Why a Typical Economic Recovery Is Bad News for California Workers

July 22, 2013

According to last Friday’s employment report, California added 30,200 new jobs in June, and the unemployment rate declined to 8.5 percent. These latest jobs numbers further confirm that California’s job market is improving faster than analysts had predicted. Economic projections as recent as this past May estimated that on average the unemployment rate would remain above 9% throughout this year. So in terms of the basic trend, this is good news. But if we look more broadly at the numbers, the picture is less rosy: California’s current recovery is very similar to the jobs recoveries that followed the 1990 and 2001 recessions. Since the Great Recession was a one-of-a-kind event — and the deepest economic downturn in generations — any indication of a “typical” recovery is bad news for California’s workers.

Since California’s jobs recovery began in February 2010, 803,000 new jobs have been created. During an equivalent period of 40 months following the 1990 recession, 755,000 jobs had been added. After the 2001 recession, the state had added 750,000 jobs by this point in its jobs recovery.  As the chart shows, recent employment growth closely tracks these two prior post-recession periods of job growth.

But this chart also shows just how severe the Great Recession was for California, especially compared to the 1990 and 2001 recessions. Even with the labor market outperforming expectations, California will not reach pre-recession employment levels anytime soon. As of June, there were still 529,000 fewer jobs than there were on the eve of the recession. Assuming that the average monthly job growth over the past year continues, California will not reach its pre-recession jobs level until July 2015 — two years from now. Moreover, this measure actually underestimates the length of time it will take to return to the pre-recession jobs peak, because it does not include the additional jobs needed to account for the natural growth of the working-age population.

So, despite this past Friday’s somewhat upbeat report, the 1.6 million Californians who are still unemployed will face a continually weak job market for some time to come.  They will need renewed support from state and federal lawmakers as the state continues to pull itself out of the massive jobs hole left by Great Recession.

— Luke Reidenbach

State Revenues Continue to Bear the Mark of the Great Recession

July 18, 2013

The budget signed by Governor Brown last month assumes that state revenues will total $137.0 billion in 2013-14. This consists of $97.1 billion in General Fund revenues — the primary source of funding for state services — and $39.9 billion in special fund revenues — proceeds of taxes, licenses, and fees that are designated by law for specific purposes.

These estimates are remarkable for a couple of reasons. First, revenues as a percentage of the California economy in 2013-14 are projected to be roughly equal to the 40-year average, which is 7.5 percent. In other words, as a share of the state’s $1.8 trillion economy — as measured by state personal income — revenues in 2013-14 are expected to come in right around the historical trend line going back to 1974-75. This is notable because California voters approved two tax measures last November — Propositions 30 and 39 that are projected to boost state revenues by about $7 billion in 2013-14. The fact that revenues are expected to be near the historical average in 2013-14 even with the new revenues approved by voters — rather than significantly above that average — highlights the deep hole that the Great Recession and years of tax cuts created in the state’s tax system, which Propositions 30 and 39 helped to fill.

The 2013-14 revenue estimates are also remarkable for a second reason: Total projected revenues — $137.0 billion — are more than $20 billion below the level they likely would have reached if the Great Recession had not occurred, as we explained in a blog post earlier this year. In other words, if California’s economy hadn’t hit a steep downward slide in 2008 and instead had increased to $2.2 trillion by 2013 (as state analysts expected back in 2007), total state revenues likely would exceed $160 billion in 2013-14, based on revenues comprising 7.5 percent of the state’s economy. Instead, California’s smaller-than-expected $1.8 trillion economy is projected to generate less than $140 billion to support state services during the current fiscal year. This $20 billion-plus revenue gap represents dollars that are not available to support state investments in education, child care for working families, transportation, and other public systems and services that promote economic growth and broadly shared prosperity.

Of course, it’s possible that revenues will surpass the level assumed in the 2013-14 budget. For one thing, lawmakers adopted the Governor’s relatively conservative General Fund revenue projection for 2013-14, which was $2.7 billion below the Legislative Analyst’s forecast. For another thing, the state finished 2012-13 — which ended on June 30 — with General Fund revenues running just over $2 billion (2.1 percent) ahead of the Governor’s May Revision forecast. Yet, even if total state revenues in 2013-14 come in a few billion dollars higher than anticipated, that larger amount would still be close to the historical average as a share of California’s economy (7.5 percent) and would remain far below the level that revenues likely would have reached but for the Great Recession.

— Scott Graves

Save the Date: Our 2013 Annual Conference Is March 14

December 11, 2012

As we move into 2013, California is poised to emerge from many years of serious budget shortfalls, while the state’s economy is beginning to recover from the Great Recession. What key questions, opportunities, and challenges does this moment present for those working toward public policies that improve the lives of low- and middle-income Californians?

Come be a part of the discussion, and find out what to expect in the next year and beyond, at the CBP’s annual conference, Turning the Corner: Restoring Balance and Reinvesting in California’s Future. The event will be held at the Sacramento Convention Center on Thursday, March 14, 2013, from 8:30 a.m. to 4:30 p.m.

We hope you’ll plan to join hundreds of the state’s leading advocates, policy experts, and community leaders at this event. Registration information will sent out via email in the coming weeks and also will be shared on this blog.

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Updated: Registration for our annual conference is now open. Sign up by February 19 to receive the early bird rate. 

– Steven Bliss

Census Data Show That Gains During the Recovery Have Failed To Reach Middle-Income Families

September 18, 2012

One of the most eye-opening findings from the Census data released last week was the stunning deterioration in middle-income Californians’ purchasing power during the Great Recession and its aftermath. Between 2006 and 2011, the state’s median household income – the income exactly at the middle of the distribution – fell by approximately $8,300 after adjusting for inflation, a 13.5 percent decline. California’s typical household income now stands at its lowest level since 1994, which means that virtually the entire increase in median household income that occurred during the economic boom of the 1990s has been erased.

The impact on families of losing $8,300 during the past five years is substantial: That amount of income could have been used to buy enough groceries to feed a family of four for nearly a year. Viewed another way, the income that California’s typical household lost due to the recession would cover nearly half a year’s rent for a two-bedroom apartment in Los Angeles County or approximately eight months’ rent for a two-bedroom apartment in the Sacramento region.

The latest Census data raise an important question: Why didn’t middle-income Californians start to recover from the downturn last year, given that it was the second full year that the national economy expanded since the end of the recession?

As Jared Bernstein discusses, the answer is that the economic expansion has produced gains only for those at the very top of the income distribution. The new Census data show that at the national level the share of income going to the top 5 percent of households – those with annual incomes over $185,000 – rose between 2010 and 2011, while the share going to households in the bottom four fifths declined. In fact, an analysis by the Center on Budget and Policy Priorities shows that the top fifth of US households’ share of income was the highest on record last year, and records began in 1967. In stark contrast, the share of income going to each of the bottom three fifths was the lowest on record. And most likely these data substantially understate gains at the top because they don’t include income from capital gains – a key source of earnings for the wealthy. Data compiled by UC Berkeley economics professor and inequality expert Emmanuel Saez show that when income from capital gains is counted, a full 93 percent of the increase in total US family income between 2009 and 2010 – the first full year of recovery and the most recent period for which data are available – went to the top 1 percent, largely reflecting the rebound of the stock market that year.

Economic growth reaches low- and middle-income families primarily through the job market, not the stock market. That means gains in employment and wages are the key to a more broadly shared economic recovery. In California, as in many other states, the job market has been slow to bounce back from the downturn, partly because budget cuts resulted in fewer jobs for teachers, school counselors, and librarians as well as other public sector workers. Stemming this job loss by avoiding deeper cuts would help speed up California’s job market recovery, enabling the benefits of economic growth to reach more families. Leading economists argue that policymakers should avoid a cuts-only approach to closing state budget gaps for this very reason: budget cuts cost jobs. Instead, they argue that “it is economically preferable to raise taxes on those with high incomes” when the economy is weak. Targeting tax increases to high-income earners, who are more likely to save than to spend their incomes, has far less of an impact on local communities.

Our recently released analysis shows that Proposition 30 is part of a balanced approach to closing California’s budget gap – the kind of approach that is favored by many economists. It would raise new revenues primarily from the wealthiest 1 percent of Californians in order to prevent deeper cuts to public schools, colleges, and universities – institutions that enable low- and middle-income children to move up the income ladder as adults. In other words, the measure asks those who benefited the most from recent economic growth to contribute the most to laying the groundwork for the state’s future prosperity.

— Alissa Anderson

Public Sector Job Losses Continue To Hinder Recovery

September 4, 2012

Earlier today, we released our Labor Day report for 2012, the CBP’s annual look at the California job market and how the state’s workers and their families are faring. Overall, the latest available data are troubling. More than three years since the Great Recession ended, California still confronts a huge jobs shortfall, having gained back less than two-fifths of the nearly 1.4 million jobs it lost during the downturn. What’s more, the purchasing power of the typical California worker’s hourly wage has hit its lowest level in almost 15 years, and long-term joblessness is down only modestly from a record high. Read the full report here.

One of the key take-aways from this Labor Day report is that deep cuts in state and local government budgets continue to weigh on the state’s economy. Although recent private sector job gains in California have been much stronger – in percentage terms – than those in the nation as a whole, public sector job losses continue to offset a portion of these gains.

As the chart above shows, California lost more than 31,000 state and local government jobs between June 2011 and June 2012. This accounts for one job lost for every 10 private sector jobs gained during this period. More than three-quarters of these lost jobs were in K-12 public schools and community colleges.

Several years of deep budget cuts to core public systems, including K-12 education and higher education, are hampering the state’s ability to rebound quickly from the Great Recession as well as threatening to limit our ability to prepare the state’s workforce to compete in the global economy. New revenues to help prevent deeper cuts and allow us to begin reinvesting in education and other public systems that contribute to a strong economy are more important than ever.

– Steven Bliss