On Further Deliberation

As I am wont to do, I thought more about this blog last night as I was rocking Summerlea to sleep… I thought that, in retrospect, I probably had not fully developed or sold the concept of using this area’s sales tax as a proxy for the overall economic health of the region… in short, as I am also wont to do, I think I might have been a little conclusory about the whole affair. I know, I know… it doesn’t matter because I’m the only person who actually reads this blog… but it still bothered me. If I can develop it more fully, I will be greeted with the thunderous applause of one hand clapping.

So, my theory goes like this… Usually unemployment is calculated (according to the BLS) by conducting representative surveys in the home region. People taking the survey are then sorted into two baskets: employed or unemployed.

Simple enough, right? Well, as is usually the case in statistics, the devil is in the details. Who is employed? Again from the Bureau of Labor Statistics: 

People are considered employed, even if they have not worked, if they are, on vacation, ill, experiencing child care problems, on maternity or paternity leave, taking care of some other family or personal obligation, involved in a labor dispute, or are prevented from working by bad weather.

Hmm… why did I underscore that involved in a labor dispute thingy? Well, mainly because a lot of the so-called “independent contractors” around here are involved in labor disputes about whether they should have been classified as employees all along. These dispute are arising now because these same individuals are… no longer under contract – meaning they are unemployed for all intents and purposes.

Secondarily, the unemployment rate here is measured against the population estimates generated by the census bureau, which itself is extrapolated from the number of households and people claiming residency. As I mentioned in the previous post, however, people living in man camps consider themselves as residents of another community. As soon as the employment market dries up, these individuals go back home – and are unemployed there.

Third, the unemployment figure misses the mark in a commodities based economy in that, during the boom times, a great deal of (low paying) service sector work is ignored in favor of more lucrative oilfield operation positions. For those people staying in the employment market and facing unemployment, the jobs at the local Home Depot or Tractor Supply Store start to look a lot more promising during the slowdown.

Finally, and do not underestimate this issue, the school year just started… Meaning that some of the lower echelon workers laid themselves off by going back to school. That means that Bill, the welder’s assistant, may now be Bill the Roughneck instead of Bill the Unemployed.

So… if unemployment rate doesn’t capture fundamental weaknesses in the local economy, what does? Property tax rates or collections? Perhaps… but (primarily since those are only recalculated – on average – on a biennial basis) only with a significant lag time. By the time we start to see the hiccup manifest itself in the property tax rolls, things will have gotten really out of hand.

For these reasons, I argue that sales tax revenues are a better proxy for the strength of the local economy for a few reasons. First, when Joe Man Camp leaves town after his pipe-fitting job dries up like a tumbleweed and he blows on down the road, Joe is no longer stopping by the Dollar General four times a week to pick up his bag of Doritos and microwavable burritos. Second, when Bill the Roughneck gets his first paycheck, he will decide to only fill his Ford F-350 up with 50 gallons of diesel fuel, and will likely skip that extra gas station chimichanga at Stripes (too bad too, because they are universally excellent). Finally, I argue that sales tax revenue is a good proxy because some goods (like new work trucks) are justifiable when the economy is blasting away, but people learn very quickly to make due with what they have in an economic downturn.

The naysayers (if they ever saw this blog) might say, “But sales tax is so volatile!!!” They have a point… You know what else is volatile, though? Oil prices.

That means that, in West Texas (almost completely dependent on a underlying volatile resource) the economy itself is more volatile, and thus subject to the vagaries in swings of the underlying commodity pricing… a lot like sales tax revenues!

So, there you have it folks (or “folk” because, again, I’m probably the only person looking at this), my reasoning for the use of sales tax revenues instead of unemployment rates to measure the health (or lack thereof) in the regional economy. Other people keep touting unemployment rates, but I’ll argue here that this is just an exercise involving lipstick and a pig.

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2 Responses to On Further Deliberation

  1. Pingback: Permian Basin’s Sniffles are Contagious | The Wolf Camp

  2. Pingback: More Validation! | The Wolf Camp

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