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Response to Weintraub: CA's recovery requires action for high wage job gains

Posted by Gino DiCaro, VP, Communications on May 4, 2011

Dan Weintraub, who is often and appropriately looked to for well-reasoned and researched opinions of California's political and economic landscape, responded on the Fox and Hounds website to some issues I took with his original piece on California's employer climate.

Below are my responses to his points integrated into his exact piece.

Gino DiCaro of the California Manufacturers and Technology Association calls me out here for not being understanding enough about the plight of his bosses in the California manufacturing sector.

His beef is with a recent piece  in which I pointed out that employment growth in California last year actually outpaced the nation if you remove the effect of government layoffs and ongoing problems in the construction industry, which was particularly hart hit by the collapse of the housing market in California. 

My point was not that California is doing fine, but that analysts and lawmakers should exercise caution when deriding the "business climate" and demanding quick fixes that they say will lead to economic growth.

 

Response: Weintraub concluded that "[job] numbers bode well for the state's economic future."  That would tell any lawmaker that drastic measures or a substantial state jobs plan are not needed.  In fact, as I type, I just heard Senate pro Tem Darrell Steinberg quote Weintraub's original piece in a legislative hearing.

Manufacturers and other employers aren't talking about a "quick fix".  We are asking for long term attention to the state's dire need for substantial high wage jobs -- through predictability and lower costs.  We, at the California Manufacturers & Technology Assn., receive calls daily from lawmakers asking which one or two regulations they can fix to make manufacturers' world better.  If only it was that easy.  It's not about one regulation or one tax.  The problem is the complete paucity of actions that would lead to large-scale growth of manufacturers and high wage employers in this state.   

Imagine what would happen if the state said we must grow the job base by two million jobs by 2020 and held itself at least semi-accountable for it.  Much like the state's goal to boldly reduce our greenhouse gasses, lawmakers and regulators would start making it happen.

 

In his piece, DiCaro does not mention that recent research by the independent Public Policy Institute of California has shed significant light on this question.

One study by the institute showed that California actually loses very few jobs to other states, probably on the order of about 10,000 a year, less than a drop in the bucket compared to the more than 15 million jobs in the state's labor market. Yes, California probably also loses some opportunities for company expansion, but those are much more difficult to quantify.



Response: We can quantify the loss of opportunity in California manufacturing - a sector that provides a $69k average salary to more than 1.25 million Californians.  Over the last four years California is dead last in new manufacturing investment. Those are numbers provided by the unbiased Site Selection magazine.

Further, PPIC doesn't look at the wage disparity of the job losses in California.  From 2001 to 2008, before the recession, California's growing sectors paid on average only $43k while declining sectors paid $69K.

 

A more recent study was even more on point for this debate, looking at 11 surveys that ranks the states on their friendliness to business. California ranks low in many of those, in part because of the state's high corporate tax rate. And the PPIC found that some of those studies did, indeed, seem to be correlated with economic growth. But that was just the start of the story.

The analysis also found that the simplicity of a state's corporate tax code, not its rate, tracked most closely with economic growth. And while higher government spending seemed to correlated with lower economic growth, the biggest culprit was not spending per se but programs that gave people an incentive not to work. In fact, there is a good case to be made that spending on infrastructure, education, universities, public safety and the environment, even health care, all contribute to economic growth.



Response: The recent PPIC report stated the obvious.  Overall they said that California's natural advantages (favorable natural climate, favorable industry mix) offset the state's higher operation costs and our consistently low business rankings.  They also said regulations can't be quantified.  (sidenote:  They also said that manufacturing growth/decline -- and other high wage sectors -- associated more with business climate rankings.)

The PPIC concluded their presentation of the report by saying, "a better business climate would promote faster growth." 

Why are we so afraid to make a plan to grow the employer base with high wage industries?

 

DiCaro implies that I am suggesting a "do-nothing" approach, or at least providing political cover for those who would support such a strategy.

But investing in and improving kindergarten through community college education, protecting and enhancing the state's highly regarded four-year universities, and safeguarding the state's number one asset - it's incredible natural environment - would not be doing nothing. Combined with a fair and broad-based tax system, these steps would help put, or keep, California on the road to recovery.



Response: I'm not saying that Weintraub is suggesting a "do-nothing" approach.  I'm suggesting that Weintraub's piece gives Californians a false sense of security by implying that we don't need an extremely high-growth rate of high-wage employers.

 

 





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