The middle class is shrinking in America but growing in Texas

Texans like to joke that the Lone Star State is like a whole other country. But the best way to understand Texas’ astounding economic performance might just be to see what the United States would look like if you took Texas out of it.

Since the year 2000, Texas has increased the size of its workforce by 2 million people, an increase of 25 percent. The U.S., minus Texas, has increased its workforce over the same period by 5 million people, an increase of just 5 percent.

When the state’s longtime governor Rick Perry ran for president in 2012, left-wing critics pooh-poohed the Texas economic juggernaut, dismissing its jobs as undesirable, low-wage ones.

And it’s true that average wages in Texas are lower than the national average. But that’s because Texas absorbs a huge number of young, low-skilled immigrants whose wages typically follow the same pattern across the country. And Texas’ low cost of living — 10th lowest in the country, according to the Missouri Economic Research and Information Center — helps those wages go much farther than they would in California or New York.

Economists use the Gini coefficient (named for Italian demographer Corrado Gini) to quantify the degree of income inequality in a particular country or region. And according to the U.S. Census Bureau, Texas has a lower Gini coefficient — indicating less income inequality — than either California or New York.

Indeed, Texas’ economic performance has been driven by a growth in middle-class jobs. According to a study released in early 2014 by the Federal Reserve Bank of Dallas (PDF), among the half of Americans with wages closest to the median, the U.S. (if you exclude Texas) has lost 720,000 jobs since 2000, whereas Texas has gained 811,000.

While the U.S. has seen growth only among the poorest and wealthiest quartiles, with the middle class hollowing out, Texas’ growth has been broad-based and consistent. “Jobs in the top half of the wage distribution,” the Dallas Fed authors write, “were responsible for 55 percent of net new jobs.”

Other pooh-poohers point to the boom in energy prices and hydraulic fracturing as central to Texas’ success. And it’s true that new oil and gas extraction technologies, and the jobs they generate, are a driver of the state’s growth. But oil and gas exploration is a choice. New York has a sizable reserve of shale energy, one that could remake its depressed upstate economy. But in the Empire State, environmental activists and a sympathetic Democratic governor have blocked all attempts at development. Texas, by contrast, has grabbed its own shale-energy opportunity with gusto.

Among jobs requiring a college degree, it’s not petroleum engineers, but rather teachers and doctors who are driving Texas’ job growth. Of college-level job growth in the state, 42 percent was in education and health care; only 15 percent was in energy and mining. Finance, insurance and real estate represented 13 percent.

It’s no surprise, then, that since 2006 Texas has been the top destination for domestic migrants. But since Texas isn’t known for its glamorous beaches or its temperate weather, it’s worth understanding just why people want to move there.

“When you want to open a restaurant somewhere, you can’t start building it until you get permits,” Andrew Puzder, CEO of CKE Restaurants, the company behind the Hardee’s and Carl’s Jr. restaurant chains, told me. “In Texas it takes, on average, 60 days to get a permit. In Shanghai, it’s 63 days. On Karl Marx Avenue in Novosibirsk, Siberia, 125 days. But in Los Angeles, where our company was founded, it takes 280 days.”

And in California, rigidly inflexible, litigation-friendly labor laws drive employers’ costs upward. California doesn’t have a 40-hour workweek, but rather an eight-hour workday. This means that someone who works 10 hours one day and six hours the next has to be paid two hours of overtime — with a 50 percent increase in wages — forcing companies to limit workers’ flexibility for time off.

“The employees hate it,” said Puzder, but the regulations leave him no choice. “So the idea that you can work harder, faster, better, longer and get ahead — you can’t do that in California. They’re killing entry-level jobs. We used to have six restaurants in San Francisco and we’re down to two.”

In Texas, on the other hand, CKE is expanding.

When economists and journalists compare the economic performance of different places, they tend to focus on big things, such as tax rates and government spending. But the Texas story is best understood as an aggregation of little things: tiny regulations you’ve never heard of that make it easier for employers to expand their businesses — and hire more people — in Texas than elsewhere.

“It’s been … a ridiculous thing to cover as a journalist,” says Erica Grieder, senior editor at Texas Monthly and author of “Big, Hot, Cheap, and Right: What America Can Learn From the Strange Genius of Texas.” “Because, for the past 10 to 12 years, pretty much every economic metric you would look at [in Texas] is better than you see in the country as a whole.”

As Texas’ economic boom continues, it’s a story that’s becoming impossible to ignore.