Jobs and Taxes: The Effect of the Business Climate on States' Employment Growth Rates

An econometric model for total employment growth and for employment growth in six separate industries in states between 1973 and 1980 is specified and estimated. The results indicate that higher wages, utility prices, personal income tax rates, and an increase in the overall level of taxation discourage employment growth in several industries. But factors such as higher state and local spending on education, and per capita income favorably affect job growth. The implications of these findings for employment growth rates in several states are then examined. It is found that slow growth in some states, such as Pennsylvania, cannot be blamed on taxes, while part of New York's slow growth results from high tax rates. On the other hand rapid growth states, such as Florida and Texas, have favorable growth conditions for almost all of the independent variables used to explain growth.