Texas’ Growth Depends On Its Ability To Provide A Pipeline Of Workers

Texas is a favored destination for corporate relocations. More than 200 companies have moved to the Lone Star State over the past 15 years, a trend that continues to fuel the state’s robust economic engine.

The flow of companies into Texas is a reflection of the state’s favorable business environment, including low taxes, limited regulation and affordability. But the presence of a skilled labor force is what ultimately tips the scales for executives considering a corporate relocation, according to economic development experts.

In an attempt to ensure that the Texas pipeline of suitable workers remains strong, Texas Gov. Greg Abbott established the Tri-Agency Workforce Initiative in 2016. The initiative brought together multiple agencies, including the Texas Workforce Commission, to develop strong links between education and industry.

“What we don't want to do here in Texas is for an employer to wake up, and all of a sudden [discover] that they can't find the available talent that they need to make decisions and to be successful,” TWC Commissioner Representing Employers Aaron Demerson told Bisnow.

Demerson has worked on economic development in Texas for more than two decades. He served as a senior adviser and executive director of the Economic Development & Tourism Division in Texas Gov. Rick Perry’s office for 13 years, focused on marketing the state as a premier destination for both business and travel. 

Over time, his attention shifted toward the question of labor. In 2014, Demerson joined the TWC as director of the Office of Employer Initiatives, and in 2019, he became TWC’s commissioner representing employers. Demerson will speak at Bisnow’s upcoming "Why Texas Real Estate?" digital summit on June 23. 

A large part of his job requires listening to what companies need from a workforce standpoint.

“I advocate for over 587,000 Texas employers and 2.6 million small businesses. And so what's important to me is to make sure that we're listening to those employers,” Demerson said.

Texas has plenty of people, but education is essential to ensuring that they have the skills to do the jobs. The Tri-Agency Workforce Initiative, a joint endeavor between TWC, the Texas Education Agency and the Texas Higher Education Coordinating Board, was specifically created to help residents and employers with this.

Abbott tasked the commissioners of the initiative in 2016 with five initial charges centered on developing strong links between education and industry, including identifying and advancing ways to make college more affordable, a better link between students and jobs, and identifying gaps in services to Texas veterans looking to get back into the workforce. 

The 86th Texas Legislature passed House Bill 3 in 2019, a sweeping school finance bill that provides more money for classrooms and increases teacher compensation. To fully implement the vision of the bill, Abbott expanded the goals of the initiative by charging its commissioners with developing updated strategies in seven main areas: readiness, completion, transitions, upskilling, educator pipeline, partnerships and infrastructure.

Demerson said bringing together workforce and education expertise through the Tri-Agency Workforce Initiative and focusing on these issues indicates to employers that Texas’ education systems are attuned to their long-term operational needs.

“That's the magic behind the education push, making sure that we are in a position to compete globally,” Demerson said.

That being said, Texas still has a long way to go when it comes to education. The Lone Star State ranks among the lowest states in the U.S., coming in at No. 39 out of 50, according to WalletHub's latest analysis of most and least educated states.

The analysis took into account three key factors of a well-educated population: educational attainment, school quality, and achievement gaps between genders and races. While Texas was No. 22 for school quality, it scored No. 42 in educational attainment.

The research drew on several data sources, including the U.S. Census Bureau, the National Center for Education Statistics and the U.S. Department of Education.

When it comes to attracting large projects to Texas, the governor’s office usually takes the lead. Demerson, who used to handle those efforts, noted that Texas excels at bringing in leaders from an array of different state agencies early on in the process. The goal is to provide guidance and help, hopefully easing the difficulty of the move for interested companies. 

That can range from bringing in the state comptroller’s office to discuss tax issues to tapping the Texas Commission on Environmental Quality to discuss permitting. Demerson’s agency is brought in whenever there are concerns around the availability of labor.

The coordination of efforts between state agencies is a big part of Texas’ success in attracting corporate relocations, but the fact that the state consciously avoids doing anything to detract from its business-friendly stance, such as introducing higher corporate taxes, also plays a significant role. Texas has no state income tax, making it one of six states where companies only pay the federal rate.

Companies moving to Texas also have the benefit of the Texas legislature only meeting once every two years, which means that change tends to be slower than in other states. Executives can make business decisions with more confidence, knowing that major policy changes aren’t going to come down overnight.

“The business climate, what I like to refer to as our secret sauce in Texas, when we bring together the worlds of workforce, economic development and education — that makes it work. When you couple that with an elected leadership that gets it, then you're on your way to success,” Demerson said.

There are certain metrics that the TWC uses to determine the success of its programs and initiatives. The agency has 28 Texas Workforce Development Boards across the state, and each is tasked with planning and oversight responsibilities for workforce services and programs in its geographic area.

The boards are expected to hit set performance goals, which are tied to state and federal funding. There are return on investment-type calculations for some workforce programs, along with other metrics, like wage increases and the sheer number of jobs being filled, according to Demerson.

“We're measuring constantly to make sure that we're hitting those numbers, and if we're not, going back to figure out what we're doing right or wrong,” Demerson said.

Texas' average wage is below the national average. In 2019, the most recent data, Texas averaged $50,490 in annual earnings, while the country at large averaged $54,100.

The disruption of the coronavirus pandemic has left Texas struggling to address its unemployment rate. The U.S. Bureau of Labor Statistics reported that Texas had a preliminary unemployment rate of 6.7% in April, tying for 38th place with Arizona and Alaska.

That compares with the state's unemployment rate of 3.5% in February 2020, before the pandemic began to take a toll on Texas' labor force, putting it in a four-way tie for 25th place in the U.S.

The demand for workers in some sectors is higher than in others. Healthcare generally dominates, but other industries in need of workers right now include construction, analytics and engineering. Geography, unsurprisingly, dictates much of the local demand for certain specialties.

“What's necessary here in Austin could be different from what's needed in the Brownsville area,” Demerson said. “In each respective area in Texas, [the Texas Workforce Development Boards] identify their own high-demand occupations … they know those are the top positions in their area. And then you put programs in place to make sure that those are being taken care of.”

The pipeline of companies moving to Texas is unlikely to dry up anytime soon. Even over the past year, Houston and Dallas took third and fourth place, respectively, for the most Fortune 500 company headquarters in the U.S.

The rapid rate of growth has raised questions around whether Texas will remain affordable in the long run, especially as housing prices continue to skyrocket. Cost of living is generally driven by the market, and Demerson said that it’s likely that most employers moving to Texas are going to pay a base wage that supports their workforce staying in the area.

“Folks are still looking here, [which] means that they're figuring it out from the standpoint of affordability, and from the standpoint of time as well. That's not to say that we're not faced with challenges in that particular area. But we're doing what we can to address it,” Demerson said. 

For Demerson, the goal is to not only sell Texas as a great place for an employer to settle, but to ensure that the state continues to have the properly educated labor force in the future, regardless of what industries rise to the fore.

“We make sure that even though we're looking three to five years down the line, that we're looking on an annual basis, semi-annual basis, we're communicating with our employers — because [with] the flexibility and nimbleness of the market, things can change,” Demerson said.