State

Survey: Kansas still trailing in jobs creation

Wichita must raise its competitive level in 2014 to attract businesses and jobs, leaders say.
Wichita must raise its competitive level in 2014 to attract businesses and jobs, leaders say. The Wichita Eagle

Since recession-driven job losses bottomed out in early 2010, Kansas has consistently trailed the nation and most surrounding states in private-sector job creation, according to an analysis of Bureau of Labor Statistics data.

And that trend is mostly continuing in 2014, the data shows.

Job creation has emerged as a major issue in the race for governor between incumbent Sam Brownback and challenger Paul Davis, the House minority leader from Lawrence.

The two sides offer wildly conflicting claims about jobs, with Brownback citing the creation of more than 55,000 private-sector jobs on his watch and record-setting employment in Kansas.

Davis criticizes the governor’s plan of using income tax cuts and exemptions to spur job growth as a “failed experiment” that hasn’t met Brownback’s lofty promises of a “shot of adrenaline to the heart” of the state’s economy.

So what’s really happening with jobs? According to the Labor Bureau’s employment survey:

▪  Kansas jobs have risen at a more or less steady pace, between 1 and 2 percent a year, since the recession bottomed out in early 2010, regardless of who’s in the governor’s office.

▪  Kansas saw its highest post-recession percentage of job growth in 2011, the year before Brownback and the state Legislature slashed business taxes in an effort to spur job creation.

▪  The only year since the recession that Kansas job growth beat the national rate was 2010, former Gov. Mark Parkinson’s first and only full year in office.

▪  Kansas has yet to return to its peak private-sector employment of 1,136,400 jobs, which came in March 2008 under then-Gov. Kathleen Sebelius. In July, the most recent month of final data, the bureau showed Kansas with 1,129,800 jobs, 6,600 jobs south of the 2008 peak.

▪  In comparison to neighboring states, Kansas has consistently beaten Missouri in percentage of job growth, but trailed Oklahoma, Nebraska and Colorado.

Job counts vary

To understand job creation, you need to understand that the Bureau of Labor Statistics actually releases results from two job surveys every month, said Malcolm Harris, an economist and professor of finance at Friends University in Wichita.

One is called the Current Population Survey, or Household Survey, which is based on a national sampling of 60,000 households by the Census Bureau and is used to calculate the overall unemployment rate.

The other is called the Current Employment Survey, also known as the Payroll Survey, which gathers data from a sampling of 554,000 business establishments, representing about a third of total nonfarm employment.

According to Harris, there are some significant differences between the two.

The biggest is that the Household Survey is more generous in its definition of a job. It includes people who work on their own farms, unincorporated self-employed people, unpaid relatives who work in a family business and workers who are absent from their jobs without pay.

The Payroll Survey excludes all those groups except for agricultural loggers.

By and large, politicians in campaign mode tend to cite from whichever survey makes them look better.

In the current election, Brownback has used the Payroll Survey for his claim of 55,000 new jobs on his watch, which is what the survey shows. He has used numbers from the Household Survey, which includes unpaid and family workers, to bolster his claim that more Kansans are working than ever before.

While the Payroll Survey showed Kansas employment peaking in 2007, employment figures derived from the Household Survey indicate that state employment was at its highest in May of this year at 1,423,784. From May to July, that number dropped by about 400 workers.

“Wall Street follows the Payroll Survey because it’s less noisy, it doesn’t jump around as much,” Harris said.

Results of the Payroll Survey come in two basic flavors, raw data and seasonally adjusted to smooth out spikes like the Christmas season, when stores hire large numbers of temporary and part-time workers.

The Eagle’s analysis of employment is based on the Payroll Survey of private-sector jobs, seasonally adjusted, the numbers Brownback cites for his job-creation claim.

State follows nation

One thing that the data shows clearly is that Kansas job numbers are tied closely to what happens in the national economy.

The highest rates of job growth in the past 20 years were 1995-97, during a period of national and state prosperity, with Bill Clinton in the White House and Bill Graves in the Kansas governor’s office.

In those three years, Kansas job growth ran at 2.7, 3.3 and 4.8 percent, adding more than 100,000 jobs to the economy in three years before tapering down to more normal levels going into the decade of the 2000s.

At a recent campaign appearance, Brownback’s running mate, Lt. Gov. Jeff Colyer, referred to the decade from 2000 to 2010 as “the lost decade” for job growth.

By one measure, it was. About 24,000 fewer people in Kansas were working in January 2010 than in January 2000.

But the data shows that Kansas actually grew jobs in five of those 10 years.

The big declines came almost entirely from two significant national events: the slowdown – particularly in the aviation industry – that followed the 9/11 terrorist attacks in 2001 and the Great Recession that began in 2008.

The biggest dive came in 2009, when the state lost almost 56,000 jobs in a single year, the deepest decline in 20 years.

Kansas’ job turnaround actually began in February of 2010 on Parkinson’s watch, the labor statistics show. The state added 13,400 jobs that year for a growth rate of 1.3 percent, barely edging the national rate of 1.2 percent, the data shows.

During Brownback’s three full years in office, the state added 20,500 jobs in 2011 (1.9 percent), 11,700 jobs in 2012 (1.1 percent) and 17,000 (1.5 percent) in 2013. In the first half of this year, the state has added 6,400 jobs.

So far this year, Kansas trails the national job creation rate .6 percent to 1.2 percent.

Other states

Since the recession, Kansas has seen, at best, mixed results in job creation compared to neighboring states, the Payroll Survey shows.

▪  Missouri – This state is the bright spot for Kansas. Largely owing to Kansas City-area business migrating over the state line, Kansas has beaten Missouri on percentage job growth for four years straight. The best year for Kansas was 2011 when its jobs increased 1.9 percent to Missouri’s 1.1. This year, Missouri could be making a comeback. The statistics show a 1.4 percent job increase there for the first half of the year, compared to .6 percent in Kansas.

▪  Nebraska – Unique among the neighboring states, Nebraska didn’t lose any jobs during the recession and has been consistently adding jobs at 1.7 to 1.9 percent a year since 1999. Kansas hasn’t beaten Nebraska’s job growth since 2007, but might pull ahead this year based on a downward trend in Nebraska employment for the first half of 2014.

▪  Colorado – The Rocky Mountain state was hit harder than Kansas by the recession but has rebounded much faster, beating Kansas on job numbers since 2010. Its best year was a 3 percent increase in jobs in 2013, compared to 1.5 percent in Kansas.

▪  Oklahoma – Also harder hit by recession, Oklahoma has beaten Kansas in recovering jobs over the past four years. Last year, the Sooner state grew jobs at a 2.3 percent clip compared to Kansas’ 1.5 percent.

Policy matters

Despite the heavy influence of the national economy, state policies do make a difference in job creation, said Martin Perline, a professor of labor economics at Wichita State University.

The centerpiece of Brownback’s job creation effort was eliminating income taxes for owners of limited liability companies, sole proprietorships and corporations organized under Subchapter S of the federal tax code. Profits from those businesses are passed through to the owners, who pay the taxes on their personal income returns.

But after Brownback’s changes to tax policy, those business owners no longer pay state income tax at the business or personal level, the theory being that they’ll pump that extra income into their business and hire more employees, creating more jobs.

Perline said that’s true but only to a degree.

“Anybody can lower taxes and create jobs,” he said. “I don’t think that’s an issue, you should be able to create jobs if you lower taxes. But the problem is you end up with a budget shortfall.”

A recent report by the Nelson A. Rockefeller Institute at the State University of New York showed that Kansas income and sales tax collections, the bulk of the state’s general fund, were down almost 22 percent the second quarter of this year – far and away the biggest drop in the nation.

In a shortfall situation, state government has to either raise other taxes, which negates the effect of cutting income taxes, or cut spending, Perline said.

“If you cut expenditures, you’re going to wind up cutting public jobs,” Perline said.

The Payroll Survey numbers show that government employment in Kansas has dropped by about 6,800 jobs since Brownback took office.

Cutting government jobs means cutting public services, Perline said. That, in turn can lead to private-sector job cuts because business decision-makers demand a standard of living that includes quality schools, highways, parks and other amenities.

“I think a lot of corporations that really compete for high-level people, those people want to be somewhere they want to live,” he said. “Lowering taxes means you’re going to lower amenities because you don’t have the money to pay for them. Living standards, amenities in the community are very important to these people, because a corporation might like to pay lesser taxes, but on the other hand, they’ve got to convince people sometimes to go where they’re going.”

Brownback and the economic adviser who guided his plan, former Reagan Administration adviser Arthur Laffer, says that economic growth will eventually offset the initial state revenue shortfalls.

“Tax policy, particularly, tax policy takes time for it to have its impact,” Brownback said. “I think what you have to look at is your long-term trend cycles and your states.

“I think your best example you can look at, probably the best one, is the states that added the income tax – before when they didn’t have one like in the ‘60s there was like seven or eight that added the income tax – and if you compare them to them over their prior trajectory versus now, they’re growing slower relative to what they were in the rest of the country. You can also look at the states without an income tax and by and large they grow faster.”

Perline said historical examples show that tax cuts will create jobs, but not enough to cover the lost tax revenue.

“The idea’s wonderful,” Perline said. “It just doesn’t work.”

He said most economic literature he’s studied shows: “You get a little bounce and you may pick up in the short term maybe a third of that loss in revenue and over the long run pick up maybe half of it, but you’re still out the other half. And that becomes the problem.”

Brownback, however, said he remains committed to his plan and believes it will bear fruit.

“I am certain that if you want to grow, the way you do it is not to raise your taxes,” he said. “ I am certain (raising taxes) is not the route to grow private sector job growth over a period of time.”

Contributing: Bryan Lowry of the Wichita Eagle

Reach Dion Lefler at 316-268-6527 or dlefler@wichitaeagle.com.

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