Digging Beneath California's Surface Economic Recovery
At the beginning of January, Governor Jerry Brown stated in his 2015 State of the State/Inaugural address that "California has seen more than 1.3 million new jobs created in just four years and the unemployment rate has dropped to 7.2%." This statement perfectly encapsulates the elation so many in Sacramento have when talking about the Golden State's economy. But if you dig deeper, the story isn't as celebratory.
It is true that California's job market has improved substantially from the depths of the recession. California has more than recovered all the jobs it lost during the downturn and the state's U3 unemployment rate is down almost 5.5 points from its recessionary peak. But these headline numbers cloud two disturbing facts.
Unemployment Is Still High: As of December 2014, there were over 1.3 million Californians unemployed. This is down from a peak of over 2.2 million, but it is still 277,000 higher than the number of unemployed Californians at the start of the recession. While California's U3 unemployment rate is once again down 5.5 points, it is still 1.3 points higher than the pre-recession level.
Two other methods to examine the true employment picture are the employment-to-population ratio (i.e. what percentage of the civilian non-institutionalized population is employed) and the U6 unemployment rate (which includes marginally attached workers and workers employed part-time because of economic reasons). California's employment-to-population ratio currently is 58.1%, down 4 points from the beginning of the recession. In other words, 42% of the state's civilian non-institutionalized population (everyone sixteen and older not institutionalized in some manner, such as in prison or a nursing home, or deployed or in active duty on a military base) isn't working for some reason. And the state's U6 unemployment rate is 15.8%, almost 6 points higher than it was in 2007. While Brown rightly notes California's unemployment rate is falling, it doesn't necessarily mean California's unemployment picture has improved.
A Job Market Dominated by Part-Time Workers: In December 2007, roughly 3 million California workers were part-time, including just over 678,000 who were working part-time for economic reasons (i.e. the market was forcing them to work part-time, not by choice). This ratio, 3.4 "by-choice" part-time workers to "economic" part-time workers, is roughly where California stood for much of the early to mid-2000s. By the end of the recession in June 2009, that ratio had fallen to just 1.5 "by choice" part-time workers to "economic" ones, suggesting the state's job market shifted significantly in nature over the course of the recession. Over the last 6 years, the ratio has only risen to 1.8. The number of part-time workers due to economic reasons is still almost two times the size as before the recession and is down just roughly 100,000 since the end of the recession. While Brown notes 1.3 million new jobs have been created in the last four years, there are still over 1.2 million Californians working part-time who don't want to be.
There is obviously something still not right with California's underlying economy. In total, over 2.5 million Californians are either unemployed or working part-time when they would rather be working full-time. The question is why. The clearest underlying rationale is that economic growth has been rather tepid, especially when compared with previous recoveries. Between 2009-2010 and 2012-2013, real GDP grew by an average of 1.8% per year. Coming out of the previous recession (2002-2003 to 2005-2006), real GDP grew over two times faster, on average, per year (3.8%). And one of the greatest culprits for California's sluggish economic growth is the fact that the state is regularly rated as the worst in which to do business. As one CEO puts it, "California's attitude toward business makes you question why anyone would build a business there."
Simply stating that legislation is pro-job in a legislative floor speech or opening a Governor's Office of Business and Economic Development isn't sufficient to creating a pro-growth business environment. If Sacramento seriously wants to foster a robust job market, the state needs strong economic growth, which requires nurturing, consistently and vigorously, a healthy business climate.
