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December 22, 1992
"When Will All the Jobs Come Back?"
San Jose Mercury News

By Timothy Taylor
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EVEN IF a turnaround in the California economy were imminent, it would take years to recover from the huge job losses of this recession.

Since the California economy peaked with 12.9 million jobs in mid-1990, roughly one in every 16 jobs has disappeared. The total number of jobs has fallen by more than 800,000.

Although the recession has been felt throughout the state, Southern California has taken the brunt of the pain. Three counties -- Los Angeles, San Diego and Orange -- accounted for half the state's jobs in mid-1990 but have suffered three- quarters of the total job losses.

The problem wasn't just the loss of jobs, but the fact that new jobs weren't being created at the historically expected rate. From 1970 to 1990, the total number of jobs in California grew by about 3 percent per year.

1.6 million jobs are missing
"In sum, California is missing over 1.6 million jobs," the California Commission on State Finance reported in October. "Of that total, about one-half represents jobs which would have been created in normal economic times; the other one-half is the actual job losses that have occurred in the downturn."

Under an unreasonably optimistic scenario -- say an immediate return to 3 percent annual job growth -- it would take more than four years for the state economy to create 1.6 million additional jobs. The optimistic view is that by early in 1997, the California economy might have recovered to where it would be now, if the recession hadn't occurred.

But how soon is job growth likely to return to California? And when growth does return, how rapid is it likely to be? Of course, asking these questions simultaneously violates the prime directive of economic forecasting, which is to predict timing of an economic movement, or the size of that movement, but never both.

The consensus of California economic pundits -- the Commission on Finance, the Business Forecasting Project at UCLA, the First Interstate forecast, and so on -- is that statewide growth won't return until mid-1993, at the earliest. Moreover, that growth is expected to be below the historical average.

Some support for this prediction comes from economists Olivier Blanchard of MIT and Larry Katz of Harvard, who tackle the general question of how rapidly states have recovered from regional economic downturns during the last 40 years in a recent issue of the Brookings Papers on Economic Activity.

They find that state economic downturns generally level out after about three years, and then a rebound begins. Job growth is then somewhat faster than the historical average for the next four years, which allows recovery for about half the jobs that were lost. After that rebound occurs, Blanchard and Katz find that states tend to return to their historical job growth rates, whether those rates were previously high or low.

These researchers also find that when the number of jobs in a state falls sharply, wages don't seem to decline by much. Instead, migration patterns change and people leave the state. In fact, 1992 will be the first year since forever that in- migration to California from the other 49 states is less than out-migration to other states.

No timetable for recovery
Of course, the pace of recovery will vary throughout California. Southern California is staggering under a combination of cutbacks in defense spending; an unwillingness of fragile banks and savings and loans to lend to business; a drop in real estate prices and construction; riots, earthquakes, floods; you name it.

The unemployment rates for October, released earlier this month, show a California unemployment rate of 10.1 percent (and rising), compared with a national unemployment rate of 7.2 percent (and falling), and a Santa Clara county unemployment rate of just 6.9 percent. But that's no reason for smugness around here.

The economy is an interdependent creature, and even if Northern California can do all right by selling to the rest of the country and the world, it will do considerably better if the enormous nearby markets of Los Angeles and San Diego are healthy and growing.

But cycles turn, seasons change, and economic and job growth will eventually return to California. But even if that growth is at the same pace as the good old days of the 1970s and 1980s -- not a sure thing -- the job losses of the last few years mean that growth will be starting from a permanently lower base. Like a racing car that stops in the pits, the loss of economic progress is permanent, even when the car starts moving again at the same speed.

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