Why Texas Creates Jobs

Mulligan's problem is that he forgets that demand matters more than supply. In the case of immigration, there is approximately zero change in unemployment because the immigrants bring demand too. This is a common fallacy by the anti-immigration side of the immigration debate, but it is surprising that Mulligan makes it.

Casey B. Mulligan: More Evidence That Supply Matters - NYTimes.com: "The supply of various types of workers has increased during the recession, continuing an earlier trend. That such trends continue to be associated with trends for employment contradicts the Keynesian claim that supply suddenly stops mattering during recessions and “liquidity traps.” A number of bloggers have pointed out that employment in Texas has been rising and has almost reached prerecession levels. Paul Krugman’s explanation is that the supply of people available and willing to work has been increasing in Texas, continuing a previous trend.
One example of that supply is the inflow of immigrants from nearby Mexico; another is the migration of Americans seeking cheaper housing. Recession-era supply episodes like these are important to identify, because they can prove or reject Keynesians’ fundamental assertion (so far unproven) that supply does not matter during a recession or a “liquidity trap” such as we’ve experienced since the recession began.
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Consider, hypothetically, an immigration trend that continued even after the recession. In my view, the market would create jobs for many, but not all, of the immigrants and would continue to do so after the recession.
In the Keynesian view, immigration might create jobs before the recession, but could not create them once the recession began because “what’s limiting employment now is lack of demand for the things workers produce,”Professor Krugman wrote. “Their incentives to seek work are, for now, irrelevant.”
In the Keynesian view, all that extra supply does during the recession is add to unemployment rather than adding to employment. In other words, supply trends normally affect employment, but Keynesians assert that they cease to affect employment during a recession or liquidity trap.
The chart below shows monthly employment (left scale) and unemployment (right scale) in Texas since 2007. Despite the fact that our nation is in a liquidity trap (near-zero interest rates on Treasury bills, the results of the extra supply in Texas since 2009 have been to increase employment much more than increase unemployment.

Data From The Federal Reserve Bank of St. Louis
Or consider that more recent cohorts have found themselves in careers that involve less manual labor, producing a increasing number of people reaching age 65 and still willing and able to continue their work. In my view, elderly employment would rise and might even be rising enough to more than offset a demand reduction during a recession.
In the Keynesian view, all that extra supply does during the recession is add to unemployment rather than adding to employment.
When it comes to analyzing specific events during the recession, fiscal stimulus advocates often take the common sense approach that labor supply affects employment. But when it comes to making promises about the anticipated results of a large fiscal stimulus, they insist, without proof, that supply doesn’t matter.

For another view: Jobs and Population Growth | ThinkProgress: 

Texas’ robust job growth is a consequence of its robust population growth so if you want to replicate Texas results on a national basis then you need some story about increasing America’s population growth rate. An alternate story, being pressed on me via email over the weekend, is that people are moving to Texas because that’s where the jobs are. I have two reasons for doubting this, one empirical and one theoretical.

Empirically speaking, it’s just not the case that Texas has an unusually low unemployment rate. If people were trying to move toward labor market opportunities they’d be leaving Texas and moving to the Great Plains. The basic point is illustrated by the fact that Texas has consistently maintained a faster population growth rate than Iowa even though Iowa has always had a lower unemployment rate. In some sense the labor market “wants” people to move to Iowa. But in practice, people want to move to Texas. And in the aggregate, jobs are moving to Texas where the people are:

Theoretically, America has an overwhelmingly service driven economy. People sell things to each other. In China, entrepreneurs to build factories in places with “factory friendly” locations and then people move there. But this is not how the American economy works. It’s more like the reverse. If you run Darden Restaurants and you decide you have reason to believe that population growth is going to surge in West Virginia then you say to yourself “with more people living in West Virginia, there will be more business opportunities for the Red Lobster in West Virginia.” Then you go about building restaurants, creating construction jobs and cook jobs and waiter jobs. Along with restaurants, the people moving to West Virginia will need accountants and lawyers and doctors and big box stores. They’ll need houses to live in. The new, larger population will pay more in taxes and will require more police officers and teachers and DMV clerks. Population growth, in other words, will lead to job growth.

The opposite isn’t going to work. If the Governor of West Virginia rings up Darden HQ in Orlando and says “hey, we have a really business friendly environment you should open up some more restaurants” the answer is going to be “well, no, you have a poor state with a declining population.”

Now I don’t want to deny that it’s impossible for job creation to lead to population growth. If the Defense Department relocates its headquarters to West Virginia, people will move to West Virginia. If they discover diamond mines in West Virginia, people will move to West Virginia. But in the contemporary United States most people earn a living providing services to other people, so population movements should create jobs more than job-creation leading to population movement. This is why, I think, we see strong population growth in Texas amidst meh unemployment performance even as people remain reluctant to move to low unemployment plains states.

So, why are people moving to Texas??  It has a lot going for it.
1. Climate.  All warm weather states have seen greater population growth than cool-weather states since air conditioners became affordable. 
2. Few zoning regulations make for cheap housing.  Texas housing is a big reason why people move there.  It also helps that construction is cheaper in mild climates because of shallow pipes, foundations, less insulation, no furnace (use heat pump technology instead - it is just an air conditioner in reverse), etc.
3. Longest Mexican border.  Texas has had a much bigger influx of Latin American immigration than most of the country. 
4. Largest Hispanic population at 38% of population after New Mexico.  Hispanics have higher fertility rates than average in America, particularly recent immigrants which are a large percentage of Texans.  

Texas has one of the highest population growth rates of any state because of the above qualities.  Should you move there to get a job too? 
1. Per-capita income in Texas is right in the middle.  About half of states have higher incomes.  Real living standards are boosted by the mild climate and cheap housing, so this may understate the case for Texas. 
2. Unemployment in Texas is right in the middle.  About half of states have lower unemployment rates as of the most recent data (June 2011).