Texas Labor Market Review, November 1997 Page: 2
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Texas Labor Market Review
November 1997
Macroeconomic Overview of the Texas Economy
by Christopher J. Sesler, Ph.D.
Macroeconomics is concerned with the aggregate nature of an
economy. One of the main goals of macroeconomics is to
gain an understanding of how an economy works. This can be
better understood by analyzing a few key macroeconomic variables.
These variables usually fall in the broad categories of economic
growth, labor market activity, price inflation, and governmental
monetary and fiscal policies. However, microeconomics (the study
of firms and individual consumers and the choices they make) is the
true underpinning of the macroeconomic environment. If
macroeconomics is the forest, microeconomics is the trees.
Economic growth is simply an increase in an economy's productive
capacity over time. Economic growth, among other things, is the
result of increased factors of production (i.e., labor and capital),
education and skills of the workforce, and technological progress.
Technological progress is the main driver of increased labor
productivity (output per hour of work) and ultimately this rate of
productivity improvement is the dominant factor determining long-
run economic growth. Economic growth, in turn, helps determine
how quickly living standards (output per capita) rise, which
represents real improvement in economic quality of life. Real Gross
Domestic Product (GDP) is the variable most commonly used as a
proxy for economic growth. It measures the market value of goods
and services produced. Furthermore, the rate of growth of real GDP
helps determine whether a nation, as a whole, is rich or poor, and
the growth rate of per-capita real GDP helps to determine the
standard of living (per person economic well-being) of such a
nation. However, GDP is not a perfect measure of either actual
output or overall well-being due to not accounting for such things as
non-market transactions, externalities, and non-economic quality-
of-life improvements.
Since 1991, the start of the current national economic expansion,
Texas has averaged approximately 3.91 percent in economic growth
annually compared to the U.S. at approximately 2.84 percent as
measured by real Gross State Product (GSP) and real GDP
respectively. Texas' per-capita real GSP has been growing at
approximately 1.95 percent annually compared to the U.S.'s per-
capita real GDP growth rate of 1.57 percent. Texas has
outperformed the U.S. in economic growth during this expansionary
period due to its burgeoning economic diversity, productivity gains,
export trade, and relatively fast-growing labor force. The labor
force growth is largely due to increases in net in-migration and the
labor force participation rate (the fraction of the working-age
population actually in the labor force).
Labor market activity consists of, among others, the labor force, the
labor force participation rate, labor productivity, the real wage,
employment growth, and the unemployment rate. These variables
along with physical capital stock help determine the output of an
economy. Among the most important variables in this category to
help judge the well-being of workers and overall macroeconomic
health are the last two mentioned above: employment growth and
the unemployment rate. Since 1991, Texas has averaged an
unemployment rate of 6.5 percent versus 6.2 percent for the U.S.
During this same time Texas' employment growth (as measured by
nonseasonally adjusted total nonagriculture wage and salaryemployment) has averaged 2.78 percent annually while the U.S. has
averaged 2.0 percent. Overall, Texas has shown unemployment rate
trends similar to that of the national rate. However, Texas'
employment growth has exceeded the national rate by a significant
margin. Again, this can be attributed to a growing labor force,
favorable economic conditions for firm relocation, continuing
strong economic growth, the incipient effects of NAFTA (while not
without its critics, NAFTA has important implications for direct
foreign investment, exports, and the creation of jobs in Texas), and
the continuing improvement in infrastructure.
Cumulative Percent Difference Between U.S. and Texas
Employment Growth
8.0
7.0 -C -Cum % chg diuff tc-Tot iR --np _________
-Cwnt % chg differmuco-6oods Emp
6.0
- - Cum. %chgdiffeurce-SaviceEmp
5.0
0. 4.0 _______
3.0 -_____
2.0 ~- -
0 --
00The graph above depicts the cumulative percent difference
between U.S. and Texas employment growth. For example, if
Texas' employment grew by 2 percent more than the U.S. for
each year during a five year period, then the cumulative
percent difference between U.S. and Texas employment growth
would be 10 percent at the end of year five.
Prices play a paramount role in a capitalist economy, coordinating
economic activity, distributing resources, and linking the decisions
of firms and consumers. Price inflation is a persistent increase in a
nation's general price level. The detrimental effects are commonly
espoused in the media and include unfavorable impacts on the
distribution of income and wealth, on long-run economic growth,
and resource allocation. The severity of these detrimental effects
depend largely on whether or not economic agents (i.e., consumers,
investors, workers, and firms) are able to predict the inflation before
it occurs. Once unleashed, inflation has a tendency to accelerate,
thereby necessitating preemptive monetary actions. Moreover, low,
non-volatile inflation and expected inflation are instrumental to
stable and sustainable economic growth. The consumer price index
(CPI) is the variable most commonly used as a proxy for price
inflation. The CPI attempts to measure the change in the cost of a
basket of goods and services purchased by a typical household.
Texas' CPI, which is an average of the Houston and Dallas CPIs,
has increased an average of 2.48 percent annually since 1991 as
compared to the U.S.'s average annual increase of 2.75 percent.
Both national and Texas inflation rates, as measured by their
respective CPIs, are very low when judged by historical data. As
with the national economy, Texas' moderate to strong economic
growth has not accelerated inflation. Interestingly, eminent wage
pressure has not materialized and firms are increasing productivity
and efficiency instead of output price due to a highly competitive
market environment.
Continued on page 32 Labor Market Information Department Texas Workforce Commission
2 Labor Market Information Department
Texas Workforce Commission
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Texas Workforce Commission. Labor Market Information. Texas Labor Market Review, November 1997, periodical, November 1997; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1623851/m1/2/?rotate=90: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.