Monday, October 19, 2015

Kansas Jobs Report; LETS ALL ARGUE

Last Friday, I was confronted with another Twitter argument regarding the Kansas economy, this one specifically related to created jobs.  It all stemmed from this tweet:

A little background is in order. As part of Governor Brownback's promises during the 2014 gubernatorial campaign, he said he would create 100,000 new jobs for Kansas.  Nine months into the 48 month term, the State of Kansas is not on pace to hit that target.  It caused a bit of a twitter storm Friday morning, here's a followup from a Brownback administration official:


Generally, I could care less about the political fight here.  I get the economic theory behind cutting taxes to attract employers, though I think the Brownback administration lacked a valid model for their short-term projections.  But that's for another post.

These type of arguments over Kansas jobs have been going on for a long time, is there any clarity we can pull from them?  I assumed a post on the major arguments and history of Kansas jobs could provide a deeper look.  Here's a few things to cover.

  • Year-over-Year (YoY)-Month to Month Numbers: Each month, when new jobs numbers come out, reporters and have this argument on twitter.  And whoever is on the side the lost out in this months numbers claim the metric is invalid.  Are they correct?  Is there a better metric?
  • Precedents in Job Growth: What are the precedents for job growth, what would we expect annually, and would that just naturally get us to 100,000?
  • How much control does the governor have?  Are the drivers of job growth difference largely external to the state, or can policy changes significantly impact job growth?

YoY NUMBERS

One of the arguments brought up with each month's jobs report is that you can't simply look at year-over-year monthly numbers, because there is too much volatility.  I've noticed that Yael Abouhalkah (KC Star Reporter) and Michael Austin (economist with Department of Revenue) tend to have this argument monthly-ish.  Generally, Michael is correct in that YoY statistics are too volatile and not as meaningful as long-run stats.  Here's a look at Kansas job growth over the past 17 months, on two axis against nationwide growth.  While the nationwide number are reasonably steady, the Kansas numbers show a lot of volatility month to month, ups and downs that aren't indicative of a long-term trend.


We need a better metric for a more reasonable discussion.  To control for volatility, for the rest of this analysis we'll look at average Kansas Jobs annualized (the average of non-farm BLS jobs numbers).  This is a better metric because it reduces volatility, though it also reduces our ability to have dumb arguments each month.

HISTORY OF JOB GROWTH

Going back to 1990 Kansas Job growth is on a fairly stable upward trend, with two notable setbacks due to recessions in the early 2000's and 2008.  The second axis related to the orange line below shows YoY changes, which are a bit more meaningful. (all numbers in 1000's).

Kansas hasn't seen steady job growth in excess of 20-25K jobs per year since the mid-1990's.  That means Brownback's promise of 100K new jobs by the end of his second term is extremely aggressive, and would require a return to 1990's style growth.  If only someone could re-invent the internet.




But looking at Kansas growth historically, we know that it is impacted by national periods of growth and recession.  How much of the growth rate is due to national trends versus what actually happens in Kansas?  Turns out, most of the variations in job growth (~75% historically) is related to what's going on in the national economy.  Here's a look at change in jobs, indexed to 1.0 (no change Year over Year).



Region: is a group of similar near-neighbor states (Nebraska, Missouri, Oklahoma, Arkansas, Iowa).

The past two graphs on history bring out two problems with Brownback's campaign promise:
  • It's highly aggressive and highly unlikely to be attained.
  • It's more dependent (75% of variance) on the external economy than internal policy actions.

TRACKING SUCCESS AND EXTERNAL INDEXING

Given the last two issues raised, Brownback's original promise (and the Kansas job market in general)  should be judged on different standards than "100,000 more jobs by the end of Brownback's second term."   In my mind there are two ways that we can look at Brownback as a success, rather than month-to-month comparisons:

  • Approximation of 100K increase.  Because we'll analyze things on annualized basis, success will be measured as an 100K increase in average monthly jobs from 2014 to 2019.  Yes we're giving the adminstration an extra year, but the measurement works better, it's still the end of his term, and I'm feeling generous.  This requires about 7.2% growth from about 1.39 Million to 1.49 Million jobs.  (annualized de-compounded assumption is 1.39% growth)
  • External Indexing.  Brownback's number of 100K new jobs didn't allow for the case of another recession, or really any external factors.  It is helpful to know how Kansas is fairing against peer states and nationally.  If we are doing significantly better than peers, in the case of a recession or other economic setback, this should be recognized.  So here's how the metric works:  Historical average growth for peer States have been at about 1% for the past 25 years  (and has settled around here for 2013-2015).  To add 100,000 jobs against historical background averages, Kansas jobs would have to grow at 1.4%.  We would then expect Kansas to outperform our neighbors under Brownback policies at by 0.4%.  That means, from an indexed perspective, even if we miss the 100K target, Brownback should get credit if we outgrow neighbors by 0.4%. 

CONCLUSION

We've looked at three things, first 
  1. the unfairness of month-to-month metrics
  2. historical job growth in Kansas versus externally
  3. a new metric going forward
I will try to update this monthly, or at least quarterly, but how is Kansas doing through August (eight months into 48 months)?  Per the metrics defined, Kansas is up 8,000 jobs, and growing at a rate about 0.4% slower than peer states.  In other words, by either metric Kansas is missing Brownback's job targets, but there's still a lot of time on the clock. 


No comments:

Post a Comment