Economic Divide in America Between Blue, Red States

States that vote Republican are emerging stronger from the economic downturn.

Container terminal in the Houston Ship Channel, Texas
Container terminal in the Houston Ship Channel, Texas (US Army Corps of Engineers)

There appears to be a correlation between economic recovery and voting behavior in the United States. “Blue” states, which tend to vote Democratic, are struggling to come out of recession while conservative or “red” states are adding jobs at a much faster pace.

The Wall Street Journal reported earlier this month on the regional discrepancy in job growth. The Midwestern United States and the South are doing far better than states in the northeast and those near the Pacific Coast.

In the Midwest, hiring is up nearly 38 percent in the recovery, and the hiring rate — the number of hires per employed worker — has returned to prerecession levels. The South’s rebound has been nearly as strong. Both regions have about three unemployed workers per job opening, better than the national average.

In fairness, the Midwest isn’t solidly conservative. It includes states that favor Democrats, including Illinois and Michigan, as well as Ohio, a traditional swing states. But the states that lean Republican, notably Indiana and North Dakota, are outperforming their more liberal counterparts in the area.

The South is Republican territory. Florida and Virginia are the only states in the region where President Barack Obama still stands a change of winning in November’s election.

The region is home to the most business-friendly states in the nation, according to Chief Executive magazine’s annual survey of CEO opinion of best and worst states in which to do business. Texas, Florida, North Carolina and Tennessee rank among the top five which also includes Indiana, governed by Republican Mitch Daniels. Virginia, South Carolina and Georgia also rank high, followed by the Western and solidly Republican states of Utah and Arizona in the top ten.

The same states perform well in George Mason University’s pro-market Mercatus Center’s Freedom in the 50 States (PDF). Southern states dominate the economic freedom (though not the personal freedom) ranking.

However, Southern states do not have higher incomes than the rest of the country. To the contrary. Figures from the Bureau of Economic Analysis show that Virginia, which has added a sizable information technology sector in recent years to traditional coal and tobacco industries, is the only state in the region where average incomes are higher than across the nation. North Dakota is also in that category thanks to its recent oil boom. Other Southern states are near the bottom of the list with incomes $5,000 to $10,000 per year lower than the national average.

Lower average incomes in the South — or higher incomes in the northeast, Illinois, Michigan and the Pacific states — can in part be attributed to differences in education spending although there no direct relation. California and New York, which are among the states that spend the most per student, have some of the lowest degrees of high school attainment while in Utah, which spends roughly a third per student than New York does, 90 percent of students leave high school with a diploma, a full 10 percent points more than is the case in New York.

There is a direct relation between employment and “right to work” legislation or, specifically, between workforce quality and right to work laws. CNBC’s Top States for Business survey found that states that prevent unions from forcing workers to join them in given industries score better than states that allow the practice. With the exception of Delaware, which has superior infrastructure and access to capital, all top twenty states in the survey are right to work states.

Democrats, who draw much of their political funding from unions, are typically opposed to right to work legislation because it dramatically reduces union membership, weakens union power and therefore inhibits their ability to contribute to political campaigns.

Although it appears that most Americans, when given the choice, prefer not be in a union, union leaders oppose right to work laws because, they say, such legislation reduces wages which appears to be true.

However, relatively lower wages are set by the market forces of supply and demand, not by artificial collective bargaining agreements that have driven up salaries in solid blue states like California, Illinois, Michigan and New York which are now suffering among the highest jobless rates in the country.

The reasons for a company to settle in one state or another are often more complex than what governments can influence. California, for instance, is fiftieth in Chief Executive‘s poll of best states to do business in because it has high taxes and a burdensome regulatory regime. Yet it produces many startups and attracts many businesses in high technology thanks to the presence on Silicon Valley.

North Dakota, until a few years ago, wasn’t a particularly prosperous state but now adds more jobs relative to its population than any other thanks to oil discoveries in the Bakken formation.

What government can do is create a climate that is conducive to business activity and job growth. A comparison of the fifty states shows quite convincingly that those with low taxes, light regulation and a free labor market are emerging stronger from the economic downturn than states with high taxes, strict regulations on busine and powerful trade unions. Usually, states in the former category vote Republican. States in the latter favor Democrats.