California, after nearly five years in recession, has made something of a comeback in recent years. Job growth in the state – largely due to the Silicon Valley boom – has even begun to outpace the national average. The state, finally, appears to have finally recovered the jobs lost since 2007.
To some, this makes California what someone called “a beacon of hope for progressives.” Its “comeback” has been dutifully noted and applauded by economist Paul Krugman, high priest of what passes for the American Left.
In reality, however, California’s path back remains slow and treacherous. California Lutheran University economist Bill Watkins, like other economists, is somewhat bullish on the state’s short-run situation, but suggests that the highly unequal recovery, particularly for the middle class, could prove problematic over time.
“It’s very narrow and not broad-based,” he observes. “That is very troubling.”
Things certainly are better than they were, a few years back but still are far from ideal. Right now, California employment is about 1.1 percent above 2007 levels, slightly below the 1.4 percent growth for the country. In contrast, Texas’ economy has created jobs at roughly 10 times that rate. With a population much smaller than California’s, the Lone Star State added more than 1.2 million jobs, compared with 162,000 for California. No great surprise, then, that California has become, by far, the largest exporter of domestic migrants – more than twice that of any other state – to Texas.
Our unemployment rate, while falling, at 7.3 percent in October was still the nation’s fifth-highest. Even as California has improved, Texas continues to grow as fast, or faster, than the Golden State. According to the U.S. Bureau of Labor Statistics, Texas ranked third in growth over the past year, while California achieved a respectable ninth. It’s possible, though, that with falling oil prices, California might edge out Texas in growth for 2014, but the performance gap – due to the narrowness of the recovery – is likely to remain huge for the foreseeable future.
Most of the gains in high-wage jobs in California since 2007 have been in professional and business services – up almost 200,000 – a sector that clusters along the coast. Most strong job gains have been concentrated in the Bay Area, primarily along the 50-mile strip from San Francisco to San Jose. At the same time, conditions have remained sluggish both in less tech-oriented Los Angeles and the Inland economies.
The Sacramento region, for example, remains down 32,000 jobs from 2007 levels; most other Central Valley communities, with the exception of oil-fired Bakersfield, remain stuck at or below their 2007 levels. The Inland Empire may be improving, but remains down 30,000 jobs. Other blue-collar economies, such as Oakland, just across the Bay from booming San Francisco, remains 9,000 jobs below its 2007 level. Los Angeles County, historically the linchpin of the state economy, is down 44,000 jobs.
Improving the economy in these areas may be very difficult as California’s regulatory environment makes it hard for many firms to expand as easily as they can in Nevada, Arizona, Utah or Texas. Under current circumstances, even when Silicon Valley firms expand their middle-management workforce, they are likely to do it in other more business-friendly states – or abroad – than move further east toward the Central Valley.
Blue Collar Bust
One of the great success stories in America the past few years has been the growth of the blue-collar economy. Credit goes to, first and foremost, the energy boom that accelerated growth not only in states like Texas, North Dakota and Oklahoma, but also in Ohio and Pennsylvania, where fracking has expanded. This energy boom has also spilled over into the industrial sector, creating new demand for such things as pipes and sparking a recovery in the auto industry, both in the traditional Rust Belt and the newly industrialized zones of the Southeast.
California, sadly, has remained largely on the sidelines during this great boom, which is one reason why its population suffers the highest poverty rate in the country. Since 2007, for example, Texas has added some 54,000 jobs in the natural-resource extraction sector. California, with some of the nation’s largest oil reserves, has added 15,000. Critically, this sector provides high-wage jobs not only to geologists and managers, but also to an assortment of blue-collar workers, who earn wages, according to Economic Modeling International, of roughly $100,000 annually.
A similar pattern can be seen in manufacturing. As the economy has recovered, U.S. industrial expansion has increased, with employment up 2 percent in the past year. Manufacturing in California, meanwhile, has grown at half that rate. Over the past seven years, the Golden State has lost some 200,000 manufacturing jobs, and, with the state’s high energy costs, it’s difficult to see how this pattern will reverse in the foreseeable future.
Wholesale trade and warehousing represents another key blue-collar industry but California has had virtually no growth here since 2007, while Texas has gained well over 100,000 positions. Future growth for the state in this area may be slowed as trade moves away from the chronic congestion, environmental and labor conflicts surrounding California ports, particularly the key Los Angeles-Long Beach complex. Instead, traffic is headed to more business-friendly facilities along the Gulf Coast and Southeast, as well as to the west coasts of Canada and Mexico.
Similarly, construction, a critical blue-collar sector, and the one that employs more Latinos than any other, has been slow to grow in California, where construction employment remains 190,000 jobs below 2007 levels. Even in the past year, with rising home prices, California construction growth has lagged well behind that of Texas. Looking forward, with ever stricter restraints on single-family housing, the prospects for growth are limited.
Silicon Valley a savior?
Today, most of the hope about California centers on Silicon Valley. “Silicon Valley,” notes economist Watkins, “is the last goose laying golden eggs in California.” It’s hard not to be impressed with the massive wealth accumulation around Silicon Valley and its urban annex, San Francisco. This growth has boosted the state’s improved short-term financial position. But it’s highly improbable that the Valley’s information sector – even at today’s often-absurd valuations – can create enough jobs to sustain the rest of the state. Since 2007, notes economist Dan Hamilton, the state has gained less than 11,000 information jobs, hardly sufficient to make up for the massive losses from the recession.
So, in what sectors are the job gains concentrated? Generally, not necessarily the sectors that create middle-class jobs. The biggest winners, outside of business services, have been generally lower-wage sectors such as education and health care, up 24 percent since 2007 – a remarkable 464,000 jobs – as well as leisure and hospitality, which has grown 10 percent, or almost 158,000 positions.
The class implications of this unbalanced growth are profound. Even in Silicon Valley, Latinos and African Americans have seen wages fall, and the area has been home to the nation’s largest homeless encampment. Meanwhile, many solid middle-class employers – Boeing, Chevron, Charles Schwab and Toyota – continue to shift jobs out of state; Occidental Petroleum, a longtime boon to the Southern California economy, pulled up stakes and moved to Houston.
So, rather than break out the organic champagne to toast California’s comeback, as the Jerry Brown administration would have us do, we would do better to address the ever-growing economic divide in the state. And, to be sure, with little prospects for renewed middle-class and blue-collar job growth, California should not be held up as a model for other states, particularly those that lack both California’s innovation economy and its remarkable natural advantages.
In fact, neither is this situation ideal for most Californians – particularly if you are concerned about the state’s middle class and the consequences of an expanding, often undereducated population with little prospect of ascending the economic ladder.
This piece first appeared at the Orange County Register.
Cross-posted at New Geography.