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THE STATE | THE RECALL CAMPAIGN

Gloomy Portrait of Economy Ignores the State's Strengths

August 24, 2003|Marla Dickerson | Times Staff Writer

To hear Arnold Schwarzenegger and other gubernatorial hopefuls tell it, the California job market is totally in the tank.

Last week, Schwarzenegger advisor George P. Shultz branded jobs the campaign's "new four-letter word." Fellow Republicans Sen. Tom McClintock of Thousand Oaks and Bill Simon Jr., who dropped out of the race Saturday, have spotlighted California's recent steep employment losses as a reason to sack Gov. Gray Davis and bring in new leadership.

Even Gallagher, the comedian candidate and a self-proclaimed member of the "Party party," is calling for business "obituaries" to be published whenever companies go belly up, underscoring the continuing pain in the state's labor market.

Yet the picture being painted by those in the recall race -- that California is suffering disproportionately on the employment front -- is in many respects misleading. As a percentage of its job base, California's statewide employment losses aren't any more severe than those of the nation overall.

Since employment peaked in March 2001 at the height of the technology boom, California has shed 293,600 jobs, or 2% of its nonfarm payroll positions -- the same percentage loss as the United States as a whole.

In July, California's unemployment rate stood at 6.6%, up a hefty 1.9 percentage points from the state's pre-recession low of 4.7%. But the national increase in the jobless rate has been even greater -- up 2.3 percentage points to 6.2% last month from its December 2000 trough.

And although California is a laggard compared with Nevada, which boasted a July unemployment rate of just 5.4%, it looks like Seabiscuit compared with plodding Oregon. There, unemployment reached 8.1% last month, the highest percentage in the country.

In the eyes of some experts, the candidates' lamentations over the job market are misdirected: What they should focus on instead is coming up with concrete ways to close the state's projected $8-billion budget gap for next year. That is a subject few candidates have been willing to take on with much specificity.

"It's very hard for people to distinguish the state's budget from the economy," said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. "And the candidates aren't helping matters any."

Not that the state's fiscal problems are completely unconnected with the employment situation.

Much of California's pain stems from the types of jobs that have disappeared -- tens of thousands of lucrative high-tech positions. The San Jose area, in the heart of Silicon Valley, has lost more than 200,000 jobs, or a stunning 19%, of its nonfarm payroll positions since December 2000. The fat bonuses, stock options and capital gains from stock sales that went along with such slots also have evaporated.

Adjusted for inflation, personal income in California plunged 3.4% from January 2001 through July 2003, compared with a decline of 0.1% nationwide, according to estimates from the state Department of Finance. By its count, no other state did worse.

In turn, the Golden State's coffers have been clobbered. In fiscal 2002, personal income tax revenue in California plunged 26% to $33 billion, down from $44.6 billion the year before.

"We lost proportionately more high-paying jobs" than other states, said Howard Roth, chief economist with the state Department of Finance. "That's why we're in the fix we're in."

The challenge in California, and across the nation, is to get companies to expand their payrolls. While a recent spate of positive economic reports has been encouraging, economists say U.S. employers may not feel confident enough about a turnaround to commit to significant hiring until well into 2004.

On that score, Levy said, California is much like everyplace else -- waiting for a pickup in the national and world economies to kick-start the job engine.

"There is nothing fundamentally wrong with the California economy.... We have a good set of industries," said Levy, noting that other states would love to have California's technology, bioscience and entertainment clusters. "We wouldn't even be having this discussion if we had a healthy national economy."

Not everyone is quite so sure about that.

The state's technology companies have shifted a significant amount of production to Asia to cut costs, leading some to believe that California's high-tech employment numbers won't rebound, even when business spending does. By some estimates, it could be a decade before Silicon Valley recoups all the jobs that have vanished in the last two years.

The shift to Asia may also put a damper on export growth. Shipments of computers and electronic products, California's No. 1 export, have contracted for 10 straight quarters. When global demand for technology goods picks up, many U.S. companies will be supplying their foreign customers from plants in China rather than California.

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