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California s DURT Hurts Economic Performance
By: Bill Watkins, Ph.D

California remains mired in something like a zombie state, not quite dead, but certainly not vigorous. Moving, but with no clear direction. Perhaps, jobs and migration data best show California’s listless nature.

Jobs have been increasing in almost every sector, but that job growth has been anemic. We saw only 0.6 percent job growth in the past year, leaving us still down more than 1.2 million jobs since the recession started. Consequently, the state’s unemployment rate remains over 30 percent above the national rate, and the difference has been growing.

Similarly, California’s population has been growing, but extremely slowly compared to California’s golden past. Net domestic migration remains negative, as it has for most of a couple of decades now. Even net international migration has fallen, to less than 170,000 in 2009, the most recent year for which we have data.

Some parts of California are worse than others. California’s great Central Valley is in terrible economic shape, by every measure, and unemployment rates in excess of 20 percent are not uncommon. Southern California’s once-thriving Inland Empire (Riverside and San Bernardino counties) languishes with unemployment rates over 14 percent and decimated housing markets.

Some regions are doing better, most only modestly. San Diego, Orange County, and San Francisco are examples. Only one region, the Silicon Valley, is doing well enough to generate real enthusiasm. This strength is due to its famous tech sector and to the region’s high density of venture capital firms.

Sectorally, healthcare continues to lead in job creation, recently followed closely by wholesale trade. Natural resources and mining is a small sector that has recently shown strong gains, driven mostly by rising oil prices.

Local government has been California’s weakest sector, which is contrasted by the state government’s continuing job increases. Invariably, in downturns, Sacramento is able to pass most of the pain down to local governments.

California ports have been another bright spot, benefiting from California’s location on the Pacific Rim and serving as a gateway to the vast United States markets.

Of course, the logical question is why is California’s economy doing so much worse than the United States’ economy? Some will answer that California has had another idiosyncratic shock.

This time, California was ground zero for the collapse of the housing bubble. At the previous recession, California was ground zero for the collapse of the dot-com bubble. In the 1990s, California was ground zero for the downsizing of the United States defense industry.

California has been hit with some shocks. No doubt about it. Between the shocks, however, California has also shown weaker growth, particularly outside of the Silicon Valley. This is an indication that something else is at play, something is wrong, and it has costs.

California is an expensive place to do business, but it’s not just taxes. The cost of operating in a state is what I call the cost of DURT: Delay, Uncertainty, Regulation, and Taxes. It is the sum of these that helps to determine a state’s job-creating competitiveness, and economic vigor. California DURT is expensive, and it is hurting the state’s economic performance. As long as DURT remains a force of reckoning in California, I expect that the state’s long-term economic structure will continue to slip away from vitality and growth.

For information please visit:

Bill Watkins, Ph.D., is the

Executive Director of the

California Lutheran University Center

for Economic Research and Forecasting.