Despite potentially harmful mergers involving First Interstate Bank and McDonnell Douglas, California's economy is on track to a dramatic, if unexpected, recovery. Early next year, the roughly 500,000 jobs lost during the recession should be replaced.

Yet, a majority of Californians have had a hard time noticing the recovery; a recent poll indicated that 73% of them still believe the state is in recession. This downcast mood explains, in part, why soft housing prices have only recently begun to harden, though they remain well below their peak levels, particularly in the Los Angeles area and in the Central Valley.

To a large extent, this perception of continuing recession grows out of deep-seated misconceptions about the evolving structure of the California economy. For the first time since the Depression, the economy is resurging without benefit of a major boost in defense spending, a strong housing market or huge growth in new construction. Instead, many of the new jobs are sprouting in sectors linked to California's enduring strengths in international trade, culture-based industries and technology.

For workers who lost their jobs in the early 1990s, this is not necessarily good news. Many middle managers at large corporations or real-estate speculators are not well-positioned to take advantage of the surfacing job opportunities. But this does not mean that California's "golden days" as a producer of high-wage jobs are gone.

Indeed, rather than producing a glut of "hamburger flippers," the state's growth industries are creating high-value-added, high-wage jobs at an extraordinary rate. Economist Stephen Levy estimates that, in the year since August, 1994, California has created30,000 new jobs in entertainment, an additional 30,000 in wholesale trade, 30,000 in engineering management and computer services, and another 10,000 in semiconductors.

The number of new entertainment jobs created last year, for example, were double the total number of jobs lost in aerospace during the year. An entertainment job, with mean wages more than 40% above the statewide average, annually pays, on average, about $10,000 more than a comparable aircraft job. In computer services, another high-growth sector, a worker, on average, makes $6,000 more a year than a comparable aircraft employee.

This rapid expansion of high-wage industries helps explain why income in California grew 7.2% in 1995--the first substantial gain in five years.