Walters: Labor Shortage Could Slow California's Economy

California’s latest employment report is nothing short of astounding.

The state’s unemployment rate, which topped 12 percent during the Great Recession a decade ago, declined to a record low 4.1 percent in September as employment rolls continued to expand, up 339,600 workers over the previous year.
The state had 17.2 million non-farm payroll workers in September while the ranks of the unemployed declined to 803,000, scarcely a third of the two-plus million Californians who were jobless during the height of the recession.
Unemployment in September was as low as 2.2 percent in Marin County and only slightly higher in other Bay Area counties. Even the Central Valley’s agricultural counties, which have a history of double-digit jobless rates, saw them drop to around 5 percent. The only outlier was Imperial County, but at 19.3 percent, its unemployment rate was still lower than its norm.
So there it is – seemingly unleavened good economic news. Record numbers of Californians are working and earning livings for themselves and their families.
However, there are some dark clouds on the horizon.

One of the Nation’s Highest Rates of Underemployment

For one thing, data from the federal Bureau of Labor Statistics reveal that California has one of the nation’s highest rates of underemployment, what it calls “U-6.” It takes into account workers who are involuntarily working part-time or are “marginally attached” to the labor force and our U-6 rate is well into double digits.

An even more troubling bit of employment data is California’s declining “workforce participation rate.”
That’s the percentage of adults (over 16 years old) who are either working or looking for work and at 61.9 percent, it’s the lowest in recorded state history and five percentage points lower than it was a decade ago, according to the Department of Employment Development.
California’s not alone among the states in seeing this decline, but it threatens to short-circuit the state’s economic expansion because employers are finding it increasingly difficult to find qualified workers.
Those who are not in the labor force include stay-at-home parents, retirees from the large baby boom generation, those still in college or other educational programs, those who have exited from the labor force onto disability or other benefits rolls, and what are called “discouraged workers” who might want to work but do not possess the skills needed in a technology-driven economy.
Whatever the reason, these are Californians who are not looking for work, not generating income for themselves, not paying payroll taxes and not filling jobs that employers want to fill.

Foreign Immigration Is in a State of Flux

Under other circumstances, California’s strong demand for workers would attract emigrants, as it has in past decades. But foreign immigration is in a state of flux due to the Trump administration’s harsh attitude on the issue, and drawing workers from elsewhere in the nation is difficult because most other states also have strong job markets and California’s ultra-high housing costs discourage migration.
In fact, California loses more people to other states than it gains.
Beacon Economics, in a new economic survey of the state’s regions, sees slowing job growth due to worker shortages and cites the state’s housing crisis as a major factor.
“Economic growth is going to continue in California but 2019 is looking like the year when the jobs slowdown we’ve anticipated for some time begins to materialize,” Robert Kleinhenz, Beacon’s director of research, says, adding that dealing with the labor shortage “will require addressing California’s high cost of housing and ensuring that the workforce can continue to gain from both domestic and international migration.”
CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.