Claim of California Jobs Moving Out of State Shown by Study to be a Myth

"The study debunks what has been gospel in economic development circles for years – that California's high costs and unwieldy regulations are driving businesses away. The issue reached a crescendo in the 2003 gubernatorial recall election. At the time, Schwarzenegger called the state's business climate the "worst in the nation" and pledged to make it better. …

"For its part, Schwarzenegger's office makes no apologizes for the language during the recall campaign. A spokesman for the governor said the study failed to take into account 2003, the year when the business climate was the worst. In addition, it didn't measure companies that kept their headquarters in California but decided to expand in another state.

"There is no doubt the business climate was horrible in 2003," said Schwarzenegger spokesman Vince Sollitto. "A job that should have been created here but is created elsewhere is just as bad as a job that was here and leaves." [Emphasis added]

Well, the new study released late last night by the PPIC includes 2003. What are they going to say now? Where are they going to hide? The Emperor has no clothes on this one.

While there has only been one article in California papers that I could find this morning (The Marin Independent Journal, focusing on the local aspects of the study), the Washington Post took note of the PPIC study and had this to say:

"The findings stand in contrast to claims by various industry groups, including the California Chamber of Commerce, that California, the country's most populous state, is gripped by a hostile business climate.

"The claim is a constant one for business interests in the state, and Republican Gov. Arnold Schwarzenegger has routinely echoed it to propose policies backed by business groups, including resisting calls for tax increases to help balance a state budget that routinely suffers shortfalls."

In releasing the report, this is what the PPIC had to say about the in state migration of businesses:

"However, as the new study shows, some regions lost more than others to out-of-state relocation. The San Francisco Bay Area lost the largest share, followed by Los Angeles, while regions such as San Diego and the Inland Empire registered barely any net loss. Even within regions, there were county variations. For example, within the San Francisco Bay Area, the counties of Marin and San Francisco lost many more jobs to other states (4% each between 1992-2004) than other counties in the region. At the same time, some Bay Area counties—Contra Costa and Santa Cruz—actually gained jobs from other parts of the country.

"A look at business relocation within California shows similar variation. For example, the Inland Empire's employment grew five percent due to jobs moving in from other California regions, while employment in the greater Los Angeles area shrank (0.7%). With the exception of Los Angeles and the Bay Area, all of California's regions gained jobs from other parts of the state, with most relocation occurring from expensive coastal areas to less expensive inland regions.

"Of particular note, more relocations also occurred over short distances, with businesses moving to neighboring regions or counties rather than across the state. "These patterns suggest that businesses are moving in search of cheaper real estate, rather than for differently skilled or cheaper labor," says PPIC research fellow Jed Kolko who co-authored the report with PPIC senior fellow and UC Irvine professor David Neumark."

The two authors of the report are economists--with Ph.D's from Harvard. They write in the restrained tones of what has been called the "dismal science." But there are a few colorful passages, among them this one:

"Over the past 15 years, it has been argued that California’s hostile business environment has caused businesses to leave the state, taking valuable jobs with them. Critics of various policies affecting the state’s businesses have pointed to these claims in their arguments for more business-friendly policies and legislation. In the economic downturn that followed the dotcom bust early in this decade, these claims about California’s poor business climate flared again and did so also during the 2003 gubernatorial recall election. After his election, Governor Arnold Schwarzenegger aggressively—if symbolically—tried to lure businesses to California through a campaign that included placing billboards in other states touting California as a place to do business. He also showed up at events with a truck whose signage read “Arnold’s Moving Company” that was available to help out-of-state businesses move to California."

The use of the word "symbolically" in describing Schwarzenegger's actions and rhetoric sums it all up. In the next paragraph, in the polite phraseology of academics and economese, they demolish the myth, saying, "These findings do not resolve the question of whether California’s business climate is hostile or favorable, but they do establish that migration is too small to be a reliable basis for claims about the business climate or overall economic performance."

The report looks at different industries and comes to this conclusion:

"The evidence indicates that job loss from interstate relocation is small across virtually all industries although more prevalent in finance and insurance. Some industries, such as manufacturing and information, are more footloose in the sense that relocation occurs more frequently. However, relocation in these footloose industries is often more common not only out of California but also into California, resulting in a small net effect."

What seems to really be going on here as to business relocations? Reading this report, it seems that much of these decisions center on cheaper real estate and following populations as they move within California. And it appears that businesses are thinking locally and acting globally. The effects of globalization and local factors, not the state, is where the moving parts of this puzzle are in play. Here is what the report says:

"The data reveal some trend toward more dispersion of firms’ activities across states, with California firms employing more workers and opening more establishments out of state. However, this is offset by non-California firms doing the same within the state. Thus, the changes in firm behavior seem more likely to be a subnational reflection of some of the same forces spurring increased globalization—such as reductions in communications costs from improvements in information technology—than a reflection of the lack of attraction of California as a place to do business. This conclusion is reinforced by the timing of the changes in the geographic dispersion of the operations of California-headquartered companies. In particular, the large outward shift was concentrated during the height of the boom of the late 1990s, a period for which it would be simply implausible to argue that California was suffering from a bad business climate."

Old myths die hard. For the sake of better public policy and not being deluded into thinking that progress made for the "little guy" and gals of this state, the words of this report should be remembered. We don't have to forsake the environment and taking care of Californians to remain competitive. Just the opposite is true. We don't have to make that false choice.