In summary

Here are three things policymakers must stop doing so California can create healthy employment growth for economic recovery.

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By David M. Smith, Special to CalMatters

David M. Smith is a professor of economics and associate provost of Online Programs at Pepperdine Graziadio Business School,

The U.S. economy is poised to stage a strong comeback in post pandemic 2021. The Congressional Budget Office predicts Gross Domestic Product growth of 3.7%. Other indicators such as manufacturing, construction and trades are trending upward. The CBO says the U.S. economy may reach a pre-pandemic peak by mid-2021. Thankfully, the U.S. economy looks on track.

California, however, appears to be on a more perilous course.

The Golden State has a large role in the U.S. economy, but their economic outcomes don’t always walk in lock step. On the positive side, the state’s GDP, $3.2 trillion, represents 14.6% of the total U.S. economy – more than any other state. In addition, California’s GDP has shown a pattern of growth for more than a decade.

But GDP is just one measure of the economy. Another important measure is employment. In California, there are troubling signs.

In December 2020, California’s unemployment rate stood at 9% – rounding out the bottom of U.S. states at No. 49 among 51, which includes Washington, D.C. Californians also filed 782,058 initial unemployment insurance claims, a 293% year over year increase.

In the Golden State, in which we have such great size and so many strengths, healthy employment growth must be a priority. Here are three things policymakers must stop doing:

First, stop ignoring the large number of discouraged workers unemployed so long they have stopped looking for work. The U.S. seasonally adjusted unemployment rate that includes discouraged workers (classified U6) in January was 11.1% compared to 6.9% from a year before. The U6 unemployment rate in California is 17.1%. In Los Angeles, the number is an astounding 21.9%. Most U6 workers have been out of the job market so long they do not qualify for unemployment benefits. Simply put, there are too many workers who have been left out and left behind. As the state seeks to clear a massive backlog of unemployment claims and reform the broken Economic Development Department, there is no better time to revamp job placement and training support.

Second, stop discouraging high-wage earners who are leaving the state. According to a population estimate released in December 2020, more than 135,000 people left the state than moved here last year. State officials in places like Tennessee, North Carolina, Florida, South Carolina and Texas are openly targeting high-wage Californians who are seeking tax and regulatory relief, along with greater economic opportunity. California must abandon absurd ideas to increase taxes like Assembly Bill 2088 which would levy a wealth tax in proportion based on the number of days spent in California even for non-residents. Imagine instead a moratorium on state income tax increases which in California are 13.3% for high wage earners, by far the highest in the U.S.

Third, stop burdening California companies with lawsuits and punitive actions. Political and social problems are not solved by taking your state’s most prominent companies to court or legislating and regulating them out of the state. If it is hard to imagine Apple, Facebook or Google leaving California, consider last year Oracle, Hewlett Packard Enterprise and Tesla’s Elon Musk departed the state. What’s to stop dynamic companies like Airbnb and DoorDash from following their brethren to Austin, Nashville or Raleigh? Surely, these conversations are occurring inside the boardrooms of prominent companies. The state of California should work with those companies to resolve issues.

I am worried about the fragile state of the California job market. There are nascent signs that the California economy could rebound once the coronavirus pandemic is under control. But each step forward seems to create an almost irresistible urge among lawmakers to ratchet up regulation and taxes.

The hidden costs of driving out large California employers to lower cost states, is the departure of educated, higher-wage earners. This does not bode well for the future of the great state of California.

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