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Opinion

Why Is Nevada Stagnant?

Why Is Nevada Stagnant?
N&V Staff
July 6, 2011

(David Mansdoerfer) – Currently, Nevada has an official unemployment rate of roughly 12% – the highest in the United States. This, however, doesn’t even begin to describe the dire economic situation Nevada is currently in. Outside of the ‘official’ unemployment rate, which only takes into account those who are actively looking for a job, the U6 unemployment rate, which includes people who are underemployed and have given up looking, is now at 23.7%.

So, in non-policy wonk talk, this means that nearly 1 in 4 people who reside in Nevada are currently unemployed or underemployed. What is confusing about this, is that one would generally expect that government regulations are the contributing factor to why the unemployment rate is so high. Yet, according to the Tax Foundation, Nevada’s state and local tax burden is second in the nation while its business tax climate ranks fourth.

If this is the case, why was Nevada hit so hard during the recession? Furthermore, why has Nevada’s growth been stagnant?

As someone who prescribes to classical economics, my initial hypothesis would come in three statements.

First, Nevada’s economy suffers from structural unemployment issues.

– Currently, only 21.5% of Nevada residents over the age of 25 have attained a bachelor degree. This is lower than each of Nevada’s neighboring states by at least 2% and in some cases up to 8%. For businesses to be comfortable moving their operations to Nevada, they have to know that there are enough potential employees to staff their operations.

Until now, the Nevada job market has had little need for employees with bachelor degrees. Now, in order to be competitive, Nevada needs to encourage higher education and focus specifically on UNLV increasing their paltry 40.6 percent six year graduation rates.

Second, even though Nevada has a business friendly climate, it lacks the infrastructure to support potential businesses.

– In addition to the lack of qualified employees, Nevada is wholly reliant on its service industry and lagging behind in its information technology and manufacturing sector. In order to attain significant growth, Nevada must look at developing the infrastructure to support the information technology and manufacturing companies that are currently fleeing California by the thousands.

Third, Nevada has been overly reliant on hotel/casino tourism and real estate and needs to diversify its economy in order to sustain true economic growth.

– The three most important sectors to Nevada’s economy, real estate, hotels/tourism, and construction, are particularly susceptible to market downturns. In order to mitigate future economic recessions, Nevada must diversify its economic portfolio to include sectors that are less susceptible to market downturns.

While the recession has been extremely tough on the state of Nevada, and the road ahead looks long, Nevada is positioned to exit this recession looking leaner and meaner than before. As any classical economist will tell you, recessions create an efficient economy.

In Nevada’s case, it has the opportunity to learn from past mistakes and benefit immensely from the mistakes of neighboring states like California who continue to tax and regulate businesses into fleeing the state.

As the 2012 election cycle kick off soon, Nevada residents should be looking for three things from their elected officials.

1. A way to improve Nevada’s higher education system. (And no, this does not mean more money)

2. A structural improvement plan to make Nevada more attractive for manufacturing and information technology companies.

3. A plan to diversify Nevada’s economy to include sectors that aren’t as susceptible to economic downturns.

With these three things, Nevada can once again attain its pre-recession form and begin benefitting from its low tax burden and highly rated business climate.

(Mr. Mansdoerfer is the Director of Federal Affairs for Citizen Outreach)

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July 6, 2011
N&V Staff

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