Dispelling the Migration of California Business
GREENER PASTURES?
Little research has been done about the trends from interstate business relocation,
and its effects, specifically on employment change in California. But a recent
report by the Public Policy Institute of California has found that contrary to
popular claims, job losses from interstate business relocations are negligible.
Little research has been done about the trends from interstate business relocation,
and its effects, specifically on employment change in California. But a recent
report by the Public Policy Institute of California has found that contrary to
popular claims, job losses from interstate business relocations are negligible.
Although California lost more jobs from relocation out of the state than it gained from
relocation of businesses into the state, the average annual job loss over the period
1992–2004 equaled only 0.06 percent of employment, or about 11,000 jobs out of
nearly 18 million jobs in today’s economy.
relocation of businesses into the state, the average annual job loss over the period
1992–2004 equaled only 0.06 percent of employment, or about 11,000 jobs out of
nearly 18 million jobs in today’s economy.
Out-migration accounts for 1.6 percent of overall job destruction, and in-migration
accounts for 1.0 percent of overall job creation. The vast majority of job
creation is due to the expansion of existing establishments and the births of
new ones.
These findings establish that migration is too small in magnitude to account for
noticeable changes in California’s overall economic performance. The key implication
from the study is that public policy responses should be focused on sources of job
creation and loss than those associated with business relocation.
Frank Russo, founder and publisher of the California Progressive Report does an
excellent job in his recent editorial (below) framing the issues. It is followed
by responses to the article and the need to further examine the frustration of the
state's economic development corps in trying to dispell the impressions of out
of state businesses (real or perceived) about California's regulatory and tax climate.
You be the judge. For further information go to www.PPIC.org to view further
information on the report.
Claim of California Jobs Moving Out of State Shown by Study to be a Myth
"Hostile Business Climate" and "Job Killer" Frames Don't Match Reality of Economic Data
By Frank D. Russo
information on the report.
Claim of California Jobs Moving Out of State Shown by Study to be a Myth
"Hostile Business Climate" and "Job Killer" Frames Don't Match Reality of Economic Data
By Frank D. Russo
The Public Policy Institute of California (PPIC) has released a blockbuster 165
page report that carefully goes through all the economic numbers and debunks
the idea that businesses have been leaving the state because of a hostile business
climate. This is an in depth report based on a comprehensive database of virtually
every business that employed California workers at any point from 1992 to 2004.
After reading this report, and prior studies by the PPIC, Arnold Schwarzenegger
should be embarrassed to have used one of the major frames he wielded in the
2003 recall election to win the Governorship and his friends at the California
Chamber of Commerce should be embarrassed to trot out their "job killer" list of
bills to improve the life of Californians with their wild and unsupported statements
made for years. But they will not, and so this report is one that should be read
carefully and remembered the next time "there they go again."
The study looks at the years of 1992 through 2004 and shows that California has
not had a mass exodus of businesses. Most of the business relocations have
occurred within California, usually to an adjacent county where land prices are
cheaper. There is the usual ebb and flow of businesses in and out of California
but are replaced by new businesses that move into California or start here.
In the words of the study: "[T]he small number of California jobs moving to other
states due to business relocation is relatively inconsequential—about 11,000 jobs
per year out of more than 18 million (.06 percent). Business births, deaths,
contractions, and expansions have a much greater effect on employment."
The PPIC released a study in 2005 showing that businesses were not relocating
due to a poor business climate. Just take a look at what the San Diego Union-
Tribune had to say then in "Study: Not many jobs leaving state," and the response
of the Governor's office in that article: "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.
due to a poor business climate. Just take a look at what the San Diego Union-
Tribune had to say then in "Study: Not many jobs leaving state," and the response
of the Governor's office in that article: "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." 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."
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."
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."
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."
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.
Comments
Jim Eichman
November 6, 2007 at 12:22 PM
Are you smoking something you should'nt??? As a buisness owner here in Califonria
I can tell you that the buisness climate is horrible. I own a service and repair
company. Plumbing, Heating, Cooling & Electrical that employs just over 70 people
in Southern California. Here are some problems that you might not be aware of. I
must buy a buiness licence in every city I work in. They vary from about $50 to
$300 per year. I have fifty of them. Many cities now require a sticker on each
service vehicle that passes through their community, tack on some dollars. The
price of building permits, let's say for installing a heating and cooling system
vary from a low of about $100 to a high over over $500. Sewer hoo up fees can be
more than $20,000 per houshold-call it a school tax. After 4 years of higher than
I should be paying water bills at my company I finally got a refund of $3000, but
had to split it with a firm that was versed in the bureacracy to obtain the refund.
I have to pay a lead use fee to the state because we work with lead? No, we don't
work with lead and neither does any other plumber I know, it has been banned for
more than a decade. Water heaters go up about $150 each (wholesale) this month
because the South Coast Air Quality Managment District has decided that a sticker
is required for these ultra Low Nox water heaters. Think my cusomters will be
happy with that? If I fire a worker for stealing, destroying property on purpose,
driving 95 miles an hour down the freeway they still qualify for unemployment. I
have to detail in my Employee Handbook that employyes may drink alchol, smoke pot,
snort coke and smoke crack and operate machinery, other wise it is okay. The
Contractor's State License Board is prohibited from dictating what price a
contractor can charge in the lawful activities of their craft, yet 3 times in the
last year the board has attempted to mediate a price reduction by threatening actions
and fines for ill-percieved irregularities in contract law. Take a consumer to court
and the small claims and superior court judges throw the written contract out of the
court in seconds and then make a judgement call on what the price of the job should
be. I had one idiot thing tell me it was a value thing and then went on to lecture
me on a ring he bought foir his wife 20 years ago. I have seen many of my competition
go out of buisness in the last 5 years. The state is anything but buisness friendly
and because of this the prices paid for goods and services go up...not down.
You need to try and own a buisness and employee a few people to find out just how
bad the state really is.
bad the state really is.
Frank D. Russo
November 6, 2007 at 12:47 PM
Jim: I don't even smoke cigarettes.
And for at least 20 years I had a business here--one that I'm sure you wouldn't
like unless someone near and dear to you was injured on the job. I founded, owned,
and managed a law firm with many employees and a large overhead.
like unless someone near and dear to you was injured on the job. I founded, owned,
and managed a law firm with many employees and a large overhead.
The study--if you read it--is about whether businesses leave the state due to our
laws--and the evidence shows they do not.
laws--and the evidence shows they do not.
If there are laws and regulations that need to be changed, that don't make sense,
and aren't helping people, then sure, they should be changed.
But this canard gets trotted out all the time--when the minimum wage is raised,
when there are occupational safety laws, and other proposals that help many in
this state.
when there are occupational safety laws, and other proposals that help many in
this state.
Sorry you've had so many problems with the law and the courts. I've learned as a
lawyer that there are two sides to many cases. Given the number of problems you've
had, I wonder what some of those other sides are.
Tim Johnson
November 11, 2007 at 12:00 AM
I agree with the premise of Mr. Russo's article on the findings of the study. The
study brings to the forefront valued information about the state's laws and dispels
issues associated with the nexus between state regulations and laws pertaining to
businesses leaving due to a strict regulatory environment.
I too agree there is always another side to stories to business complaints. However,
while understanding this study examined in/out business migration based upon our
state's regulatory environment, I think there are yet two other valuable studies
that should be undertaken.
First, an examination on our state's failure to attract business and industry based
upon the perception by business inquirers to our regulatory environment and high
costs of doing business. It would be of great value. Our state's local economic
development corps works deligently to persuade, cajole and even beg business
inquirers that they have the wrong perceptions of California. Members of the corps
suffer great frustrations in their noble efforts. I think such a study would be very
insightful to Californians in appreciating the difficulties in growing our economy
but more importantly understanding how many inquiring businesses we loose to other
states because of these perceptions. For example, while we are more expensive than
South Dakota to do business, we have to put things into perspective: California is
the 8th largest economy in the world; it makes up 13 percent of the nation's GDP;
California is not the most expensive state to do business, that goes to Hawaii;
California is not the highest taxed state in the nation, that goes to Rhode Island.
But even with all of our assets, it takes a lot of energy to convince outsiders to
move here.
Secondly, there should be an examination measuring the levels of customer service
by our regulatory agencies to business and industry. This has and I believe remains
a thorn in California's side. I am not convinced that we collectively offer the
'best' customer service no matter how you measure it. And I believe the lack or
poor service thereof manifests itself into the telling of unfortunate horror stories
from well meaning business people such as Jim Eichman.
While PPIC provided some valuable insight, it measured but one element to a much
larger issue. Let's keep going!
I agree with the findings of the report, and Mr. Russo's editorial. Both are in line with what I found to be the case during the recession of the 90's. During that time I had the opportunity to interface with dozens of businesses throughout California. While economic development professionals were lamenting the "alarming outflow of businesses," I was saying, "California is a huge business creating machine. And, because the state is always growing businesses, it is only natural that some would find it in their best interest to move out of state. So, stop worrying about businesses leaving the state. Focus on improving the environment for businesses to start up, and to expand. Forget about trying to correct the misconceptions of out of state business inquirers. You are wasting your energy on them. Focus on growing your own."
Now that we know that business migration is not a major component of our state's economy, will the state's "local economic development corps cease to work diligently to persuade, cajole and even beg business inquirers that they have the wrong perceptions of California?" I doubt it. It is much to sexy to pull stunts, as the governor did, than it is to do the unglamorous work of tending to our own gardens.
Reply to this