin’s major strength has historically been a robust government sector.
Beginning in the late 1960s, Austin began
developing a significant presence in high
technology: IBM in 1967, Texas Instruments in 1969 and Motorola in 1974. The
arrival of chipmaker-consortium Sematech in 1988 provided the momentum for
the 1990s. Today, about 120,000 employees—25 to 30 percent of the local workforce—are tied to technology industries,
and Dell Inc. has emerged as the city’s
most important technology employer.
Austin is also renowned for its music
industry. Billed as the “Live Music Capital
of the World,” the city sponsors a number
of festivals and conventions based on
music.
San Antonio. San Antonio’s historic
role has been as the distribution point for
South Texas and northern Mexico, a role
that has grown with the rapid expansion
of the maquiladora industry and the
implementation of the North American
Free Trade Agreement. Tourism is a major
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
industry, with such features as Fiesta
Texas, SeaWorld, the River Walk, El Mercado and others. Lackland Air Force Base,
Fort Sam Houston and Randolph Air
Force Base provide a major military presence.
One could speculate that if Texas’
geography had been only slightly different—with navigable rivers or a saltwater
inlet that cut into the heart of the state—
the four cities could easily have been one.
The port, the inland distribution point
and the political capital would all have
been colocated. Because the four Triangle
cities play such different economic roles,
adding up their current populations produces a not far-fetched approximation of
what might have been a single metro area.
The combined ranking of the Triangle
cities (bottom of Table 2) shows that such
a combination would rank third among all
U.S. consolidated metro areas—behind
New York and Los Angeles but ahead of
Chicago—in both personal income and
population in the 1990s.
It is difficult to generalize about the
area outside the Triangle, or to easily characterize an area that includes cities as different as El Paso, Amarillo, Texarkana and
Beaumont. The decline of agriculture
throughout the second half of the 20th
century played a large role in the region’s
poor performance.
In addition, the Texas–Mexico border
acts as a drag on any measure of economic progress or welfare in the state,
including per capita income. Gilmer,
Gurch and Wang have already examined
the Texas border cities using the same
framework employed here.7 The border
cities’ average per capita income is only
50 to 60 percent of the national average
and has only occasionally matched or
exceeded the state’s overall growth rate
(such as Laredo in the 1990s). El Paso, by
far the largest Texas–Mexico border city,
saw its per capita income fall from 73 percent of the U.S. average in 1969 to 63 percent in 2001. Although the border saw
gains in income and jobs in the 1990s,
rapid population growth due to high
birthrates and in-migration meant living
standards did not improve nearly as much
as overall growth statistics might indicate.
How Income Grew in Texas
Except for the oil bust years, Texas’
per capita income outgrew the nation’s by
a significant margin (see Table 4). The difference was a full percentage point from
1969 to 1979 (3.6 versus 2.6) and by half a
percentage point from 1989 to 2001 (2.2
versus 1.7). With the oil bust and recovery
factored in, however, the difference in
favor of Texas narrows to 0.2 percent (2.3
versus 2.1 over the 32-year period), and
per capita income rises from 88 percent to
94 percent of the national average.
Also except for the oil bust years,
most of the growth in Texas’ real per
capita income came from increases in real
wages and salaries per capita—83 percent
from 1969 to 1979 and 109 percent from
1989 to 2001. Only during the years of the
oil and banking crisis did real wages and
salaries fail to contribute strongly to
income growth; only 17 percent of growth
came from that source from 1979 to 1989.
Growth in property income (most probably in the first half of the 1980s) was the
major factor contributing to income
growth during the decade of the downturn.
Proprietor’s income makes its largest
contribution from 1989 to 2001. Houston
has the strongest contribution from the
self-employed in this period (1 percent)
and during the previous period as well
(0.5 percent). In 16 cities in Texas and
Louisiana, all with strong ties to oil, the
first result of the oil bust was a large number of new “proprietors,” presumably new
businesses started by people unemployed
by the downturn.8 This forced entrepreneurship was followed in the late 1980s
and early 1990s by rapidly growing proprietor’s income, the fruit of the businesses
that succeeded. The often-used analogy of
a forest fire leaving behind the seeds for
the forest’s regeneration seems to apply to
Texas in recent years, with entrepreneurship sowing the seeds. On average, proprietor’s income contributed 0.5 percent to
per capita income growth in Texas Triangle cities in the 1990s.
Property income (dividends, rent and
interest) was the biggest contributor to
per capita income growth during the oil
bust and recovery years. The 1980s saw a
large run-up in property values, which fell
back slowly late in the decade but drove
up rental values, and a sharp hike in interest rates due to inflation and tight monetary policy increased income from interest-earning sources. The contribution of
property income is small from 1969 to
Table 5
Impact on Per Capita Income of Industry Mix, Differential Regional Earnings
and Jobs Per Capita
Percentage Point Contribution to Annual Growth Rate
Wages and salaries
per worker
Industry
mix
Differential
regional earnings
Jobs per
capita
1969 –1979
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1.5
.8
1.9
1.2
1.2
1.4
1.5
1.3
1.1
1.1
1.2
1.5
1.2
1.5
.2
–.2
.8
0
–.3
.2
0
1.5
1.3
2.3
1.4
.2
1.5
1.2
1979 –1989
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
.3
.9
–.2
1.2
.5
.4
–.3
.8
.9
.7
1.2
.8
.8
.8
–.5
.1
–.8
0
–.3
–.4
–1.0
–.1
.2
–.6
.5
.6
–.1
–.4
1989 – 2000*
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1.8
2.1
1.9
3.7
1.2
2.1
.7
1.4
1.3
1.5
1.3
1.4
1.4
1.0
.4
.8
.3
2.4
–.2
.6
–.3
.8
.7
.5
1.5
1.1
.8
.8
* Data extend only to 2000 due to a change in the distribution of jobs from the Standard Industrial Classification to North American Industry
Classification System in 2000, making it impossible to compare 1989 with 2001.
NOTE: Differences due to rounding error.
SOURCES: Bureau of Economic Analysis; author’s calculations.
1979 and negative from 1989 to 2001.
Other income per capita makes its
largest contribution from 1969 to 1979, is
neglible from 1979 to 1989 and turns
slightly negative in the most recent
period.
resources, labor supply, infrastructure or
other local factors. This region-specific
advantage is called differential regional
earnings.9
A Closer Look at Wage
and Salary Growth
Table 5 summarizes the contribution
of each of these elements to real per capita
income.10 The first column is wages and
salaries per worker; the second and third
columns divide this category into two
parts. The fourth column is the employment population ratio, or jobs per capita.
Industry mix was a significant factor
in all areas and in every period. Texas was
clearly shedding low-wage jobs and
replacing them with better-paying jobs
throughout the entire period.
We also see gains from differential
regional earnings in the two periods of
rapid growth. In the 1990s the Texas
Triangle cities added 0.6 percent per year
to per capita income thanks to these
advantages. The measure highlights the
Because wages and salary growth per
capita account for such a large share of
Texas per capita income, we will examine
it more closely. We can divide wages and
salaries per capita (WS/P) into two parts:
wages and salaries per employee (WS/E)
and the employment population ratio
(E/P).
WS/P = WS/E × E/P
Further, we can offer two reasons for the
growth of wages and salaries per
employee: (1) improvements in the industry mix that allow more workers to move
into higher-paying industries, or (2) specific advantages the region offers in
WS/P = WS/E × E/P = industry mix ×
differential regional earnings × E/P
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
21
During the two decades of strong growth,
Texas generated jobs faster than the rate
of population growth, despite rapid
in-migration.
Table 6
Employment and Population Growth, 1969–2001
Summary and Conclusions
Job Growth*
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 – 2001
2.2
3.8
3.6
5.8
5.5
2.0
4.3
3.0
1.8
1.8
3.2
1.3
4.4
2.6
2.5
.8
1.5
2.7
3.0
2.7
4.9
2.7
3.0
2.0
Population Growth*
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 – 2001
1.1
2.3
2.3
3.4
4.1
1.9
2.8
1.7
.9
1.9
3.0
1.9
3.8
2.1
2.5
1.2
1.2
2.0
2.6
2.3
3.9
1.8
2.5
1.3
Jobs Per Capita*
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
1969 –1979
1979 –1989
1989 – 2001
1.1
1.5
1.3
2.3
1.4
.2
1.5
1.2
.8
–.1
.2
–.6
.5
.6
–.1
–.4
.3
.7
.4
.4
1.0
.9
.5
.7
* Annualized growth rates.
SOURCES: Bureau of Economic Analysis; author’s calculations.
22
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
state’s booms and busts: Houston added
0.8 percent per year from 1969 to 1979,
which turned to –0.8 percent the following decade. Large regional differentials in
Austin (2.4 percent) and Dallas–Fort
Worth (0.8 percent) mark the 1990s tech
boom. A look back at Chart 2 shows that
these cities were already giving back some
of their tech gains by 2001.
During the two decades of strong
growth, the state generated jobs faster
than the rate of population growth,
despite rapid in-migration (Table 6 ). Per
capita job growth has occurred inside and
outside the Triangle cities despite the
fact, as mentioned above, that the border
cities were unable to attain job growth
much faster than population growth. This
contributed 1.5 percent per year to Texas
per capita income growth (as seen in
column 4 of Table 5 ) from 1969 to 1979
and 0.8 percent from 1989 to 2000. The
slight decline in the 1980s (– 0.1 percent)
was primarily due to slower job growth
in Houston and areas outside the Triangle.
Measured by standards of population,
employment and income growth, the
Texas economy has outperformed the
U.S. economy since 1969. As shown in
Table 7, by 2001 the state as a whole had
raised its per capita income to 94 percent
of the national average, up from 88 percent in 1969. Over the same period, the
average annual growth rate of per capita
income was 2.3 percent for Texas versus
2.1 percent for the United States.
Economic progress has been uneven
over time. The oil boom briefly pushed
Texas per capita income above the
nation’s in 1981 – 82. In the subsequent
collapse of oil, banking and real estate,
Texas fell back to almost its 1969 position
relative to the United States. Most subsequent progress has come since 1989, and
it primarily can be attributed to more jobs
available to the general population and
an improving mix of jobs with higher
salaries.
Table 7 also indicates the uneven
geographic progress. In fact, the forces of
convergence to U.S. levels have mostly
come from the Texas Triangle metropolitan areas of Dallas–Fort Worth, Houston,
Austin and San Antonio. All these cities
have outperformed the United States
since 1969, with the most dramatic gains
coming out of Austin. The addition of
a large high-technology workforce to a
stable, if less-well-paid, government and
university base fueled both rapid growth
and rising per capita income in the state
capital. Except for San Antonio, all the
cities enjoy living standards above the
U.S. average.
The uneven nature of Texas’ economic history makes it difficult to predict
future progress. The geographic concentration of growth seems unlikely to
change, but the state’s advantages relative
to the rest of the nation (as measured
by differential regional earnings) were
dominated by the oil boom from 1969
to 1979 and to some extent by the hightech expansion of 1989 – 2001. Advantages
were concentrated first in Houston,
then in Austin and Dallas–Fort Worth.
Predicting the source or location of the
next great round of expansion is impossible.
However, since 1969 Texas’ cost
advantages, tax advantages, climate and
lifestyle have prepared the ground for further growth and development, including
periodic excesses. These Sunbelt advantages should persist, making renewed
economic expansion in Texas and continued progress in raising the state’s living
standards simply a matter of time.
Table 7
Performance of Regions of the Texas Economy
United States
Texas
Dallas–Fort Worth
Houston
Austin
San Antonio
Texas Triangle
Rest of Texas
2
The end years used here—1969,1979,1989 and
2001— are all peak years in the U.S. business
cycle. Although Texas and its metro areas did
not always follow the U.S. cycle, particularly in
the 1980s, these years were typically times of
economic expansion for Texas, making comparisons to the U.S. economy appropriate.
3
The most notable flaw in the use of per capita
income as a measure of welfare is that it tells us
nothing about the size distribution of income
among the population. However, this article
divides per capita income into enough categories by component and geography to give
some insight into how income growth is affected
by regional wage levels, job growth, population
Annual growth rate
1969–2001
(percent per year)
30,413
28,472
33,247
34,916
31,511
26,887
32,897
21,357
100
94
109
115
104
88
108
70
2.1
2.3
2.2
2.5
2.8
2.3
2.4
1.8
growth and the locational advantages of the
state’s largest metro areas.
4
The framework was developed by Daniel H. Garnick. See “Accounting for Regional Differences
in Per Capita Personal Income Growth,
1929–79,” by Daniel H. Garnick, Survey of Current Business, vol. 62, September 1982, pp.
24–34, and “Accounting for Regional Differences in Per Capita Income Growth: An Update
and an Extension,” by Daniel H. Garnick and
Howard L. Friedenberg, Survey of Current Business, vol. 70, January 1990, pp. 29–40.
5
Constant dollars are obtained by deflating with
the personal consumption expenditure deflator
(1996 = 100) for all areas.
6
“The Simple Economics of the Texas Triangle”
(January 2004) and “The Texas Triangle as
Megalopolis” (April 2004), both by Robert W.
Gilmer, in Houston Business, Federal Reserve
Bank of Dallas.
7
“Texas Border Cities: An Income Growth Perspective,” by Robert W. Gilmer, Matthew Gurch
and Thomas Wang, The Border Economy, Federal Reserve Bank of Dallas, June 2001, pp. 2–5.
8
“Finding New Ways to Grow: Recovery in the Oil
Patch,” by Robert W. Gilmer, Houston Business,
Federal Reserve Bank of Dallas, July 1996.
9
The actual calculation of industry mix and differential regional earnings is spelled out carefully in
Garnick and Friedenberg (1990). The calculation
depends on the definition of hypothetical income
(H ), total wages and salaries that would have
been earned in Texas if compensation were paid
at the national rate in each industry. Hypothetical income was calculated using the wage and
salary employment categories in the Bureau of
Economic Analysis’s Regional Economic Information System, essentially a one-digit definition
in the Standard Industrial Classification. Using
this definition,
Notes
The statistics for Dallas–Fort Worth and Houston use their consolidated metropolitan statistical area definition throughout this article. The
ranking of metro areas includes consolidated
metropolitan statistical areas (CMSAs) but then
excludes all the parts of these CMSAs (metropolitan and primary metropolitan statistical
areas) in the subsequent ranking process.
Percent of
U.S. level
SOURCES: Bureau of Economic Analysis; author’s calculations.
Gilmer is a vice president at the Federal
Reserve Bank of Dallas.
1
2001 per
capita income
(dollars)
to the North American Industry Classification
System, beginning in 2001. This made it impossible to compare the distribution of jobs and
income by industry in 1989 and 2001.
WS/P = industry mix × differential regional
earnings × E/P = H/E × WS/H × E/P.
10
The data in Table 5 extend only to 2000 because
of the change in the industrial classification system from the Standard Industrial Classification
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
23
Texas Border Benefits from
Retail Sales to Mexican Nationals
Keith R. Phillips and Roberto Coronado
24
El Paso Convention & Visitors Bureau
O
Over the past 10 years, trade between
the United States and Mexico has
boomed, partly because of the significant
reduction in tariffs from NAFTA and the
strong growth in the maquiladora industry. Along with the expansion in trade,
there has been strong population growth
along the northern border of Mexico.
Generally, the population in Mexican border cities is significantly larger than in the
corresponding U.S. sister cities. Moreover,
the South Texas border metros are a short
drive from the industrial city of Monterrey, which had a population of 3.8 million
in 2000. The large and growing population
on the Mexican side of the border represents an important consumer base for
retail stores in U.S. border towns.
While commercial trade between the
United States and Mexico is well documented, less is known about the size of
the nations’ cross-border retail trade.
Though small in comparison with commercial trade, this retail trade is a significant part of many border city economies.
In 2003 alone, there were more than 38
million noncommercial crossings at the
bridges along the Texas–Mexico border.
Many of these individuals were coming to
purchase goods to take back to their home
country. Due to differences in national
policies such as environmental laws, taxes
and consumer safety regulations, people
cross daily to purchase goods and services
on both sides of the border.
Since most of the retail trade conducted on the U.S. side of the border is
done in cash, it is difficult to document the
share of retail spending by Mexican
nationals. In this article, we use a simple
consumption function to estimate the
amount of retail spending that is essentially exported to Mexico via cross-border
shoppers.1 Since the true amount spent by
Mexican nationals is not known, it is difficult to estimate the accuracy of our measures. Theory tells us, however, that metro
areas having the biggest share of their
retail sales going to Mexican nationals will
be impacted the most by large swings in
the value of the peso. We thus check that
our estimates are consistent with the
effects on local retail sales of movements
in the real dollar/peso exchange rate.
Previous Research on Border Retail
Traditionally, the border has been a
region of fast population and job growth
compared with the rest of the United States
and Mexico. The Border Industrialization
Program—enacted in 1965 by the Mexican
government after the United States ended
the Bracero Program—gave birth to the
maquiladora industry, which in turn intensified the border region’s growth, not only
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
in Mexico but also on the U.S. side due to
increasing border interlinkages. The
maquiladora industry has been the main
economic growth driver along the
Texas–Mexico border.
Several studies have addressed the
issue of cross-border retail trade as part of
a larger question of the maquiladora industry’s impact on the regional economies
of U.S. border cities. The first studies on the
subject date back to the early 1970s and
indicate that a significant portion of
maquiladora salaries was spent on the U.S.
side of the border, mainly on food and
clothing. More specifically, one study estimates that a 10 percent increase in
maquiladora employment translates into a
23 percent increase in retail sales in
Brownsville, a 13 percent increase in
Laredo, an 11 percent increase in El Paso
and a 7 percent increase in McAllen.2
Perhaps the first researcher to study
the impact of the maquiladoras along the
Texas border in a comprehensive manner
was J. Michael Patrick.3 His main conclusion regarding cross-border retail trade
activity is that growth in the maquiladora
industry in Mexico stimulates U.S. border
job growth mostly in the retail and service
sectors, not in the manufacturing sector
as commonly perceived.
One of the first studies to quantify the
impact of Mexican nationals on retail
trade on the U.S. side of the border was
done by the San Diego Chamber of Commerce in 1979.4 Through surveys, the
study estimated that 7.5 percent of San
Diego’s retail sales ($407 million) could be
attributed to Mexican nationals. In 1993,
according to a study by the San Diego Dialogue, about 42 percent of the people who
crossed into San Diego were Mexican
nationals with the main purpose of shopping. They accounted for $2.8 billion in
retail sales.5
More recently, in 2002, Charney and
Pavlakovich-Kochi estimated the eco-
Phillips and Manzanares propose a
simple model in which it is assumed that
individuals spend a fixed proportion of
their income on consumption, or in this
case, retail sales.11 For instance, they find
that from 1986 to 1998 retail sales as a
fraction of personal income in Texas aver-
Y=
Y
× ( POP
(POP
EMP
(
Using a Different Approach
aged 46 percent. For each of the four border MSAs, they multiplied 0.46 by total
personal income to get an estimate of
retail sales purchased by the local population and then subtracted sales to locals
from total sales to get net exported retail
sales. If the value of net exported retail
sales is negative, that means more local
income is spent outside the local economy than income spent by outsiders in
the local community. While it is evident
that many Mexican nationals cross the
border to shop, U.S. citizens also cross
into Mexico to dine at restaurants and to
buy local handicrafts, medicines, liquor,
dental services and other products and
services. Border residents also vacation
and shop at other destinations in the
United States. Remittances to family
members in Mexico can also reduce the
amount of local income spent on local
retail goods and thus reduce net exported
retail sales.
Using a constant fraction of local personal income to estimate the amount that
locals spend on retail—and using this
amount to estimate net exported retail—
produces reasonable results. However, we
can further refine the model by decomposing personal income into three components, allowing the coefficient on each
component to differ. The border region
has a low employment-to-population
ratio due to its young labor force and high
unemployment rates. It also has persistently low per capita personal income yet
strong job growth rates. If these factors
play differing roles in retail spending, it is
important to separate them out. We divide
personal income (Y) as follows:
(
nomic impact of Mexican visitors to the
economy of Arizona. They found that
Mexican visitors spent $962 million, with
the vast majority in department stores (41
percent) and grocery stores (25 percent),
mostly in border counties.6 Similarly, on
the Texas–Mexico border, the Center for
Border Economic Studies at the University of Texas – Pan American estimated
that total expenditures by Mexican visitors
in the lower Rio Grande Valley amounted
to $1.4 billion in 2003.7
Other studies have focused on the
impact of exchange rate fluctuations on
U.S. border retail sales. For instance, Diehl
concludes that the 1982 Mexican economic crisis that triggered peso devaluation stunned South Texas retailers by cutting retail sales as much as 80 to 90 percent in many border businesses.8 Similarly, Patrick and Renforth estimate,
through the use of almost 4,000 surveys,
that the 1994 peso devaluation resulted in
a strong 41.8 percent decline in retail
sales, but the results varied by city, store
type, distance from the border and relative domestic market size.9 Gerber documents the relationship between peso
value fluctuations and total taxable sales
in San Diego and Imperial counties,
where he finds that an unanticipated 10
percent decline in the value of the peso
depresses total taxable sales by approximately 1 percent in San Diego County and
2.22 percent in Imperial County.10
Many of the studies, however, are
region- and time-specific, making comparisons across regions and over time difficult. Also, many of the studies were done
using time-consuming, labor-intensive,
and thus expensive, survey techniques
that would be difficult to perform consistently over time and across regions. To
overcome these limitations, we use a simple consumption function approach that
produces a consistent annual time series
of exported retail sales for the four metropolitan statistical areas (MSAs) on the
Texas–Mexico border.
× EMP ,
where POP is population and thus Y/POP is
per capita income, POP/EMP is the inverse
of the employment-to-population ratio and
EMP is total employment. We then try to
estimate the impact of the three components of personal income on retail sales
across the 23 non-border Texas MSAs. We
use quarterly retail sales data at the metro
level from 1978 to 2001, available from the
Texas comptroller’s office. Annual personal
income for metro areas (less contributions
for social insurance) from 1978 to 2001 is
available from the Commerce Department’s Bureau of Economic Analysis.
Table 1
Border Exported Retail Sales,
1978–2001
Average share
(percent)
Brownsville
El Paso
Laredo
McAllen
25.7
11.3
51.1
35.6
SOURCE: Authors’ calculations.
We use the results from the model to
estimate exported retail sales for the four
Texas border MSAs. Table 1 reports the
average share of exported retail sales for
these four areas during our estimation
period. According to our results, in 2001,
Mexican shoppers accounted for more
than $2 billion in retail sales, representing
0.75 percent of total retail sales in Texas. In
2001, McAllen was the biggest net exporter of retail sales to Mexicans, with
almost $1 billion in sales, representing 33
percent of its total local retail trade activity. Laredo came in second with $540 million in exported retail sales, or 39 percent
of total retail sales. Brownsville registered
$256 million (16 percent of total retail
sales), while El Paso, the biggest of the
four cities in terms of population, exported only $215 million (6 percent) to
Mexican nationals. El Paso’s figure is well
below its average exported retail sales of
11.3 percent and is primarily due to the
contracted maquiladora activity south of
the border. Ciudad Juárez registered its
worst maquiladora performance in 2001
and 2002, with employment declining
almost 25 percent.
On average over the 1978–2001
period, Mexican nationals accounted for
1.6 percent of Texas retail sales, or $5.1
million on a daily basis. Chart 1 shows
that over time Laredo has the highest
share of exported retail sales to actual
total sales, followed by McAllen, Brownsville and El Paso.
Sensitivity to Exchange Rate Swings
Although there is no straightforward
way to determine the accuracy of our
results, retail sales from Mexican nationals should be sensitive to swings in the
value of the peso. These swings represent
price shocks for Mexican nationals shopping on the U.S. side, and border retailers
know that sharp declines in the peso’s
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
25
Chart 1
Exported Retail Sales Shares
Notes
Percent of total retail sales
Real exchange rate
70
.020
Laredo
60
Real exchange rate
50
40
.016
2
See “Maquiladoras along the Texas–Mexico Border: An Econometric Evaluation of Employment
and Retail Sales Effect on Four Texas Border
SMSAs,” by Richard J. Holden, Texas Department of Community Affairs, Regional Economic
Development Division, February 1984.
3
See “The Economic Impact of Maquiladoras on
Border Development: A Rio Grande Valley Case
Study — Some Preliminary Findings,” by J.
Michael Patrick and Roland S. Arriola, paper
presented at the Western Social Science Association meeting, El Paso, Texas, 1987; “The
Employment Impact of Maquiladoras along the
U.S. Border,” by J. Michael Patrick, in The
Maquiladora Industry: Economic Solution or
Problem?, ed. Khosrow Fatemi, New York:
Praeger Publishers, 1990, pp. 31–35; and “The
Impact of NAFTA on Border Maquiladora and
Industrial Activity,” by J. Michael Patrick, Technical Report, Center for Entrepreneurship and
Economic Development, University of Texas–
Pan American, 1991.
.012
30
McAllen
.008
Brownsville
20
10
For a more detailed version of this article, please
see “Exported Retail Sales along the Texas–Mexico Border,” by Keith R. Phillips and Roberto
Coronado, Federal Reserve Bank of Dallas working paper (forthcoming).
1
El Paso
.004
0
-10
’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01
0
SOURCES: Authors’ calculations; Federal Reserve Bank of Dallas.
Chart 2
Border Retail Sales Are Closely Related to Real Exchange Rate
Total retail sales index, 1978 = 100
Real exchange rate
650
McAllen
550
.016
Real exchange rate
450
.012
350
250
Brownsville
El Paso
Laredo
4
“Mexican Impacts on Retail Sales,” San Diego
Chamber of Commerce, San Diego Economic
Bulletin, vol. 27, no. 6, 1979.
5
“Who Crosses the Border: A View of the San
Diego/Tijuana Metropolitan Region,” Technical
Report, San Diego Dialogue, University of California, San Diego, 1993.
6
“The Economic Impacts of Mexican Visitors to
Arizona: 2001,” by Alberta H. Charney and Vera
K. Pavlakovich-Kochi, Research Studies, Economic and Business Research Program, University of Arizona, July 2002.
7
“The Economic Impact of Mexican Visitors to
the Lower Rio Grande Valley 2003,” by Suad
Ghaddar, Chad Richardson and Cynthia J.
Brown, Technical Report, Center for Border Economic Studies, University of Texas–Pan American, 2004.
8
“The Effect of the Peso Devaluation on Texas
Border Cities,” by Philip N. Diehl, Texas Business Review, vol. 57, May/June 1983, pp.
120–25.
9
“The Effects of the Peso Devaluation on CrossBorder Retailing,” by J. Michael Patrick and
William Renforth, Journal of Borderlands Studies, vol. 11, Spring 1996, pp. 25–41.
10
“The Effects of a Depreciation of the Peso on
Cross Border Retail Sales in San Diego and
Imperial Counties,” by James Gerber, working
paper, San Diego State University, June 1999.
11
“Transportation Infrastructure and the Border
Economy,” by Keith R. Phillips and Carlos Manzanares, The Border Economy, Federal Reserve
Bank of Dallas, June 2001.
.008
.004
150
50
.020
’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01
0
SOURCES: Authors’ calculations with data from Texas Comptroller of Public Accounts and Banco de México.
value result in a sharp drop in Mexican
shoppers. Under our model, exported
retail sales seem to be responsive to
changes in exchange rate (see Chart 1).
If exported retail sales represents a
significant portion of total retail sales,
changes in the value of the peso should
have statistically significant impacts on
total retail sales. To asses this, we perform
some statistical tests on the sensitivity of
overall retail sales to changes in the value
of the peso. Results show that, in all MSAs
but El Paso, changes in the real exchange
rate have statistically significant impacts
on total local retail sales. The magnitude
of the impact was the largest in Laredo.
Since our results show that El Paso had the
smallest share of its retail sales going to
Mexican nationals and Laredo had the
largest, these results are consistent with
our previous findings (Chart 2).
26
Outlook
In mid-2005 the real value of the peso
was above its 20-year average and the
maquiladora industry was continuing to
bounce back from its downturn in
2001–03. Both of these factors should continue to stimulate growth along the Texas
side of the border. Looking to 2006, Mexico is hoping to have its second consecutive presidential election without a peso
devaluation. The Texas border community is hoping for the same, as its economy
ebbs and flows with the movements in the
value of the peso and the accompanying
waves of Mexican shoppers.
Phillips is a senior economist and policy
advisor at the San Antonio Branch and
Coronado is an assistant economist at the
El Paso Branch of the Federal Reserve Bank
of Dallas.
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
Texas Border
Employment and Maquiladora Growth
Courtesy of MexicoNow magazine
Jesus Cañas, Roberto Coronado and Robert W. Gilmer
I
In the 1990s, the Texas economy
exceeded even the remarkable performance of its U.S. counterpart. State job
growth averaged 2.9 percent per year from
1990 to 2000, well ahead of the 1.8 percent
annual increases in the United States.
Three engines drove the Texas economy
forward in the 1990s: the oil sector, high
tech (especially in Austin and Dallas) and
a boom in border-city employment.
Employment growth in the four largest
Texas border cities topped that of the
nation, and the three south Texas cities
outperformed the state by a wide margin
(Table 1).1
The accelerated job growth along the
Texas–Mexico border was the result of
several factors: a quick Mexican recovery
after the 1994 –95 financial crisis; tight
labor markets in the United States that
attracted employers to the border in
search of the region’s surplus labor; a
strong peso for much of the period, which
increased retail sales in U.S. border cities;
and rapid expansion of the maquiladora
industry.
Maquiladora expansion came on the
heels of NAFTA implementation and the
1994–95 peso devaluation. In recent
years, however, this part of the border
boom has turned to bust. After watching
the industry lose 290,000 jobs between
October 2000 and July 2003, many
observers are questioning the industry’s
future. Recession, rising wages in Mexico,
low-wage competition from countries
such as China and Mexico’s inability to
deal with growing problems in its competitive environment have all contributed to
Table 1
Percent Job Growth Along the Texas–Mexico Border
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1990–2000
Texas
El Paso
Laredo
Brownsville
McAllen
.7
1.9
3.3
4.3
2.9
3.2
4.4
3.6
2.2
2.8
2.9
2.3
3.6
2.2
3.9
0
2.0
2.7
1.1
2.0
1.5
2.1
4.3
8.7
3.6
7.2
–5.5
5.1
7.6
2.7
5.3
3.0
4.1
2.0
4.8
4.4
6.0
.4
2.8
3.0
2.3
5.8
5.1
3.7
1.5
5.3
4.5
7.3
2.7
3.3
3.8
5.6
6.5
5.1
4.6
SOURCE: Federal Reserve Bank of Dallas, El Paso Branch, with data from the Texas Workforce Commission.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
27
Chart 1
Maquiladora Employment Growth
2 ). Throughout the latest recession and
slow recovery, manufacturing was the
hardest hit part of the U.S. economy, and
maquiladora output and employment
generally followed the lead of U.S. industrial production. In mid-2003, however,
strong U.S. industrial growth finally
returned, and as Table 2 shows, maquiladora employment has returned to recovery as well. Job growth remains
uneven among the Mexican border cities,
however, with Ciudad Acuña, Matamoros
and Piedras Negras recovering more
slowly.
Thousands, seasonally adjusted data
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05
How Do Maquladoras Affect the
Texas Border Economy?
SOURCES: Federal Reserve Bank of Dallas, El Paso Branch, with data from INEGI.
the recent downturn.
This article looks at the maquiladora’s
role in today’s Texas economy, especially
how it affects Texas border cities. We also
assess the industry’s future and the
prospects for the maquiladora to again be
a significant factor in job growth in Texas
and Mexico.
Growth and Decline
The maquiladora industry began in
1965 and experienced slow but steady
growth under the Border Industrialization
Program. The canceled Bracero Program
had used Mexican labor in agriculture,
and the replacement maquiladora was
designed to relieve the resulting high
unemployment rates in northern Mexico.
The new program used low-wage Mexican
labor as a lure to draw U.S. manufacturing
to the region, allowing companies to
move production machinery and
unassembled parts into Mexico without
tariff consequences, as long as the assembled product was returned to the United
States for final sale.
Chart 1 shows the elevenfold increase
in maquiladora employment between
1980 and its peak in 2000, from 120,000
workers to 1.3 million. In 1980, about 94
percent of maquiladora employment was
in the border states of northern Mexico.2
Today, the share has slipped to 76 percent,
but the northern states still dominate. In
2004, 2,810 operating plants accounted
for about 9 percent of formal employment
in Mexico, or 3 percent of the total labor
force. The companies operating under the
maquiladora program are a who’s who of
U.S. industry, including Delphi, Mattel,
28
Tyco, General Electric and ITT.
The maquiladora industry has been
highly cyclical since its inception, falling
into its first recession in 1974 with an 11.5
percent decline in employment. Table 2
shows the uneven effects of the latest
maquiladora downturn on Mexican border cities. Maquiladora employment in
Ciudad Juárez was higher than in all the
other cities combined when the recession
began, and it has sustained the largest
percentage losses from peak to trough
(27.7 percent). Piedras Negras, Nuevo
Laredo and Matamoros also suffered large
percentage losses, all in excess of 24 percent. Ciudad Acuña and Reynosa were
exceptions to the deep recession, with
Ciudad Acuña declining only 10.6 percent
and Reynosa continuing to grow throughout the downturn. Newer plants, a better
industry mix and a business-friendly
environment account for their better performance.
The cyclical nature of the maquiladora industry is not surprising, given
its close ties to U.S. manufacturing (Chart
The original vision for maquiladoras
was the “twin plant,” with capital-intensive operations located a few miles inside
the U.S. border and low-wage, laborintensive operations close by on the Mexican side. However, the bulk of U.S. manufacturing was already established in the
Midwest, and trucking deregulation
would make transportation links between
the border and the Midwest both easier
and cheaper in the 1970s and ’80s. The
twin-plant vision was never realized along
the border. Instead, the maquiladora supply chain remained concentrated in states
such as Illinois, Michigan and Ohio.
What economic impact would a new
maquiladora in Mexico have on a neighboring U.S. city? The list might run as follows. To select and develop a site, U.S.
legal, engineering and financial assistance
would be used. Once established, the new
plant would rely on U.S.-based businesses
for customs, brokerage, warehousing and
transportation services. The plant would
also purchase a variety of office, packaging and industrial supplies. Corporate
management, engineers and quality spe-
Table 2
Texas–Mexico Maquiladora Border Employment
Peak
Ciudad Juárez
Ciudad Acuña
Piedras Negras
Nuevo Laredo
Reynosa
Matamoros
Trough
Jobs
Date
Jobs
Date
April 2005
262,550
37,512
15,222
22,915
86,925
68,413
October 2000
November 2002
February 2000
February 2000
April 2005
October 2000
189,930
33,541
10,939
17,171
N/A
51,900
June 2003
February 2005
December 2004
April 2003
N/A
August 2003
213,389
33,674
11,187
22,233
N/A
53,002
NOTES: Seasonally adjusted data; border twin cities are as follows: Ciudad Juárez–El Paso, Ciudad Acuña–Del Rio, Piedras Negras–Eagle
Pass, Nuevo Laredo–Laredo, Reynosa–McAllen and Matamoros–Brownsville.
SOURCE: Federal Reserve Bank of Dallas, El Paso Branch, with data from INEGI.
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
Chart 2
Maquiladora Ties to
U.S. Industrial Sector
Index, January 2000 = 100, seasonally adjusted
110
105
U.S. industrial
production
100
95
90
Maquiladora
employment
85
80
2000
2001
2002
2003
2004
2005
SOURCES: Federal Reserve Bank of Dallas, El Paso Branch, with data
from INEGI; Federal Reserve Board.
cialists would be drawn to the border to
visit this plant, and they would spend
money on food and lodging.3 Maquiladora
employees draw their salary in Mexico but
do a significant share of their shopping in
the United States, stimulating employment in local retail and service sectors.
These impacts on the U.S. border
have been recognized for some time, and
a number of studies were conducted in
the 1970s and ’80s to quantify them. For
instance, in 1972, Ladman and Poulsen
found that Agua Prieta, Sonora, maquiladora workers spent 40 percent of their
wages in Arizona.4 Ayer and Layton estimated the maquiladoras’ impact on value
added and population, using an input–
output model for the Arizona–Mexico
border economy. They concluded that
Mexicans’ expenditures due to the growing
presence of twin plants increased value
added by 14 percent and population by 11
percent on the U.S. side of the border.5
In a 1984 study of the Texas border,
Holden estimated that maquiladora
employment had a large impact on
employment in the border communities
of El Paso, Laredo, McAllen and Brownsville. For instance, a 10 percent increase in
maquiladora payroll results in a 2 to 3 percent increase in employment in El Paso
and McAllen as well as a 3 to 4 percent
increase in Laredo and Brownsville.6
In another study, Sprinkle found that
during the early 1980s Ciudad Juárez
maquiladoras accounted for one of five
jobs created in El Paso, and these new jobs
were concentrated in the service sector.7
Silvers and Pavlakovich assessed the relative magnitude of employment gains and
losses across U.S. border regions due to
maquiladora industry activity. Their
research suggests that U.S. border
states—with the exception of Arizona,
where job losses ranged from negligible to
small—gained jobs as a result of growth in
the maquiladora industry.8
A more recent development has been
the arrival of component parts and material suppliers in U.S. border cities. Specific
examples can be found in El Paso, neighbor to Ciudad Juárez, which is home to the
largest number of maquiladora employees along the U.S. border. Over the past
decade, an increasing number of rubber
and plastics, electronics and electrical
equipment, and metal fabricating plants
have begun to operate in El Paso to serve
as suppliers to the maquiladora industry
(Chart 3).
Components supplied include computer housings, electrical wiring harnesses, special dies and tools, and electrical switches. About 26 plastic-injection
molding plants can be identified, 31 metal
stamping companies, and 12 electric- and
electronic-related companies. Together,
these companies employed 4,000 workers
in 2004. The manufacturing sectors that
supply the maquiladoras paid about 40
percent more in hourly wages than the
low-wage apparel, textile and leather industries that traditionally operated in
El Paso.
Maquila manufacturing in Mexico
also positively influences El Paso’s
employment in transportation, real
estate, and legal and accounting services
(Chart 4). Given the rapid increase in
trade flows after 1993, transportation and
warehousing employment accelerated
quickly. Business service employment,
especially personnel supply services,
computer programming and data processing, grew 45 percent from 1990 to
2004. El Paso’s maquiladora-related businesses rely heavily on temporary staffing
agencies to hire additional personnel to
meet rising demand. Computer programming and data service workers help minimize the burden of paperwork required by
customs agencies to export or import
components. Legal employment grew 20
percent over the same period. Similar
results can be found up and down the U.S.
border.
The definitive study on the linkages
between maquiladoras and the border
economy, by Gordon Hanson, takes all
these factors into account.9 Hanson estimates that a 10 percent increase in
maquiladora output in a Mexican border
city will increase employment in its U.S.
city pair by 1.1 to 2 percent. He provides
more specifics by estimating that this
same 10 percent increase in output would
increase wholesale trade employment in
the U.S. city by 2.1 to 2.7 percent, transportation services by 1.7 to 2.7 percent,
manufacturing by 1.2 to 2.1 percent and
retail trade by 1 to 1.8 percent.
The Role of Recession
The recent recession has played an
important role in the latest downturn of
the highly cyclical maquiladora industry.
At the same time, maquiladoras have long
served as a low-wage platform for U.S.
Chart 3
Maquiladora Suppliers in El Paso
Index, 1990 = 100
350
300
Apparel
250
Plastics
200
150
Metalworking
100
50
0
Electrical equipment
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
NOTE: North American Industry Classification System (NAICS) codes used in the chart were 3327, 3329, 3328, 3332, 3335, 3159,
3261 and 3344.
SOURCE: Federal Reserve Bank of Dallas, El Paso Branch, with data from Bureau of Labor Statistics.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
29
Chart 4
Service Employment in El Paso
detailed results are reported elsewhere.11
To examine the future of the industry
under various assumptions, we simulated
maquiladora employment following its
second quarter 2000 peak. The base case
was the actual outcome through 2002, a
decline of 14.5 percent for the industry as
a whole. Scenario 1 (S1) assumed no
recession and that the U.S. unemployment rate held firm at a historically low 4
percent through the end of the period.
Real relative wages rose in this scenario,
just as in the base case. Scenario 2 (S2)
assumed the recession occurred but that
real relative maquiladora wages fell 6.1
percent after second quarter 2000 instead
of rising 16.8 percent. And scenario 3 (S3)
assumed the best of both worlds for
maquiladora managers, falling real relative wages and no recession.
Chart 5 shows the results for all
maquiladoras combined. This can be
computed two ways: as the result of a single estimate based on the sum of all
maquiladora employment or as the sum
of the simulation results for 10 maquiladora sectors. Fortunately, they agree
quite closely. Eliminating the U.S. recession in S1 would provide an increase of
approximately 20 percent in employment
in the simulation period, replacing a
decline of about 14.5 percent in the base
case. The percentage turnaround for S2 is
similar, and the combined effect in S3 is a
31 percent increase.
Four individual sectors do not
Index, 1990 = 100
350
300
Transportation and
transportation services
250
200
Real estate
150
Legal and accounting services
100
50
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
NOTE: North American Industry Classification System (NAICS) codes used in the chart were 4889, 5311, 5312, 5313, 5411 and 5412.
SOURCE: Federal Reserve Bank of Dallas, El Paso Branch, with data from Bureau of Labor Statistics.
manufacturing, and the rise of new lowwage alternatives such as China, India
and Vietnam has broadened U.S. options
for manufacturing. These very low-wage
competitors, plus rising real Mexican
wages, have become a factor in pushing
some maquiladora activity abroad. Mexico generally has looked at the loss of the
lowest wage jobs as an inevitable price of
progress, because increasing domestic
wage levels must be seen as a positive
aspect of economic development. The
government has expressed reluctance to
enter into subsidy programs to retain or
attract these industries, considering such
action as poor fiscal policy and a violation
of Organization for Economic Coopera-
tion and Development and World Trade
Organization rules.
To focus on the question of how
maquiladoras will respond to economic
recovery and which sectors would
benefit, we developed some econometric
estimates. As in other models, our
methodology confirmed that past maquiladora employment has primarily been
driven by the business cycle and relative
real wages.10 Trends and dummy shift
variables were included to account for
structural change, particularly testing for
breaks with the 1994 implementation of
NAFTA and the 1994–95 financial crisis in
Mexico. The general methodology follows
several papers by Branson and Love, and
Chart 5
Simulation Results
Sum of Maquiladora Sectors
Total Maquiladoras
Scenario 2
21.3
Scenario 2
Scenario 1
21.3
Scenario 1
–14.5
–20
–16
Scenario 3
31.3
Scenario 3
–8
–4
0
17.7
20.1
Base
-14.6
Base
–12
31
4
8
12
16
20
24
28
32
36
Percent change in jobs
–20
–16
–12
–8
–4
0
4
8
12
16
20
Percent change in jobs
NOTE: The base cases in the two calculations are slightly different because the chemicals sector was excluded from the sum of regression results. There was a break in the data for this sector.
SOURCE: Authors’ calculations.
30
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
24
28
32
36
Table 3
Maquiladora Sectors That Are Unresponsive
to a U.S. Economic Rebound
(Percent change in jobs)
Base
S1
S2
S3
Leather
–25.6
–7.8
–6.8
–7.4
Toys
–31.5
–21.0
–34.7
–5.1
Furniture
–8.7
–8.9
17.3
4.4
Not
classified
–4.9
–2.1
–22.1
5.8
SOURCE: Authors’ calculations.
respond to an upturn in the U.S. economy: leather, toys, furniture and a group
of other, unclassified maquiladoras. Their
simulation results are summarized in
Table 3. Combined, these maquiladoras
accounted for 226,782 jobs at the second
quarter 2000 peak, or 18.1 percent of the
total. These sectors are unlikely to return
to growth with U.S. economic recovery.
The three largest maquiladora sectors, together accounting for 76.1 percent
of the peak employment, all respond positively to economic recovery in the simulations. In S1, electrical machinery
records an 18.2 percent increase, in place
of a 26.1 percent decline. Textiles turn
around to record a 63.2 percent gain in S1,
and transportation equipment (which did
not decline after second quarter 2000)
grows by another 4.5 percent in this scenario.
In conclusion, less than 20 percent of
maquiladora employment is in sectors
that are unresponsive to economic recovery in the United States, and overall
growth seems likely to continue. However,
even those sectors that continue to grow
in simulations are going to be influenced
by foreign competition. The effect of foreign competition is often couched in
terms of a product cycle, in which product
development and testing occur in the
United States, initial long production runs
take place in Mexico and ultimately product commoditization happens in China or
another low-wage competitor. The more
quickly and easily a product is commoditized, the quicker it will move to China.
Leather, toy and furniture sectors are
often cited as no longer competitive in
Mexico. But even within the most
advanced sectors, we may find individual
products susceptible to being lost to lower
wage countries in exactly the same way—
computers, cell phones, modems, printers and disk drives, for example. Hence,
the rise of foreign competition means
even sectors returning to positive growth
with economic recovery may experience
slower job growth than in the recent past,
as some products within the sector are
commoditized.
In assessing Mexico’s competitive
prospects, the nation retains crucial
advantages over the rest of the world,
even as domestic wages rise. The most
important factor is proximity to the U.S.
market. For example, bulky items that
have a high ratio of weight to value, such
as large-screen televisions or major appliances, will remain competitive. Proximity
also matters if the inventory cycle is short,
if there are constant design changes or if
there must be frequent retooling. Mexico
will also be competitive when quality is
more important than price, such as with
medical equipment or when intellectual
property rights are critical.12
Texas-Based Suppliers
The maquiladoras’ contribution to
U.S. border city growth in the 1990s
stemmed from (1) the spillovers from
rapid maquiladora expansion in neighboring Mexican cities and (2) the shift of
many maquiladora suppliers to border
cities from their base in the Midwest. We
have already shown how foreign competition and rising real wages in Mexico have
reduced the prospects for maquiladora
growth, but foreign competition is also
making significant inroads into the
maquiladora supply chain. This raises the
possibility of slowing, or even reversing,
the increase of U.S. border-city suppliers
to the maquiladora industry.
Throughout the 1990s, the United
States supplied the vast majority of
maquiladora industry inputs. In 2000, 90
percent of maquiladora inputs were from
the United States and 9 percent were from
Asia, with China contributing only 1 percent (Chart 6). By 2004, 59 percent came
from the United States and 35.7 percent
from Asia, including 11.1 percent from
China. The United States remains the
majority supplier, but this rapidly moving
trend continued to run in favor of Asia
into 2005.
The vehicle for entry of foreign inputs
to Mexico is 20 sectoral promotion programs, or PROSECs, created by the Mexican government in December 2000. They
were created in response to implementation of NAFTA Article 303, which in January 2001 eliminated duty-free imports of
maquiladora inputs from non-NAFTA
countries. The PROSECs protect the entry
to Mexico of non-NAFTA components
that are not readily available in the
domestic market, allowing them to enter
under reduced tariffs of zero to 5 percent.
Despite the paperwork and the need to
track the origin of thousands of parts to
comply with PROSECs, maquiladoras
have apparently fully embraced the programs.
Data are not available on exactly
which inputs are being displaced, making
it difficult to assess the impact on Texas
border communities. For example, if the
1990s shift of suppliers to the border from
the Midwest was based on just-in-time
inventory needs, it may be difficult for
Asian suppliers to take their place. However, given the extent and pace at which
Chart 6
Mexican Maquiladora Imports by Country of Origin
Percent
100
90
2000
2001
2002
2003
2004
2005:Q1
80
70
60
50
40
30
20
10
0
United States
Asia without China
China
Other
SOURCE: Federal Reserve Bank of Dallas, El Paso Branch, with data from Banco de México.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
31
Mexico retains
important
competitive
advantages over
many of its low-wage
rivals, based on
proximity to the
United States,
political and
financial stability,
and the rule of law.
Asian suppliers have taken market share,
it would be hard to argue that the
maquiladora market share of Texas-based
suppliers has not been reduced. Future
expansion of Texas-based suppliers is
likely to slow as well.
Conclusion
Mexico’s maquiladora jobs are growing once more, beginning with the
resumption of U.S. industrial expansion
in mid-2003. Mexico retains important
competitive advantages over many of its
low-wage rivals, based on proximity to the
United States, political and financial stability, and the rule of law. The maquiladora industry is stable, competitive and
growing again.
It is unlikely, however, to repeat the
banner performance of the 1990s, at least
not in the near future. There were elements of unique, one-time stimulus in the
1990s, with the collapse of the peso in
1994–95 and the implementation of
NAFTA in 1994. Further, foreign competition appears to have taken away the
potential for any growth in several lowwage sectors and probably has reduced
the growth potential of a number of other
sectors as well.
Rising real wages in Mexico have
accelerated the transfer of low-wage jobs
to other countries, and the Mexican gov32
ernment has argued that this must be
seen as a highly desirable result of successful economic development and Mexico’s move up the product cycle. The next
generation of maquiladoras should not be
judged by the ability to generate low-wage
jobs, but by productivity, value added or
rising wages. Critics, at the same time,
claim Mexico simply has not done an adequate job of preparing the way for more
sophisticated manufacturing. To illustrate
this point, many observers cite the failure
(so far) of proposed reforms in energy,
labor law, taxes and telecommunications.
These and other reforms are badly needed
to prepare Mexico for a fine market economy.
Finally, it is not just the maquiladora
industry that is affected by foreign competition, but the U.S.-based supply chain
as well. In 2000, 90 percent of inputs to the
maquiladoras came from the United
States, and four years later that number
was only 59 percent. Texas border cities in
the 1990s developed rapidly as a critical,
new part of this supply chain, with suppliers shifting from the Midwest to the
U.S.–Mexico border. We lack industry
detail to know exactly how the recent success of foreign suppliers is affecting Texas
border cities, but again, declining economic stimulus from maquiladora expansion would seem to be the rule.
5
“The Border Industry Program and the Impact of
Expenditures on a U.S. Border Community,” by
Harry Ayer and Ross Layton, Annals of Regional
Science, vol. 8, 1974, pp. 105 –17.
6
“Maquiladoras Along the Texas–Mexico Border:
An Econometric Evaluation of Employment and
Retail Sales Effect on Four Texas Border
SMSAs,” by Richard J. Holden, Texas Department of Community Affairs, Regional Economic
Development Division, February 1984.
7
“Project Link: An Investigation of Employment
Linkages Between Cd. Juárez and El Paso,” by
Richard Sprinkle, University of Texas at El Paso,
December 1986.
8
“Maquila Industry Impacts on the Spatial Redistribution of Employment,” by Arthur L. Silvers
and Vera K. Pavlakovich, Journal of Borderlands
Studies, vol. 9, December 1994, pp. 47– 64.
9
“U.S.–Mexico Integration and Regional
Economies: Evidence from Border-City Pairs,”
by Gordon Hanson, Journal of Urban Economics, vol. 50, September 2001, pp. 259 – 87.
10
For more information, see the papers from the
Dallas Fed conference “Maquiladora Downturn:
Structural Change or Cyclical Factors?” available at
www.dallasfed.org/news/research/2003/
03maquiladora.html. In particular, see the presentations by Everardo Elizondo Almaguer,
Banco de México; William C. Gruben, Federal
Reserve Bank of Dallas; James Gerber, San
Diego State University; and Ernesto Acevedo
Fernández, Ministry of Finance and Public
Credit.
11
“Maquiladora Downturn: Structural Change or
Cyclical Factors?” by Jesus Cañas, Roberto
Coronado and Robert W. Gilmer, International
Business and Economics Research Journal, vol.
3, August 2004; “Dollar Appreciation and Manufacturing Employment and Output,” by William
H. Branson and James P. Love, National Bureau
of Economic Research, Working Paper No.
1972, July 1986; “The Real Exchange Rate and
Employment in U.S. Manufacturing: State and
Regional Results,” by William H. Branson and
James P. Love, National Bureau of Economic
Research, Working Paper No. 2435, November
1987; “The Real Exchange Rate, Employment
and Output in Manufacturing in the U.S. and
Japan,” by William H. Branson and James P.
Love, National Bureau of Economic Research,
Working Paper No. 2491, February 1988.
12
See “Maquiladora Downturn: Structural Change
or Cyclical Factors?” by Jesus Cañas, Roberto
Coronado and Robert W. Gilmer, Federal
Reserve Bank of Dallas Business Frontier, Issue
2, 2004.
Cañas and Coronado are assistant
economists at the El Paso Branch of the
Federal Reserve Bank of Dallas. Gilmer is a
vice president at the Federal Reserve Bank
of Dallas.
Notes
1
The four border cities contributed 6.8 percent of
the 2.3 million jobs generated in Texas from
1990 to 2000, while making up 6.1 percent of
Texas employment in 1990.
2
Mexican border states include Baja California,
Sonora, Chihuahua, Coahuila and Tamaulipas,
excluding Nuevo León.
3
“The Employment Impact of Maquiladoras
Along the U.S. Border,” by J. Michael Patrick, in
The Maquiladora Industry: Economic Solution or
Problem?, ed. Khosrow Fatemi, New York:
Praeger Publishers, 1990, pp. 31–35.
4
“Economic Impact of the Mexican Border Industrialization Program: Agua Prieta, Sonora,” by
Jerry R. Ladman and Mark O. Poulsen, Arizona
State University, Center for Latin American Studies, May 1972.
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
Do Higher Oil Prices
Still Benefit Texas?
Stephen P. A. Brown and Mine Yücel
T
Texas and oil. These two words have
gone hand in hand since 1889, when the
state started producing oil. Since then, the
Texas economy has often been driven by
volatile energy prices — suffering with low
oil prices and benefiting with high oil
prices.
The effects of energy prices on the
Texas economy were particularly evident
during the 1970s and 1980s (Chart 1). As
energy prices rose, the Texas economy
expanded at a rapid pace, with strong
employment and income growth.
Although the Texas economy continued to
expand until 1986, the oil and gas sector
began to slip as energy prices slid from
their 1981 heights. The oil price collapse
in July 1986 touched off a statewide recession and significant job losses.
Since the early 1980s, however, the
Texas energy industry has shrunk and
other sectors of the Texas economy have
grown. Despite these changes, Texas
remains the top oil and natural gas producer in the United States and exports
most of its production of these two commodities to other states. Consequently,
the energy industry remains an important
driver of the state economy.
The diversification of the Texas economy away from energy and this sector’s
continuing importance to the state
prompt us to consider: How much do
swings in energy prices affect the Texas
economy today? How much has that relationship changed since the energy boom
years of the 1970s and 1980s?
Oil Production in Texas:
A Brief History1
The first economically significant oil
in Texas was discovered in Corsicana in
1894. Discoveries in Navarro County followed. By 1901 the Spindletop oil field was
producing 75,000 barrels per day and had
contributed to the first Texas oil boom.
In the early 1900s, Texas produced relatively little oil and gas — crude oil proOCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
33
Chart 1
Texas Employment Tracks Oil Prices in 1970s and 1980s
Employment (in thousands)
2004 dollars per barrel
90
800
80
600
Detrended Texas
employment
400
70
60
200
50
0
40
30
–200
20
–400
10
Refiners' acquisition cost
–600
’74
’77
’80
’83
’86
’89
’92
’95
’98
0
’01
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas; Energy Information Administration; authors’ estimates.
Chart 2
Oil and Gas Extraction’s Share of Texas Output Peaks in 1981
Percent of Texas GSP
20
15
10
5
0
’63
’65
’67
’69
’71
’73
’75
’77
’79
’81
’83
’85
’87
’89
’91
’93
’95
’97
’99
SOURCE: Federal Reserve Bank of Dallas.
Chart 3
Energy Sector Employment Declines After Early 1980s
Share of Texas nonfarm employment (percent)
Refining and Petrochemicals
5
Oil and gas extraction
Chemicals and allied products
Oilfield machinery
Petroleum and coal products
4.5
4
3.5
3
2.5
2
1.5
1
.5
0
’67
’69
’71
’73
’75
’77
’79
’81
’83
’85
’87
’89
’91
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
34
’01
duction was only about 1.3 percent of
total U.S. production, and natural gas was
0.1 percent of U.S. production. By 1952,
Texas’ shares of total U.S. crude oil and
natural gas production peaked at 45 and
52.2 percent, respectively. Crude oil and
natural gas production continued to
increase in the state, with the peak for
both coming in 1972.
As oil and gas production increased in
Texas, so did their importance to the state
economy. The creation of OPEC in 1960
and subsequent oil price increases in the
1970s and early 1980s gave rise to a boom
in the Texas economy. Oil and gas output
became an increasing share of Texas output (Chart 2). In 1981, at the height of
world oil prices, oil and gas extraction was
about 20 percent of total Texas gross state
product.
After reaching $38 per barrel in 1981,
oil prices began softening. Gradually sliding during the next few years, prices
finally collapsed to $11.82 per barrel in
July 1986. This led to a recession in Texas
that lasted 17 months and had a devastating effect on state employment.
The number employed in the Texas
mining industry (which is mostly oil and
gas extraction) rose from about 7,000 in
1900 — 0.7 percent of total state employment — to 90,000 by 1950 — a 3.1 percent
share. At the oil and gas industry’s peak in
1981, Texas employment in oil and gas
extraction and oilfield machinery reached
366,200 — 6 percent of total nonfarm
employment in the state (Chart 3). By the
time the oil industry bottomed out in
1987, 175,000 jobs had been lost in the oil
and gas extraction and oilfield machinery
sectors.
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
’93
’95
’97
’99
’01
After the first Texas refinery opened in
the Corsicana oil field in 1898, the petroleum refining and petrochemical industries flourished in the state. In 1939 (the
earliest data available from the U.S. Census of Manufacturers), the chemical
industry employed about 6,800 production workers, and the petroleum refining
industry employed 19,000 (accounting for
5.5 and 15 percent of total manufacturing
employment, respectively). Refining’s
share of state output was highest in 1939
at 28 percent of total manufactured
goods. By 1958, the Texas petroleum refining industry reached its zenith with 43,000
employees.
Today, the refining industry contributes about 11 percent of Texas manufacturing output and 1.5 percent of total
Texas output. Employment has also
steadily declined to less than 0.3 percent
of total Texas employment (Chart 3). The
petrochemical industry provides about 12
percent of Texas manufacturing output,
1.6 percent of total Texas output and less
than 0.9 percent of total Texas employment.
The refining and petrochemical
industries provide some counterbalance
to the effects of changing energy prices on
the Texas economy. These two industries
generally are hurt by rising oil and natural
gas prices.
Diversification of the
Texas Economy
As output in the Texas mining industry shrank, output in other Texas industries continued to grow after the mid1980s. Texas saw output gains in manufacturing, construction, agriculture and
the service-producing sectors — wholesale and retail trade; transportation, communications and public utilities (TCPU);
services; finance, insurance and real
estate (FIRE); and government (Chart 4 ).
Growing at a faster rate than total Texas
gross state product, manufacturing, trade,
TCPU, services and FIRE accounted for
increasing shares of Texas output. In contrast, agriculture, construction and government posted decreasing shares.
A similar picture emerges for Texas
employment since the mid-1980s. Services, construction and trade grew faster
than total employment and accounted for
increasing shares of Texas nonfarm
employment (Chart 5 ). Employment
shares for TCPU and FIRE remained relatively constant, while those for manufacturing and government decreased along
with mining.
Oil and the Texas Economy
Even without a rigorous analysis, it’s
evident the relationship between energy
prices and the Texas economy has
changed since the 1980s. Oil and gas production accounted for 19.4 percent of
Texas output in 1981 and only 6 percent in
2002. Similarly, output and employment
in energy-related industries, such as oil
and gas field machinery, claim a smaller
Chart 4
Texas Economy Diversifies Away from Mining After Mid-1980s
GSP index, 1971 = 100
600
Total
Agriculture
Construction
Government
Mining
Trade
TCPU
Services
Manufacturing
FIRE
500
400
300
200
100
0
’71
’73
’75
’77
’79
’81
’83
’85
’87
’89
’91
’93
’95
’97
’99
’01
NOTE: TCPU is transportation, communications and public utilities; FIRE is finance, insurance and real estate.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
share of the Texas economy today than in
the early 1980s.
To examine in more detail how the
Texas economy’s diversification away
from energy-producing industries has
affected its response to volatile energy
prices, we developed an econometric
model that captures the effects of oil price
shocks on the Texas economy for the
period 1970–2002.2 We find that the relationship between oil prices and the Texas
economy is considerably different today
than it was during the oil boom and bust
years of the 1970s and 1980s.
Our analysis reveals that the relationship between oil prices and the Texas
economy breaks between 1987 and 1988,
which indicates that the effects of changing oil prices on the economy were different in 1970–87 than in 1988 – 2002. To
determine just how this relationship differed across the two periods, we analyze
the data in two different ways. We examine how much of the actual fluctuation in
Texas output and employment arose from
oil price shocks and other causes in each
of the two periods. We also estimate and
compare by how much Texas output and
employment would have responded to a
10 percent oil price shock in each of the
two periods.
We find changes in oil prices
accounted for a much higher percentage
of fluctuations in the Texas economy in
1970 – 87 than in 1988–2002. In the earlier
period, nearly half the fluctuation in Texas
output (46 percent) arose from changing
oil prices. In the latter period, however,
less than 10 percent of Texas output fluctuations arose from oil price shocks. In
Chart 5
Texas Employment Shifts Away from Mining After Early 1980s
Texas Employment Index, 1970 = 100
475
Services
Trade
FIRE
Total
Government
425
375
325
Construction
TCPU
Mining
Manufacturing
275
225
175
125
75
’70
’72
’74
’76
’78
’80
’82
’84
’86
’88
’90
’92
’94
’96
’98
’00
’02
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
35
NOTE: TCPU is transportation, communications and public utilities; FIRE is finance, insurance and real estate.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.
contrast, the fluctuations in U.S. GDP
accounted for about 40 percent of the
fluctuations in Texas output in the latter
period.
The Response to
Oil Price Shocks
The Texas economy’s response to an
oil price shock is significantly different in
the two periods (Table 1 ). For 1970 – 87, we
estimate that an oil price increase would
have led to sustained gains in both output
and employment. In particular, a 10 percent increase in oil prices would have led
to a 2.6 percent increase in Texas gross
state product and about a 1 percent
increase in employment.3 An oil price
increase of 10 percent also would have
temporarily boosted the growth rate of
the Texas economy, with output growing 1
percent faster during the next few quarters and employment growing 0.1 percent
faster over the next three to four months,
then a little slower thereafter.
The economy was much less responsive to oil prices in the period 1988 – 2002,
and the nature of the response was different. In the second period, a 10 percent
increase in oil prices would have led to
only about a 0.4 percent gain in gross state
product. The net response of employment
to a rise in oil prices is basically nil. The
negligible result in employment may arise
from the energy sector’s greatly muted
response to oil price fluctuations in the
latter period and the inability or reluctance of oil companies to hire new
employees as energy prices rose.
To further examine the channels
through which oil price shocks affect the
Texas economy, we examined the effects
of oil price shocks on the rig count and oil
and gas employment in both periods. We
found that the rig count responded much
more strongly to oil price increases in the
first period than in the second. For
1970 – 87, we estimate that a 10 percent
increase in oil prices would have boosted
the rig count by 20 percent. In contrast,
the same percentage increase in oil prices
Table 1
Effect of a 10 Percent Increase
in Oil Prices on Texas Economy
Texas
Oil
Texas nonfarm
Rig
and gas
GSP employment count employment
1970–1987 +2.6%
+1.0%
+20%
+9.5%
1988–2002 +0.4%
0
+6.6% +1.1%
36
Our estimates confirm
the Texas economy has
become less sensitive
to oil price fluctuations,
but it still responds
favorably to higher
energy prices.
in 1988 – 2002 would have yielded only a
6.6 percent increase in the rig count.
Similarly, oil and gas employment
showed a much smaller response in the
second period. We estimate that a 10 percent increase in oil prices would have generated a 9.5 percent increase in Texas oil
and gas employment for 1970 – 87 but only
a 1.1 percent employment increase in
1988 – 2002.
One reason for the weaker response
in the rig count and employment may be
changes in technology. After the 1986
crash in oil prices, companies improved
oilfield technology and produced more oil
with fewer rigs. Therefore, the same rise in
oil prices brings forth fewer rigs and oilfield workers in the latter period. In addition, contacts in the industry say there are
fewer prospects for new drilling in Texas,
and companies are increasingly shifting
their drilling overseas.4
gross state product by 2.6 percent and
employment by 1 percent. During the
1988 – 2002 period, a 10 percent increase
in oil prices would have raised Texas gross
state product by 0.4 percent with no significant net effect on employment.
We find evidence for two ways in
which the Texas economy has become
less sensitive to fluctuations in oil prices
than it was in the 1970s and 1980s. The
first is that oilfield activity has become
less sensitive to fluctuations in energy
prices. The second is that the energy
industry makes up a smaller share of the
Texas economy than it used to. Together
these factors have meant that Texas output is about 15 percent as sensitive to oil
price fluctuations as it was from 1970 to
1987. Texas nonfarm employment no
longer seems to be affected by oil price
fluctuations.
Brown is a senior economist and assistant
vice president and Yücel is a senior
economist and vice president in the
Research Department of the Federal
Reserve Bank of Dallas.
Notes
This article was previously published under the
title “The Effect of High Oil Prices on Today’s
Texas Economy,” in Federal Reserve Bank of
Dallas Southwest Economy, September/October
2004.
1
See “Oil and Gas Industry,” The Handbook of
Texas Online, www.tsha.utexas.edu/handbook/
online.
2
We use a vector-autoregressive model with oil
prices, U.S. GDP, Texas gross state product,
Texas nonfarm employment, Texas employment
in oil and gas extraction, and the Texas rig count
as variables.
3
These results are similar to those found in
“Energy Prices and State Economic Performance,” by Stephen P. A. Brown and Mine K.
Yücel, Federal Reserve Bank of Dallas Economic
Review, Second Quarter 1995. Using input–output analysis, Brown and Yücel estimate that a 10
percent increase in oil prices would have
boosted Texas employment by 1.37 percent in
1982 and by 0.3 percent in 2000.
4
Drilling has shifted toward natural gas in the
United States and Texas, but because natural
gas prices generally moved with oil prices during the estimation periods, the shift may not
alter the rig count’s weakening response to oil
prices.
Oil Price Effects on the
Texas Economy
Over the past 20 years, the Texas
energy industry has shrunk while other
sectors of the Texas economy have grown.
Nonetheless, Texas produces more oil and
gas than any other state in the nation.
Texas accounts for 20 percent of crude oil
and 26 percent of natural gas production
in the United States (excluding federal offshore). Texas also exports oil and natural
gas to the rest of the nation. Consequently, higher energy prices still benefit
the state —even if it is by less than in the
boom years of the 1970s and early 1980s.
Our estimates confirm the Texas
economy has become less sensitive to oil
price fluctuations, but it still responds
favorably to higher energy prices. During
the 1970 – 87 period, a 10 percent increase
in oil prices would have boosted Texas
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
The Changing Face of Texas
Population Projections and Implications
D’Ann Petersen and Laila Assanie
R
Rich natural resources, abundant
land, a central location within the United
States and a business-friendly environment
have long attracted both immigrants and
U.S. natives to Texas. As a result, the state’s
population is faster growing, younger and
more diverse than the nation’s.
These rapid demographic changes
present challenges for the future. As the
state’s baby boomer population ages,
more demands will be placed on housing,
health care and social services. Hispanics,
already a dominant force in Texas, are
expected to become the majority population group by 2020. The significant
increase in this population (both immigrant and native) has far-reaching implications for education, housing and the
labor force. The key issue facing Texas will
be to reduce the economic and educational disparities prevalent among the
state’s ethnic groups as the population
continues to grow and evolve.
This article looks at population
growth and demographic changes of
recent decades. Then, with projections
from the Texas State Data Center, we
examine some sectors of the economy
that will be challenged by these demographic forces in the coming decades.
Texas: Big and Getting Bigger
The key issue facing Texas will be to
reduce the economic and educational
disparities prevalent among the state’s
ethnic groups as the population
continues to grow and evolve.
Since the early 1900s, Texas has grown
faster than the nation. However, during
the Texas oil boom, the state’s population
growth accelerated. From 1970 to 1980, as
oil prices spiraled upward and people
flocked to Texas, its population grew by
2.71 percent per year, while the nation’s
increased at a 1.14 percent pace (Chart 1).
Even during the 1980s, which witnessed
an oil and real estate bust, Texas almost
doubled the nation’s population growth.
During the 1990s, Texas again
exceeded expectations and grew by its
largest amount yet, adding almost 3.9 million residents and surpassing New York as
the second most populous state. Many
immigrants and residents from other
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
37
Table 1
Total Population and Components of Population Change in Texas, 1950–2003
Chart 1
Texas and U.S. Population Growth,
1970–2003
Percent change due to
Annual growth rate (percent)
3
Texas
United States
2.5
1950
1960
1970
1980
1990
2000
2003*
2
1.5
1
.5
0
1970s
1980s
1990s
2003
Population
Total
increase
Natural
increase
Net
migration
Percent
change
Natural
increase
Net
migration
7,711,194
9,579,677
11,196,730
14,229,191
16,986,510
20,851,820
22,103,374
1,868,483
1,617,053
3,032,461
2,757,319
3,865,310
1,259,945
1,754,652
1,402,683
1,260,794
1,815,670
1,919,281
699,685
113,831
214,370
1,771,667
941,649
1,946,029
560,260
24.23
16.88
27.08
19.38
22.76
6.04
93.91
86.74
41.58
65.85
49.65
55.53
6.09
13.26
58.42
34.15
50.35
44.47
*Through July 2003.
SOURCE: Census Bureau.
SOURCE:Census Bureau.
states were drawn to Texas’ strong economy and rapidly expanding high-tech
centers, such as Austin and Dallas’ telecom corridor.
Even with the drastic economic
downturn of 2001, which hit Texas much
harder than most other areas of the
nation, the state gained an additional 1.26
million residents from 2000 through 2003,
for a total of 22 million, again growing
twice as fast as the nation. Although
domestic in-migration—people moving
to Texas from other states within the
United States — slowed during Texas’ hard
economic times, the state’s high birthrate
and a strong pace of immigration kept
population growing at a healthy speed.
The combination of these factors —
higher international immigration, a high
Hispanic birthrate and less domestic
migration — resulted in Texas’ Anglo population dipping below the majority level
of 50 percent in 2003 for the first time
since the 1800s.
higher-than-average birthrate. This is
partly a result of the state’s Hispanic heritage and its ties to Mexico, where total
fertility rates were 2.5 percent in 2004,
quite a bit higher than the United States’
2.1 percent.1 In 2000, Texas was second in
the country (behind Utah) in state rankings for birth/fertility rates. Because birthrates change slowly over time, Texas will
probably continue to see large natural
increases in its population despite
changes in economic conditions or immigration policies.
Perhaps the most important factor
behind Texas’ more recent population
growth is the strong pace of net migration.
Historically, people have been drawn to
Texas because of its abundant land and
natural resources. In more recent years,
people and businesses were drawn by
Texas’ robust economy and favorable
business climate. Net migration, which
includes both domestic in-migration and
international immigration, was highest
during periods of greatest economic
expansion —the 1970s oil boom (58.4 percent) and the 1990s high-tech/telecom
boom (50.4 percent) — and accounted for
Why the Rapid Growth?
Two major factors are spurring Texas’
rapid population growth. One is the state’s
a larger share of the state’s population
growth than natural increase (Table 1 ).
Interestingly, even with the state’s recession in 2001 – 03, net migration remained
relatively high, thanks to strong international immigration, accounting for 44.5
percent of Texas’ population increase.
How Has Immigration Changed
the Face of Texas?
The healthy pace of Texas’ population
growth that began in the 1990s is due in
large part to strong international immigration, which surpassed domestic inmigration as a contributor to population
growth in six of the nine years during the
1990s.2 Immigration reached historic proportions as the number of foreign-born in
Texas increased by approximately 1.38
million. In addition, immigrants kept
Texas population growing during the
recent economic downturn and tepid
recovery. From April 2000 to July 2003,
Texas net migration totaled 560,260,
including 430,048 (77 percent) international immigrants (Table 2 ).
Texas is one of the most popular immigrant gateways to the United States.
Table 2
Total Population and Components of Population Change in United States and Texas
Natural increase
Geographic
area
Total
population
change
(April 2000–
July 2003)
Births
Deaths
United States
Texas
9,364,374
1,259,945
13,098,788
1,189,400
7,843,040
489,715
Total
Net
international
migration
Net
internal
migration
Total
5,255,748
699,685
4,108,626
430,048
0
130,212
4,108,626
560,260
SOURCE:Census Bureau.
38
Natural
increase
Net migration
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
Net migration
Net
Net
Total international internal
Total
change migration migration
(percent) (percent) (percent)
(percent)
56.12
55.53
43.88
44.47
43.88
34.13
0
10.33
Chart 2 shows the percentage growth of
the foreign-born population in the United
States, Texas and the state’s six major metros during the 1990s. The foreign-born
population share in Texas rose significantly during the decade and in 2000 composed 14 percent of the population compared with 11 percent at the national level.
In recent years, growth of the foreignborn has been even more rapid in Texas’
major metros than in its border metros.
Between 1990 and 2000, the number of
foreign-born in the major metros more
than doubled (112 percent increase),
while that of the border metros increased
51.6 percent, well below the state average
of 90.2 percent.3
Of Texas’ major metros, only El Paso
(31.5 percent) and San Antonio (54.3 percent) recorded foreign-born growth rates
below the U.S. average (57.4 percent),
mostly because many of the immigrants
in these metros entered the state in earlier
years and their second-generation children now reside there. Austin witnessed
the strongest growth in the foreign-born
during the 1990s (172 percent), likely due
to the booming tech economy there. The
share of the foreign-born in Dallas, Fort
Worth and Houston grew by 152 percent,
131 percent and 94 percent, respectively.
Shares of the foreign-born in the major
metros are shown in Chart 3.
This increase in immigration has
brought rapid change in the state’s ethnic
composition. Because of Texas’ proximity
to Mexico, many of the state’s immigrants
are of Hispanic origin. Hispanics are by far
the fastest growing segment of the population. During the 1990s, Texas’ Hispanic
population grew at a pace of 54 percent,
adding more than 2.3 million people. As a
result, Hispanics now make up 35 percent
of the state’s population, compared with
roughly 14 percent at the national level.4
Among states, Texas has the country’s second-highest Hispanic population, behind
only California.
Texas’ population has changed in
other ways as well. Anglos’ share of the
total population has fallen — no longer
above 50 percent — as their rate of growth
slowed in the ’90s and the first three years
of this decade, while blacks still account
for about 11 percent of the state’s population (Chart 4 ). The number of people
included in the “other” category has doubled since the 1990s.5
Chart 2
Growth of Foreign-Born, 1990–2000
Percent
180
160
140
120
100
80
60
40
20
0
U.S.
Texas
Austin
Dallas
El Paso
Fort WorthArlington
Houston
San Antonio
El Paso
Fort WorthArlington
Houston
San Antonio
SOURCE: Texas State Data Center.
Chart 3
Share of the Foreign-Born
Percent
30
25
1990
2000
20
15
10
5
0
U.S.
Texas
Austin
Dallas
SOURCE: Census Bureau.
Chart 4
Change in Ethnicity/Race for Texas
Percent
70
Anglo
60
Black
50
Hispanic
Other
40
30
20
10
0
1980
1990
2000
2003
SOURCES: Census Bureau; Texas State Data Center.
In recent years, growth of the foreign-born has
been even more rapid in Texas’ major metros
than in its border metros.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
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Chart 5
Projected Proportion of Texas Population by Race/Ethnicity
Percent
60
Anglo
Hispanic
Black
Other
50
40
30
20
10
0
2010
2020
2030
2040
NOTE: Assuming net migration rate is half that of 1990–2000.
SOURCE: Texas State Data Center.
Chart 6
U.S. Population by Age in 2003
Age group, in years
85 and over
75 to 84
65 to 74
Baby
boomers
(39 to 57
years)
55 to 64
45 to 54
35 to 44
25 to 34
Echo boomers
(8 to 23 years)
15 to 24
5 to 14
Under 5
0
5
10
15
20
25
Millions
30
35
40
45
SOURCE: Census Bureau, American Community Survey 2003.
The dramatic rise in Texas’ Hispanic
population (both immigrant and native)
has far-reaching implications. Hispanics’
higher-than-average birthrate suggests
that this demographic segment will continue to grow at a more rapid pace than
that of Anglos and blacks, even assuming
no immigration. In addition, Hispanics,
on average, are younger, which has ramifications for housing, education and the
labor force. In 2000, the median age of
Hispanics in Texas was 25.5 versus 38 for
Texas Anglos. This compares with the
median age for all Texans of 32.3 and for
the United States of 35.3. Currently,
because of its Hispanic heritage, Texas is
the second youngest state in the nation,
behind Utah.
Population Projections
Texas’ population will change in two
40
major ways over the next several decades:
in diversity and in age.
Diversity. The Texas State Data Center
projects that by 2020, Hispanics will make
up the majority of Texas’ population,
while Anglos will fall to the second-mostpopulous ethnicity (Chart 5). By the year
2040, Hispanics will account for over 50
percent of all Texans, while one-third of
the population will be Anglo. Blacks are
expected to make up 9.5 percent of Texas’
population in 2040, and other races (not
Anglo, black or Hispanic) are expected to
grow to almost 6 percent of the population.6
For Texas’ border cities, which already
have large Hispanic populations, the
changes could be even more dramatic.
For instance, El Paso, 78.2 percent Hispanic now, will likely increase to 90.3 percent by 2040. Similarly, San Antonio, with
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
50
its ties to Mexican heritage, will move
from 50 percent Hispanic (in 2000) to 61.1
percent in 2040. Even Austin, where Hispanics make up only 26 percent of the
total today, is expected to see a major
increase in its Hispanic population by
2040 — up to 44 percent.
Currently, large disparities mark
socioeconomic conditions among Texas’
ethnic groups. Compared with their Anglo
counterparts, Texas’ Hispanics tend to
have lower levels of education, have lower
wages and depend more on state services.
This is partly a result of immigration —
Mexican immigrants tend to have average
wages 40 percent below those of natives.7
These wage differences reflect that the
immigrants are young, have scant job
experience and speak little English.
While some of the difference between
immigrants’ and natives’ wages is made
up after substantial time in the United
States, disparities between groups
remain. Without changes in socioeconomic conditions, this implies that Texas’
future population could be less educated,
less competitive, poorer and more in need
of state services such as health care and
welfare. Texas’ challenge is to reduce these
socioeconomic differences through increased educational attainment and
training, so Texas can compete in the
nation’s workforce in coming decades.
Age. Texas’ overall population, like
the nation’s, is growing older. This aging is
a result of the maturing of the baby boom
generation, which makes up the largest
segment of our population. In 2003, the
baby boomers spanned the ages 39 to 57
(Chart 6). The youngest of the baby boomers will turn 60 by 2024. As they retire, the
baby boomers will put large demands on
the Social Security system and other government programs for the elderly, such as
Medicare. In addition, the boomers may
drive housing demand toward move-up
or second homes as well as houses more
popular with older adults or combined
families.
One factor that may mitigate Texas’
aging population is that the fast-growing
Hispanic population has a different age
structure than the Anglo population. As
Chart 7 shows, in 2000 the population in
age groups over 35 was predominantly
Anglo. For example, in 2000, 66 percent of
Texans aged 55 – 59 were Anglo compared
with 20 percent that were Hispanic. Con-
versely, of Texans aged 5 and under, 44
percent were of Hispanic heritage, compared with 39 percent Anglo.
If expectations of rapid growth hold
true for Texas’ Hispanic population, Hispanics will make up a much higher percentage of most age groups by the year
2040, with only those over 65 being predominantly Anglo (Chart 8 ).8 The age differential between the Hispanic and Anglo
populations has important implications
for education, housing and state services.
Demographics and Poverty
Texas Becoming Poorer? Texas’ economy grew faster than the nation’s during
the 1990s, and all sectors added jobs.
Employment in Texas during this period
grew at an annualized average rate of 3.3
percent, above the nation’s 2.2 percent.
Despite this phenomenal growth in
employment, Texas has the eighth highest
poverty rate in the country and has not yet
achieved per capita income parity with
the nation.
During the 1990s, Texas per capita
income grew rapidly — at an annual average rate of 7.2 percent, which exceeded
the nation’s 5.7 percent. Consequently,
Texas, which began the decade at 89 percent of U.S. per capita income, edged up
to 95 percent of the U.S. average by 2000.
Moreover, poverty rates in the state
declined —from 18.1 percent in 1989 to
15.4 percent in 1999 — thanks to a strong
economy.
Although Texans’ incomes improved
during the ’90s, succeeding years have
seen a reversal of this phenomenon.
According to 2003 data, the Texas poverty
rate rose to 16.3 percent and Texas nominal per capita income fell to 93 percent
($29,372) of the U.S. average ($31,632) as
the Texas economy slumped into the
recession that started in 2001 and lasted
until mid-2003. The state’s higher concentration of high-tech and transportation
industries, which were the hardest hit,
intensified the recession’s impact. Hence,
these industries shed a substantial number of high-paying jobs, pushing down the
state’s per capita income more so than the
U.S. average. Also, Texas’ recovery from
the recession has been unusually weak.9
Ethnic Disparities. Among ethnic
groups, Hispanics are undoubtedly the
largest segment in poverty in Texas. In
1999, more than 1.6 million (25.4 percent)
Chart 7
Texas Population by Age and Ethnicity, 2000
Percent
80
70
Anglo
60
Hispanic
50
40
30
20
10
0
Under 5
5 to 9
10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64
Age
SOURCE: Texas State Data Center.
65+
Chart 8
Texas Population by Age and Ethnicity, 2040
Percent
80
Hispanic
Anglo
70
60
50
40
30
20
10
0
Under 5
5 to 9
10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64
Age
65+
NOTE: Assuming net migration rate to the state is equal to that of 1990–2000.
SOURCE: Texas State Data Center.
Hispanics in Texas were poor.10 Their
median household income was $29,873,
far below the Texas average of $39,927.
This is an alarming number, given the
importance of this segment to Texas’
future.
Blacks had the second-highest poverty
rate (23.4 percent) with a median income
less than that of Hispanics. Anglos fared
best, with the lowest poverty rate (7.8 percent) and the highest median household
income ($47,162 in 1999) in Texas.
The disparity among ethnicities when
it comes to income and poverty is not surprising. Natives (predominantly Anglo)
are far more likely to have a high school
diploma and some college education than
immigrants (predominantly Hispanic).11
Less-educated individuals tend to be
lower-skilled workers employed in low-
paying jobs. In addition, because the nonAnglo population in Texas is far younger
than the Anglo population, a large percentage of non-Anglos are in their early
earning years, have scant work experience
and thus are more likely to have lower
incomes.
Implications
If the income differential between Anglos and non-Anglos persists, a larger share
of Texans could be drawn into poverty in
the future. According to the Texas State
Data Center, the share of households with
annual incomes of $25,000 or less will increase from 30.7 percent (in 2000) to 37.5
percent by 2040. Moreover, the percentage
of families with earnings exceeding $100,000
will fall from 11.5 percent to 8.5 percent.
The net impact could be a decline in real
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
41
Where the Poor Reside in Texas
The poor live all over the state, but the
living in poverty.
border metros fare worst, with the highest
In contrast, poverty levels in the major
poverty rates (see table ). Although poverty
metros have rarely been above the state
rates declined in the border metros during
average (see table). However, they have been
the 1990s as the economy boomed, the
higher than the U.S. average in some major
share of the population below poverty level
metros. For instance, since 1989, both San
remained well above the state average of
Antonio and Houston have recorded poverty
15.4 percent in 1999. McAllen, Brownsville
rates slightly higher than the U.S. average. In
and Laredo had more than 30 percent of their
fact, Houston is home to the highest number
population in poverty, while almost one-
of poor Texans (623,493). Dallas traditionally
fourth of those living in El Paso were poor.
has posted lower poverty rates than the
The picture for the border metros has
nation, but the recent economic downturn
not improved much since 1999. According to
pushed its rate slightly above the U.S. aver-
2003 census data, Hidalgo County (McAllen
age. The higher poverty rates in the Texas
MSA), Cameron County (Brownsville MSA)
border metros and some major metros may
and El Paso County (El Paso MSA) rank
be a result of their above-average shares of
among the top four counties in the United
international immigrants.
States with the highest share of individuals
Poverty Characteristics of United States, Texas and Its Major and Border Metros
Place
United States
Texas
Austin
Brownsville
Dallas
El Paso
Fort Worth/Arlington
Houston
Laredo
McAllen
San Antonio
1989
Individuals below poverty
1999
2003
31,742,864
3,000,515
129,942
101,362
322,604
155,298
147,177
494,457
50,116
159,216
252,301
33,899,812
3,117,609
134,589
109,288
384,146
158,722
171,930
572,410
59,339
201,865
234,478
35,846,289
3,508,230
171,373
130,733
488,602
189,596
193,427
623,493
n.a.
238,333
266,248
Percent below poverty
1989
1999
2003
13.1
18.1
15.9
39.7
12.3
26.8
11.0
15.1
38.2
41.9
19.5
12.4
15.4
11.1
33.1
11.1
23.8
10.3
13.9
31.2
35.9
15.1
12.7
16.3
12.8
36.5
13.0
27.4
10.7
14.1
n.a.
38.0
16.2
NOTE: 1999 poverty data are the latest available for Laredo MSA.
SOURCES: Census Bureau; Texas State Data Center.
income, reduced tax revenue per household and increased burden on the state
government to pay for welfare services in
Texas. As the state is likely to depend progressively more on non-Anglo Texans for
future tax revenues, it is important to
lessen the existing wage gap and education differential between ethnic groups.
Education and the Labor Force. One
way to reduce the wage gap is through
education and training. In fact, according
to the Texas comptroller, every dollar
42
invested in Texas’ higher education system returns $5 or more to the Texas economy. Hence, it is essential that the education system keep up with the state’s
changing demographics.
Texas’ education record is nothing to
brag about. Texas ranks second to last
among the 50 states in its share of the
population 25 years or older with a high
school diploma (only 77.8 percent). Furthermore, in 2003 several Texas cities
(Dallas, El Paso, Fort Worth, Houston and
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
San Antonio) ranked in the bottom third
among major U.S. cities in shares of high
school graduates.12
Again, the statistics vary by race. For
instance, Anglos in Texas are more likely
to be high school graduates (87.2 percent
in 2000) than their non-Anglo counterparts, especially Hispanics. In 2000, more
than half the Hispanic population in Texas
did not have a high school diploma. Anglos are also more likely to attain higher
levels of education than non-Anglos,
excluding Asians. According to the Pew
Hispanic Center, Hispanics are half as
likely as Anglos to graduate from college
with a bachelor’s degree by age 26 (23.2
percent for Hispanics versus 47.3 percent
for Anglos). Much of the disparity is due
to rapid Hispanic immigration into the
state: immigrants’ wages and education
levels tend to be much lower than
natives’.13
Hispanics are expected to make up
the majority of the labor force in Texas by
2040. If this disparity between Anglo and
non-Anglo high school and college graduation rates continues, the Texas economy
could face several important challenges.
First, according to the Texas State
Data Center, by 2040 approximately 30.1
percent of the labor force will not have a
high school diploma, up from 18.8 percent in 2000.14 If that occurs, a higher
share of Texas’ workforce would be less
educated and low skilled, possibly making
the Texas economy less competitive.
Second, empirical studies show that
low education levels are associated with
lower income levels; therefore, failure to
complete high school or college negatively impacts average earnings.15 Earnings data from the Census Bureau demonstrate this point (Chart 9). An increasing
number of less-educated laborers would
reduce the average income of Texans and
in turn decrease tax revenues collected by
the state.
Third, overall enrollment in public
schools is estimated to climb rapidly,
growing at about half the state’s population growth rate, according to the State
Data Center. Most of this increase in student enrollment — Hispanics by almost
100 percent and the “other” category by
71 percent — is expected to result from
growth in the non-Anglo population
because of its younger age structure.
Thus, state expenditure on public
Chart 9
U.S. Mean Earnings in 2002 by Educational Attainment
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
0
No high
Graduate,
school diploma including GED
Some
college
Associate
degree
Bachelor's
degree
Master’s
degree
Doctorate
degree
Professional
degree
SOURCE: Census Bureau, Current Population Survey, 2003.
education as well as the number of students requiring financial assistance could
expand rapidly unless socioeconomic differences between races are reduced. Rising education costs coupled with slow
growth in tax revenues would adversely
impact the state’s financial situation.
However, it is naive to assume that
the current income differential between
Anglos and non-Anglos will persist
unchecked. Empirical research shows that
second and third generations of immigrants are more likely than their forefathers to have access to higher level education and, therefore, are better equipped
with skills required for higher paying jobs.
Hence, the wage gap between non-Anglos
and Anglos is likely to be reduced in the
future.16
For the Texas economy to remain
robust, it is essential that the state’s education system make progress on at least
two fronts: (1) investing in resources to
improve overall student achievement,
and (2) developing programs that help
bridge the educational attainment gap
between racial and ethnic groups.
Housing. What does the future hold
for the housing industry as Texas’ population changes over the next several
decades? The aging of the overall population, along with the baby boomers, will
certainly impact the housing industry in
Texas as well as every other state. The
youngest baby boomers turn 40 this year,
and boomers are turning 50 at the rate of
seven every minute and will continue to
do so through 2013 (see Chart 6 ). This segment of the population, along with aging
seniors, will be among the most potent
forces affecting the housing market and
home ownership in the coming decades.
It remains to be seen what boomers’ preferences will be — whether they remain in
their current homes, trade up or purchase
vacation homes. Most boomers are entering the stage of life when earnings peak —
thus, they may choose more affluent
homes or ones featuring amenities more
popular with empty nesters.
The demographic shift of the baby
boom generation leaves fewer households
headed by those in the starter home market, ages 25 to 34, which could mean a
slowdown in starter home construction.
However, immigrants and minorities, who
have had historically lower home-ownership rates than Anglos, will likely take up
some of the slack. Home ownership is
expected to increase dramatically for
minority and foreign-born households in
the coming decades, especially in areas
that have experienced high levels of
immigration, like Texas. Because Texas’
Hispanic population is younger and faster
growing than the overall population,
many Hispanic-headed households will
move into the prime home-buying age
groups in the coming decades, which
could give Texas homebuilders a boost.
This has important implications for
the apartment market in the short run as
well, with Hispanics currently more likely
to rent than own. According to census
data, in 2002 the U.S. home-ownership
rate for Hispanics was 48.2 percent versus
71 percent for Anglos. Thus, Hispanics
have the potential to become a much
larger segment of the home-buying market.
Home ownership
is expected to
increase
dramatically
for minority
and foreign-born
households in
the coming
decades, especially
in areas that
have experienced
high levels of
immigration,
like Texas.
OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
43
Chart 10
Between 2000 and 2040, Texas’ Health Care
Costs Could Grow Faster Than Its Population
Percent
300
250
200
150
100
50
0
Population
Physician
contacts
Days of
Nursing home
hospitalization
residents
NOTE: Assuming net migration rate to the state is equal to that of
1990–2000.
SOURCE: Texas State Data Center.
Texas’ housing market stands to benefit from its rapidly growing and diverse
population and its strong pace of international migration. Real estate firms of the
future will be wise to market to both the
increasingly older Anglo population and
the younger Hispanic population. Additionally, while domestic migration
dropped off during the recent economic
downturn, a pickup in that segment of the
population would benefit Texas housing.
Health Care. The aging of the Texas
population plus a rapidly growing population segment with different socioeconomic characteristics than the previous
Anglo majority will dramatically affect the
health care industry in Texas. The number
of instances of diseases and disorders is
expected to increase in Texas. Trips to the
doctor, days in the hospital and the number of people in nursing care facilities are
all expected to rise at rates faster than the
population growth rate (Chart 10). The
health care industry is currently one of the
fastest growing sectors of the Texas economy and will likely remain so as the need
increases for long-term care facilities and
doctors who treat the elderly and a more
diverse population.
tion and will likely make up the majority
by the year 2020. Disparities in income
and education between Hispanics and
other ethnic groups may be a challenge to
Texas and its resources. The state could
reduce such socioeconomic differences
through increased educational attainment and training so that in coming
decades, the state’s workforce will continue to be one of the most competitive in
the nation.
Petersen is an associate economist and
Assanie is an assistant economist in the
Research Department of the Federal
Reserve Bank of Dallas.
44
Also in 2003, Texas’ median household income
($40,674) was below the national average of
$43,564, putting Texas 32nd in terms of median
household income among the states.
10
The Census Bureau uses a threshold updated
every year for inflation to determine the poverty
level. If an individual’s or family’s income before
taxes and excluding capital gains or losses falls
below the applicable threshold, the individual or
family is considered poor. See the Census
Bureau’s web site (www.census.gov) for poverty
threshold schedule.
11
See Orrenius and Viard, 2000.
12
American Community Survey 2003, Census
Bureau.
13
See “Immigrant Assimilation: Is the U.S. Still a
Melting Pot?” by Pia Orrenius, Federal Reserve
Bank of Dallas Southwest Economy, May/June
2004.
14
Projection provided by Murdock et al., 2002,
assuming net migration rate to the state is equal
to that of 1990–2000.
15
“Educational Attainment and Border Income
Performance,” by Thomas Fullerton, Federal
Reserve Bank of Dallas Economic and Financial
Review, Third Quarter 2001.
16
See Orrenius, 2004.
Notes
The data used in this article come from
two main sources, the Census Bureau and
the Texas State Data Center. The two sources
differ somewhat in terminology regarding
race/ethnicity. Thus, in an attempt to keep
the information consistent within the article,
the authors use the terminology provided by
the Texas State Data Center. For more information regarding the definitions of race/ethnicity, see http://txsdc.utsa.edu/txdata/redistrict/
re-report.php and http://www.census.gov/
population/www/socdemo/compraceho.html.
1
Census Bureau, International Database. For a
definition of total fertility rates, see www.
census.gov/ipc/prod/wp02/appE.pdf.
2
See “The Second Great Migration: Economic
and Policy Implications,” by Pia Orrenius and
Alan Viard, Federal Reserve Bank of Dallas
Southwest Economy, May/June, 2000.
3
Major metros exclude El Paso. The number for
El Paso has been included with the other border
metros.
4
American Community Survey 2003, Census
Bureau, www.census.gov/acs/www/index.html.
5
The term Anglos refers to non-Hispanic whites
only. The term blacks refers to non-Hispanic
blacks of African as well as non-African origin.
The “Other” category includes all people who are
not Anglos, not Hispanics and not blacks. Native
Americans, Asians and multiracial people are
grouped in this category.
6
All projections provided by “The Texas Challenge
in the Twenty-First Century: Implications of Population Change for the Future of Texas,” by Steve
Murdock et al., The Center for Demographic and
Socioeconomic Research and Education,
December 2002. Projections used in this article
assume population growth due to net migration
is half that of 1990–2000 unless specified otherwise. See www.txsdc.utsa.edu.
7
See Orrenius and Viard, 2000.
8
Projections are based on the assumption that
the net migration rate to the state is equal to that
of 1990– 2000.
Outlook
During the 1990s, Texas grew even
faster than expected, becoming the second-largest state in the nation. Along with
this growth, the population has become
older and increasingly diverse, and today
it is no longer dominated by an Anglo
majority. Hispanics account for the
fastest growing segment of Texas’ popula-
9
FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
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