The Future of Texas Workforce study includes an evaluation of the current economic conditions and forecasts to inform the Texas Workforce Commission (TWC) of prominent trends which will influence the Texas economy through the year 2035.1 The study consists of a thorough literature review, analysis of key data sets, a focus group report, and discussion throughout of what the results mean for Texas through 2035.
Literature Review
The literature review aims to identify and analyze the current and future impacts of emerging trends in the Texas economy. These include the rise of the “gig economy,” the continuing impacts of the COVID-19 pandemic, the increase in remote work, and other factors listed below:
The impact of the Atlantic Coast Pipeline in the three-state combined region is as follows:
- Automation
- Multilingualism
- Immigration trends
- Industry regulation (particularly related to oil and gas extraction)
- Inflation
- International trade
- Workforce participation rates
- Workforce retirement rates
The gig economy is characterized by short-term flexible jobs which do not include a lasting contractual commitment be-tween the employee and employer. In the United States, an estimated 30% of those 18- to 29-years old have worked through a gig platform, although these rates are much lower in older populations. Gig work can provide benefits to both workers and businesses as it allows companies to reduce their payrolls and provides workers more independence and flexibility to accommodate different lifestyles. However, critics note gig work can deprive workers of important benefits such as healthcare and may not pay well enough to be an individual’s primary income source. The gig economy is expected to grow 17% per year globally through 2023, although legal challenges may slow this growth.
COVID-19 has had a powerful global economic impact, and many economic changes from this pandemic will likely affect the Texas economy for years to come. Texas employment has generally recovered from pandemic-induced unemployment, but some industries such as accommodation and food services; mining, quarrying, and oil and gas extraction; and construction have not yet fully recovered as of the first quarter of 2022. The pandemic accelerated several economic trends such as remote work, early retirement, and automation which will continue to impact Texas’s economic landscape.
Remote work became prevalent during COVID-19 lockdowns, and many believe it will continue to grow as technical capabilities evolve. In April 2022, the BLS household survey found that only 7.7% of employed persons tele-worked from home in the past four weeks due to the pandemic—down from 26.4% in July 2020. However, a study by McKinsey suggests that 20% to 25% of U.S. employees could work remotely 3 to 5 days a week even after the pandemic wanes significantly. Companies that do not provide remote work options may face labor shortages as more workers desire a more flexible work-life balance.
Automation continued during COVID-19 and is expected to remain a predominant economic trend. Scenarios for employment at risk for replacement by automation over the long term (roughly for the period of 2030-2035) range from 9% to 47% of total employment in the nation. This could hurt workers with skills that are less transferable to other similar, but more in-demand, occupations in other industries. On the other hand, these exciting innovations could help companies that are quick to successfully adapt to new technology.
Inflation has developed into a primary economic concern recently as the U.S. economy has been experiencing the highest inflation growth in decades. Inflation, as measured by the Consumer Price Index, reached a high of 9.0% in June 2022 on a year-over-year basis—the highest rate since November 1981 and above the Federal Reserve Bank’s target rate of 2%. While inflation is putting stress on the economy, the Federal Reserve is pursuing policies, including raising the federal funds rate, to bring inflation bad down to around 2%.
As a border state, immigrants and international trade play a large role in the Texas economy. In 2019, immigrants contributed a total of $40.6 billion in taxes to the state and national economy and held $120.3 billion in spending power. The Texas immigrant population is expected to reach 7 million, or 18.6% of the total population, in 2035. Immigrants can help fill gaps in the labor market as baby boomers retire. Additionally, higher immigration has been shown to lead to in-creased birth rates, which will also help contribute to labor force growth. Immigration also boosts multilingualism, which is a skill more businesses have started to demand. In 2020, more than a third of the Texas population spoke a second language, and this is expected to increase.
Regarding international trade, Texas exports, led by the energy sector, rose to more than $375 billion in 2021, cementing Texas as the leading state in exports for the 17th consecutive year. Energy exports may continue to increase in the short run due to heightened European demand for natural gas due to the suspension of Russian supplies and elevated energy prices. Exports are expected to increase in the long run as experts remain optimistic about the continued growth of international trade, although regulation (discussed below) may change these dynamics.
Labor force participation and workforce retirement trends have also undergone recent changes. The labor force participation (LFP) rate in Texas was 63.4% in March 2022 (higher than the U.S. average of 62.3%). However, according to the Texas Demographic Center, the LFP rate in Texas is forecasted to decline between now and 2035. This trend, along with early retirement, could hurt economic strength. Regarding retirement, The Federal Reserve Bank of Saint Louis estimates that 2.4 million individuals retired early because of the pandemic. However, 1.5 million have re-entered the workforce as of May 2022. Nonetheless, by 2030 all those in the “baby boomer” generation will be 66 or older, meaning that a significant proportion of the U.S. population will be past or very near retirement age. This development could lead to further labor shortages.
Industry regulation, though somewhat dependent on uncertain future politics, will play a strong role in some of Texas’s most important industries. Long-term goals to reduce fossil fuel emissions are expected to lead to declining employment in the oil and gas sector while boosting renewable energy industries as these industries will be provided subsidies and other competitive advantages. Some international regulations, such as carbon pricing policies in the EU and other regions, may decrease the demand for Texas energy exports in the future. Additionally, the Biden administration has signaled their support for regulations which help boost unionization, a policy that may have a smaller impact in Texas as the state’s union membership percentage is well below the national average.
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