Tuesday, January 27, 2004
Copyright © Las Vegas Review-Journal

State's economy continued expansion in December

Unemployment rate at lowest level in more than three years

Click image for enlargement. Graphic by Mike Johnson.

CARSON CITY -- Nevada's economy continued to expand in December, as the unemployment rate dropped to its lowest level in more than three years and the state led the nation in job growth.

The Department of Employment, Training and Rehabilitation reported Monday that the state's unemployment rate fell to 4.4 percent from 4.5 percent in November. The rate hasn't been this low since October 2000, when it was 4.2 percent.

Nevada has far less unemployment than California, which has a jobless rate of 6.4 percent, and is well below the national unemployment rate of 5.7 percent.

In addition, Nevada employers added 42,200 jobs in 2003, yielding a nation-leading 4 percent annual job growth rate.

Jim Shabi, an economic analyst for the department, said the current diverse job growth is unlike the employment explosion of the 1990s, which was driven by the construction and opening of several new megaresorts.

"It is because people are moving in," he said of Nevada, which has led the nation in population growth for 17 consecutive years. "People moving in generates a demand for jobs, for groceries, for health care."

Myla Florence, director of the department, said the gaming industry provides about 20 percent of all jobs in Nevada, but it created only 5 percent of new jobs in 2003.

Las Vegas-area unemployment in December was 4.4 percent, down from 5 percent a year earlier. The Reno area jobless rate was just 3.8 percent, the same as a year earlier.

December was the final month before Nevada businesses begin paying the new 0.7 percent state payroll tax on each employee's wages. Banks and other financial institutions will pay a 2 percent payroll tax.

Those levies were the centerpieces of the Legislature's record $833 million in tax increases, which were approved in July.

"I would expect the effects of the tax to be minimal (on unemployment)," Shabi said. "We have a million plus jobs in Nevada. Small companies running on margins might be affected, but the larger companies are making their business decisions on more global views."

Catherine Levy, public affairs director of the Las Vegas Chamber of Commerce, and Nevada Taxpayers Association President Carole Vilardo agreed that the payroll tax would not keep employers from hiring the workers they need.

"If a business is profitable and it needs the employees, it will hire them," Vilardo said. "I don't believe it will have an impact on hiring people."

Levy attributed the business recovery partly to the Legislature's approval of the payroll tax instead of a more controversial 0.25 percent gross receipts tax. The general business community campaigned against the gross receipts tax, which was backed by Gov. Kenny Guinn and the gaming industry.

"We still can recruit businesses and create new jobs that we might not have otherwise if we had a gross receipts tax," Levy said. "It is indisputable that Nevada is a great place to do business. With the gross receipts tax, we don't think that trend would have continued."

Critics of the payroll tax contended some employers would hold back on employee wage increases because of the higher taxes they would have to pay.

The average Nevadan is paid $33,000 per year. On that wage, employers will pay a $231 annual payroll tax. Before the payroll tax went into effect, employers paid a straight $100 per employee business license tax to the state. That annual tax was repealed.

Shabi also predicted that the tax increase would have little effect on employee wages, at least for larger companies. He said the average annual wage in Nevada has not dropped in more than 30 years.

Levy agreed that the tax would have little effect on whether an employer grants wage increases.

"Salaries are based on competitive wages," she said. "If you want to hire qualified workers, you have to pay them what they are worth."

Vilardo, however, believes the tax will have some effect on the level of wage increases an employer gives workers.

She noted that under the old tax system, an employer paid $400 a year in business taxes for four workers. But under the payroll tax system, that same employer would pay $1,400 if he is paying the four workers an average annual salary of $50,000.

"That is a sizeable increase," she said. "I think employers will review their liability under this scheme, and it can influence the size of salary increases."

On the other hand, employers deduct the costs they pay for employee health care before they calculate their payroll taxes. If they do not contribute toward employee health care, they do not receive the deduction.

As an example, an employer may pay $6,000 a year in health care costs for an employee. If that employee is paid $50,000 a year, then the payroll tax would be based on a salary of $44,000. The deduction would save the employer $42 a year in payroll taxes on that employee.

Chinnock said his office's phones have been ringing off the hook since his staff sent out 45,000 tax forms to known companies earlier this month.

"People want to make sure they are doing the right thing," he said.

Although his agency is upgrading its computer equipment, Chinnock said it would be another year before employers can pay their payroll taxes electronically. They must return the tax forms sent by the Taxation Department or acquire forms on the department's Web site.

While urban areas in the state are producing more jobs, much of rural Nevada continues to decline, despite increases in gold prices. Mineral County had the highest unemployment rate at 6 percent, followed by 5.9 percent in Lyon County and Lander County at 5.6 percent.

More importantly, the new statistics show the labor force in many rural counties is dropping, an indication residents may be moving away to find jobs.

White Pine County, for example, has only a 3 percent unemployment rate, a drop from 3.3 percent a year earlier. But the number of people holding jobs there is now 2,680, down from 2,940 a year earlier. Similar declines in the labor force were seen in several other rural counties.

Fourteen states have unemployment rates lower than Nevada. South Dakota is the lowest at 3.2 percent, followed by North Dakota at 3.3 percent.

Shabi pointed out that most of the states with lower rates are those with stable or declining populations.

"If you lose a job in South Dakota, do you stay in South Dakota or move to someplace warm?" he asked.