Los Angeles

Who Will Be the Next Mayor of Los Angeles?

Joel Kotkin — Tue, 07 Jun 2022 20:28:58 -0400

Central Avenue, the historic heart of South Los Angeles, has seen better days. Once the home to leading black institutions, like the famous Dunbar Hotel, where jazz and other musical greats stayed, it was also an industrial powerhouse that promised decent work for those fleeing the Jim Crow South. But today many, if not most, of its factories are closed; many icons of the old black business community have disappeared, too. The area, site of two of the most devastating riots in American history, is now poorer in relation to the rest of the city than before those upheavals.

Yet amid a malaise that afflicts much of the city, entrepreneurial energy remains evident. Central Avenue’s sidewalks crowd with the brightly colored booths of street vendors, selling a broad range of food, clothes, and other products—more like Mexico City or Mumbai than the South L.A. of the past. Some new apartments are rising to replace the decrepit ones, and the street-level liveliness seems more Washington Heights than car-centric Los Angeles. Despite its troubles, Central Avenue does not exhibit the deathly sense of abandonment of places like the South Side of Chicago or other inner-city communities, where the spirit of enterprise has all but disappeared.

“We still have potential,” insists 63-year-old Rick Caruso, a billionaire running what once seemed a quixotic campaign for mayor. On June 7, Caruso will be a candidate in the city’s open mayoral primary, facing off against, among others, the race’s early frontrunner, long-time congresswoman Karen Bass. (The top two finishers will meet in a run-off general election in November if no candidate wins a majority of the vote.) Without any press, but for me, Caruso spent a recent morning at the Beehive, a new Southside business incubator located amid the detritus of the city’s industrial past. The youthful activity of the startups seemed to energize him. “I want to get on the phone and get investors to come back here—but they won’t if they see instability, the homeless camps, and the crime. That has to change.”

Though he has discarded his designer suit, Caruso cannot help but appear natty with his coiffed hair and monogrammed white shirt. The grandson of Italian immigrants, and son of an entrepreneur who founded Dollar Rent a Car, he started his real estate business here in 1987 and made a fortune worth more than $4 billion by developing shopping complexes, most notably the Grove, adjacent to the iconic Farmer’s Market. A key Caruso theme is restoring the promise that made L.A. the premier urban growth center of the last century, during which the city’s population grew from barely 100,000 in 1900 to nearly 4 million. Now, Los Angeles’s population is in decline and its appeal has faded. The city peaked at a population of 3,983,000 in 2019, and fell 134,000 to 3,849,000 by 2021, with a 41,000 loss in the last year.

The Wall Street Journal has described Caruso as a “liberal,” but that’s a stretch. A longtime Republican now conveniently turned Democrat, Caruso is best seen as a pro-business moderate Republican trying to downplay his membership, for example, in the Ronald Reagan Foundation. Yet unlike most GOP candidates here, he also has lots of money. He has spent over $24 million of his own money to reach out to Angelenos. His campaign boasts of his skills in dealing with L.A.’s fractious communities, whether in his business ventures or as a member of the Water and Power board, president of the Police Commission, or chair of the USC trustees. His money and message are clearly making headway. Despite the now strongly progressive tilt of the L.A. electorate, Caruso has managed to rise from single digits in February to parity, and perhaps even a lead, over Bass.

Read the rest of this piece at City Journal.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Photo: Karen Bass via Flickr in Public Domain and Rick Caruso via Flickr under CC 2.0 License.

California's Economy May Seem Healthy, But Just Wait for the Next Recession

Joel Kotkin and Marshall Toplansky — Wed, 25 May 2022 20:28:58 -0400

The California economy may seem healthy on the surface, with home prices soaring, Silicon Valley booming and the state government posting big multi-year state budget surpluses thanks to a massive surge in capital gains tax revenues and income tax revenues from tech stocks.

But that good news masks a dangerous period ahead.

In fact, California’s heavy dependency on tax payments from the rich and on the continued strength of the tech economy makes the state highly vulnerable in the event of a significant slowdown — or, worse yet, a full-bore global recession. According to Jim Doti of the A. Gary Anderson Center for Economic Forecasting at Chapman University, the probability of a recession starting late this year or next is very high.

Property prices are already beginning to drop in parts of the Los Angeles area. Similarly the IPO market, a major source of capital gains, is retrenching. Financial setbacks for the wealthy are problematic for the state because the top 1% of income-earning Californians pay 46.2% of all personal income taxes.

We’ve been here before. After the last recession ended in 2009, it took the state five years to get revenue from income taxes back up to pre-downturn levels. During those five years the state received about $50 billion less in revenue than if the recession had not occurred, and government was forced to cut programs by about $45 billion to compensate, according to the California Franchise Tax board.

Today, the state is even more reliant on tax revenues from its wealthy elites: Capital gains collections have increased roughly fivefold since 2010. Income taxes, mostly from the very wealthy, which barely constituted one-third of state revenues in 1980, now make up two-thirds.

A new recession, or even simply a slowdown, would place California in a very difficult position, particularly given that it continues to engage in what CalMatters columnist Dan Walters calls “an expansionist binge” of ever greater social spending and housing subsidies. Despite strong annual budgets, California suffers the highest debt of any state — $507 billion. It is projected that the cost of servicing the state’s debt in 2022 and 2023 will be approximately $8 billion annually and could grow even higher as interest rates rise.

Read the rest of this piece at Los Angeles Times.

Marshall Toplansky is a Clinical Assistant Professor of Management Science at the Argyros School of Business and Economics at Chapman University.

California's Vanished Dreams, By the Numbers

Joel Kotkin — Fri, 15 Apr 2022 20:28:38 -0400

Even today amid a mounting exodus among those who can afford it, and with its appeal diminished to businesses and newcomers, California, legendary state of American dreams, continues to inspire optimism among progressive boosters.

Laura Tyson, the longtime Democratic economist now at the University of California at Berkeley, praises the state for creating “the way forward” to a more enlightened “market capitalism.” Like-minded analysts tout Silicon Valley’s massive wealth generation as evidence of progressivism’s promise. The Los Angeles Times suggested approvingly that the Biden administration’s goal is to “make America California again.” And, despite dark prospects in November’s midterm elections, the President and his party still seem intent on proving it.

But most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. Parting with the state’s cheerleaders, the New York Times’ Ezra Klein, a reliable progressive and native Californian, says the Golden State’s failures are “making liberals squirm.”

Reality may well be worse than even Klein admits. In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. Despite the state’s myriad advantages, research shows it plagued by economic immobility and inequality, crushing housing and energy costs, and a failing education system. Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism, with the poor and weak trapped by policies subsidized by taxes paid by the rich and powerful.

California may conjure images of Rodeo Drive and Malibu mansions in the public imagination, but today the state suffers the highest cost-adjusted poverty rate in the U.S. The poor and near-poor constitute over one third – well over 10 million – of the state’s residents according to the Public Policy Institute of California. Los Angeles, by far the state’s largest metropolitan area, and once a magnet for middle class aspirations, has one of the highest poverty rates among major U.S. cities. A United Way of California analysis shows that over 30 percent of residents lack sufficient income to cover basic living costs even after accounting for public-assistance programs; this includes half of Latino and 40 percent of black residents. Some two-thirds of noncitizen Latinos live at or below the poverty line.

“In California, there is this idea of ‘Oh, we care about the poor,’ but on this metric, we are literally the worst,” Stanford’s University’s Mark Duggan, principal author of an economic comparison of California with Texas, told the San Francisco Chronicle.

The state’s poverty and associated dysfunction are on full display in leading cities like Los Angeles and San Francisco, where a large underclass now inhabits the streets – the once-iconic locales having become poster children for urban dysfunction. Beyond massive homeless camps, crime has become so bad that the LAPD has warned tourists it can no longer protect them. San Francisco, meanwhile, suffers the highest property crime rate in the country. Businesses like Walgreens have shut down numerous Bay Area locations due to “rampant burglaries.” Homelessness and crime increasingly dominate the state’s political discourse, particularly in these two deep blue bastions.

California also faces growing inequality. By the Gini index, a measure of the distribution of income across a population, California has the third-highest inequality behind New York and Louisiana, and has experienced the fifth largest expansion of inequality since 2010, according to American Community Survey data. California also suffers the widest gap between middle- and upper-middle-income earners of any state.

Read the rest of this piece at Real Clear Investigations.

Photo: NeoBatfreak Wikimedia under CC 4.0 License.

Americans Do Not Want to Return to Urban Living

Samuel J Abrams — Sun, 03 Apr 2022 20:28:58 -0400

The Census Bureau recently released data on domestic migration that took place during the COVID-19 pandemic, and their findings were heavily covered in the press with headlines such as “Cities Lost Population in 2021” and “The pandemic city exodus revealed: New York, Los Angeles, San Francisco and Chicago lost the most residents.” While deaths from the virus itself was absolutely a factor in the decline, the fact of the matter is that tens of thousands of residents moved away from some of the nation’s biggest, most densely populated, and costly metropolitan areas. Metropolitan Los Angeles, for instance, lost almost 176,000 residents. The San Francisco region saw a loss of more than 116,000 residents. Greater Chicago lost more than 91,000 people from 2020 to 2021, and the San Jose, Boston, Miami, and Washington metro regions each lost tens of thousands of residents, primarily from people moving away as well. So the question is, then, whether or not these cities will reclaim residents as the nation returns to some sense of pre-pandemic normalcy.

While demographers like William Frey believe that population decreases in the biggest metro areas will be temporary and that “we will go back to normal” in metros like New York, Los Angeles, and Chicago as offices re-open, most reporting on these census data have overlooked a key fact about American life in the COVID era: Americans are no longer interested in living in big, dense cities.

Survey data collected by the Survey Center on American Life throughout the COVID-19 pandemic reveal that those big cities — despite the values of propinquity, density, and scale — are simply not where most Americans want to reside. Even younger generations of Americans — those who traditionally flocked to big cities for careers, social lives, and cultural amenities — actually show greater interest in suburban living than dense city living.

Indeed, after being homebound for many months due to the pandemic, more Americans now express a desire for personal space than ever before. The majority of Americans today are willing to sacrifice easy access to amenities to have more space to themselves and distance from their neighbors, and city life is simply not where those desires are realized. Perhaps driven by idealized visions of rural life — small, tight-knit communities that move at a more leisurely pace — many Americans express a preference for small-town life. Roughly four in 10 Americans say they would prefer living in a town (15 percent) or rural area (27 percent). In contrast, only 9 percent say they would prefer to live in a large city. More Americans now state that they would prefer living in a small city (16 percent), while one in three Americans prefer the suburbs (33 percent).

Unsurprisingly, the cities that have recovered fastest from COVID-19 — Denver, Charlotte, Nashville, and Dallas — are themselves overwhelmingly suburban. And these realities fit well with the data from a Los Angeles Times/Reality Check Insights national poll, which was taken after the November 2020 election in the midst of the COVID-19 pandemic. The Los Angeles Times poll found that when residents of big cities were asked about the ideal setting of their next home, a majority of big city dwellers said something other than their current situation. Just 44 percent would pick a big city once again, with significant numbers preferring a small city (9 percent), rural areas and towns (17 percent), or the suburbs (25 percent). Small cities did not fare much better either; only 38 percent of small city dwellers claim that their ideal location is another small city.

Read the rest of this piece at AEI.

Samuel J. Abrams is a professor of politics at Sarah Lawrence College and a nonresident senior fellow at the American Enterprise Institute.

Photo: Wally Gobetz via Flickr under CC 2.0 License.

California's SB9 Housing Bill Starting To Sound Like Prop 13

Jerry Sullivan — Mon, 21 Mar 2022 20:28:58 -0400

That rumbling you hear in the residential real estate market is SB9—either a silver bullet or a boogeyman, depending on where you stand.

Senate Bill 9 is the latest law with the potential to reshape California. The handiwork of State Senator Scott Wiener, the bill overrides local zoning regulations to allow the development of rental properties in single-family neighborhoods. It limits rentals to four units per lot and imposes other restrictions with a stated aim of preventing real estate investors from squeezing profits out of leafy enclaves.

But SB9, in its potential for unintended consequences, is beginning to take on the feel of Prop 13, the law Californians passed by referendum in the late 1970s that struck a fundamental chord among voters, limited property taxes and touched off the Reagan Revolution. Prop 13 spared homeowners any significant property tax hikes, as intended, but also pushed local economic development to adjust by shifting too hard toward the sales taxes to be collected from strip malls, auto dealerships and the like.

Cities throughout the state are trying to slip SB9’s punch altogether, setting new design standards that would render rental units economically infeasible, or forwarding far-fetched claims about wildlife preservation.

Dismiss that as disingenuous NIMBYism if you’re looking for an easy out.

Anyone looking for a better understanding, however, should think again as Wiener and other self-described progressives cast SB9 in moralizing tones.

Housing is so expensive, they say—and California’s economy is so inequitable—that we must allow rental properties everywhere, local preferences or laws be damned.

Reserve some circumspection, also, for the American Enterprise Institute and other self-described conservatives who tend to cast SB9 in the lecturing tones of market orthodoxy. They see it as a breakthrough in individual property rights.

Read the rest of this piece at The Real Deal.

Jerry Sullivan is a senior editor at The Real Deal. You can follow him @SullivanSaysSC

Photo credit: Los Angeles by Kevin under CC 2.0 License.

Does California Know What Time it Is?

Jerry Sullivan — Fri, 25 Feb 2022 20:28:58 -0500

Has the California proposition changed fundamentally? And does it matter for real estate?

The answer to the first question is yes—the state had a net population decline in 2021, the first drop since it began annual counts more than a century ago. That followed another historic reversal, noted in 2018, when the number of Californians leaving the state exceeded new arrivals from around the world for the first time.

Those trendlines matter in ways that the periodic headlines about California being over – a periodic theme in the national media for decades – never did.

And they matter to real estate, especially in Southern California—a place that willed itself out of chaparral country, midwifed the birth of Hollywood, invented the Jet Age, redefined the American Dream and became a West Coast bookend to Ellis Island.

All of that grew out of a real estate hustle that peddled parched land as paradise. The scheme relied on constant population growth, presuming eternal desire for Southern California’s lifestyle and land.

The recent dip in population suggests that presumption has been punctured.

The decline is real – an empirical data point. It also aligns with perceptions in many precincts that Southern California’s promise is being spoiled by public corruption, homeless encampments, and a push for residential density that flies in the face of the backyard-as-rec-room culture that has defined the place.

There are more specific reasons for concern in a recent report from Chapman University titled “Restoring the California Dream,” penned by Joel Kotkin and Marshall Toplansky.

You can check the report yourself here—but for now consider this brief excerpt and the challenge it sums up:

“Nearly 80 percent of all jobs created in the state over the past decade paid less than the median income, a percentage far below our prime competitors. The inconvenient truth is that in key metrics such as housing costs and income growth, most Californians are doing worse than their counterparts elsewhere.”

A clear takeaway is that California can no longer be sure it is a magnet for newcomers from around the nation and world. Texas beckons, and for every person who just has to live near the ocean there are eight or 10 who just want their own house. California can no longer count on Californians either. Florida looks better to a lot of well-heeled folks who have grown tired of getting hit with tax hikes only to see the public sector fail to perform the basic chores of government—shelter for the homeless in Los Angeles, public safety in San Francisco, getting unemployment checks sent out of Sacramento during a pandemic.

The report from Chapman makes a lot of sense but is gaining little traction with public officials. That’s likely because the public sector has gotten a reprieve from a reckoning thanks to a gusher of tax revenue from initial public offerings and capital gains on shares of tech outfits from Silicon Valley to Silicon Beach.

Read the rest of this piece at The Real Deal.

Jerry Sullivan is a senior editor at The Real Deal. You can follow him @SullivanSaysSC

Photo credit: Pixnio clock; photo of Los Angeles by Doc Searle under CC 2.0 License, illustration by R. Howard.

Report: Restoring the California Dream

Joel Kotkin and Marshall Toplansky — Thu, 20 Jan 2022 20:28:58 -0500

This newly released report examines how the California dream can be restored for California's middle- and working-class families. An excerpt follows:

What is happening to the California dream? For some it still comes true, but for many, and perhaps most Californians, the state increasingly fails to provide ample opportunities to start a business, buy a home or move up to the middle class. The state’s performance on these issues is the ultimate test of the ‘California model’ and its validity for the rest of the nation.

We face two seemingly discordant realities. In technology, culture and lifestyle, California remains the envy of the world. The state’s aggregate economy—its GDP—has continued to grow faster than the national average, in large part due to the enormous surge of wealth created in the tech sector, where California is home to 53 of the country’s 500 largest firms and four of the country’s seven most valued firms, all in tech.

California’s 2020 $3.2 trillion GDP would make it the world’s fifth largest national economy if it were a standalone country, just behind Germany. It accounts for 14% of the US GDP, while our 40 million people account for slightly under 12% of the country’s population. The Golden State, by that metric, still punches above its weight. Yet for most Californians, the economic reality is far from rosy. Even as the state creates an ever-higher number of billionaires—24 added just last year—California workers have not shared in the prosperity. Nearly 80% of all jobs created in the state over the past decade paid less than the median income, a percentage far below our prime compet-itors. The inconvenient truth is that in key metrics such as housing costs and income growth, most Californians are doing worse than their counterparts elsewhere.

Overall, California now underperforms its main competitors, notably Arizona, Texas, Washington and Utah in many sectors of the economy—manufacturing, professional business services, construction and energy—that once provided steady, high-wage employment. The loss of major corporations in distribution, engineering, aerospace and technology also has eroded our economic diversity and key sources of long-term, middle-class employment.

Low real wages, combined with the very high price of real estate, have created a profoundly divided California. The primary task before us is to restore California’s opportunity culture, and by doing so, create prosperity for a broad section of California’s middle and working-classes. Our great state needs to restore its historical promise to its citizens.

California's key challenge is not to produce wealth, but rather to spread its blessings more widely. Housing may well be the key issue; more than 70% of Californians surveyed consider the state's housing costs as “a very serious issue,” and more than half are considering a move out.

View and download the full report here.

Joel Kotkin is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University, Executive Director of the Urban Reform Institute, and an internationally-recognized authority on global, economic, political and social trends. His most recent book, The Coming of Neo-Feudalism is now available for order.

Marshall Toplansky is a widely published and award-winning marketing professional and successful entrepreneur. He co-founded KPMG’s data & analytics center of excellence and now teaches and consults corporations on their analytics strategies.

Trouble in Paradise: The Crumbling California Model

Joel Kotkin — Tue, 04 Jan 2022 20:28:58 -0500

Some horrified conservatives dismiss California as the progressive dystopia, bound for bankruptcy and, let’s hope, growing irrelevance. Progressives, for their part, hail the Golden State as the avatar of a better future, the role model for a new, more environmentally friendly and socially just economic order. They often dismiss critiques as conservative misinformation.

Yet California is not doomed, at least in the near term, nor is it anything like a model of social democracy. As long as its tech oligarchs produce enormous profits and generate wealth, California remains fiscally flush for the near term, and the evolving economy, long on digitization and constant entertainment, works to the state’s historic strengths. Key industries such as space and biomedical research also offer promise.

The big problem with the California model is that it does not work for most Californians, who suffer from the highest poverty rate (cost of living adjusted) in the country. Despite being home to three of the nation’s four most expensive housing markets, California has among the lowest cost-adjusted median income of any state, as demographer Wendell Cox notes. Although not particularly hard hit by pandemic fatalities, California continues to recover more slowly than the rest of the states and now suffers the highest unemployment rate in the country — including nine of the 16 metros with the greatest joblessness. Even as the tech oligarchy has reaped record profits and expanded its wealth to unprecedented levels, California ranks as the second-worst place to find a job of all the states. Thank God for Hawaii!

A New Economic Model?

Flush from his recall triumph, Governor Gavin Newsom, along with the legislature, seems determined to double down on his attempt to shape California as the model for the progressive future. He claims that our state is “the envy of the world” and the model of social justice. “Unlike the Washington plutocracy,” he boasts, “California isn’t satisfied serving a powerful few on one side of the velvet rope.”

We can see, in aggregate numbers, some justification for crowing. A writer at Bloomberg claims that the state has “the best economy” in the world, pointing to the bloated stock prices of the major tech firms, soaring home values, and the enormous wealth creation accruing to a relative handful. Other writers insist that California will continue to dominate most of its key industries, owing to its innovation and capital resources.

Yet it’s time now to see what California’s “success” is all about. It reflects a new kind of economy — dominated by a few large companies, with an elite workforce, a large service class, and a population increasingly dependent on wealth redistribution. This emerging oligarchic regime, however progressive it likes to label itself, is more feudal than egalitarian, more hierarchical than competitive, financed largely by the same tech giants who help fund Newsom’s successful defeat of the recall.

For most, the reality on the ground is increasingly challenging. The state is now the second-most unaffordable state for home-buyers, a particular challenge for Millennials, and it suffers the highest rate of “doubling up” — only our friend Hawaii does worse. California has the largest gap between middle and upper wage quartiles in the nation, and it has a level of inequality greater than that of Mexico and closer to that of Central American countries such as Guatemala and Honduras than to such “progressive” developed counties as Canada and Norway. According to the state Legislative Analyst’s Office, 20 percent of state wealth is held within 30 zip codes that account for just 2 percent of the population. Less than 33 percent of state wealth is held within 1,350 zip codes that house 75 percent of Californians.

Read the rest of this piece at National Review.

Photo: On the street in Pomona, California by Russ Allison Loar via Flickr under CC 2.0 License.

Here's Why California is Losing Population for the First Time

Joel Kotkin and Marshall Toplansky — Sun, 02 Jan 2022 20:28:58 -0500

California is suffering a major demographic reversal, one that threatens both the state’s economic future and the durability of its progressive model.

The numbers speak for themselves: The Golden State’s population has started declining for the first time, with new data from the state Department of Finance showing a population loss of 173,000 for the year ended July 1, 2021—a number that includes more than 56,500 pandemic related deaths, mostly of older Californians.

Net domestic migration hit a decade-long low, ballooning from a loss of 34,000 in 2012 to 277,000 in 2021. Over the last 10 years, California lost more than 1.625 million net domestic migrants—more than the population of Philadelphia. Altogether, 2.7 million more people—a population larger than the cities of San Francisco, San Diego and Anaheim combined—have moved to other states from California than the other way around over the last 20 years, and immigration is no longer making up the difference.

Many in the state’s media and political establishment insist that the demographic decline is a “myth” concocted by red-state haters. It’s not. The state that attracted America’s domestic migrants through the 20th century is losing millions of them in the 21st century.

This isn’t the Rust Belt of the 1970s, but the exodus out of the state and especially its metropolitan areas seems to be accelerating. From 2000 to 2020, Census Bureau estimates indicate that metro Los Angeles has lost 2.2 million net domestic migrants, metro San Francisco 400,000, metro San Diego 200,000 and metro San Jose 400,000—even as the rest of the state saw a net gain of 600,000.

Some California boosters comfort themselves by insisting the people leaving are mostly poor or old. But an analysis of IRS data from 2012 to 2019 indicates that 85 percent of those leaving are in their prime earning years of 25 to 64. In 2019, the largest share of net domestic migrants, 27 percent, was in the 35-44 age category, while 21 percent were aged 55-64. At the same time, the state is seeing a decline in the young, restless new arrivals who have traditionally driven California’s innovative and entrepreneurial economy.

In fact, Los Angeles between 2013 and 2017 ranked only behind New York City for the largest net loss of millennials, notes Brookings Many younger people now choose Dallas-Fort Worth, Austin, Houston, and Denver metros, as well as Riverside-San Bernardino, Sacramento and smaller interior metros in California. The days when California could depend on accruing brain power appear to be at an end. During the 2010s, California’s rate of college educated (BA and above) residents 25 and over rated 34th among the states, lagging the increase in the national rate and well behind such key competitors as Florida and Texas.

Critically, this is not an exodus primarily of the poor. Only 14 percent of the increased net domestic migration from 2012 to 2019 has been among those making less than $25,000, according to IRS data, while those making more than $100,000 accounted for 38 percent of the exodus (and the rate of departure was even higher for those making far more).

Read the rest of this piece at Daily Beast.

Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He is a founding senior fellow at the Urban Reform Institute, Houston, a Senior Fellow with the Frontier Centre for Public Policy in Winnipeg and a member of the Advisory Board of the Center for Demographics and Policy at Chapman University in Orange, California. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey and author of Demographia World Urban Areas.

Photo: Pixabay under CC 0.0 License.

California's Keenest Competitors for Tech Jobs are Blue Western States

Joel Kotkin and Marshall Toplansky — Mon, 27 Dec 2021 20:28:58 -0500

For a generation, California has seen more of its residents and companies head elsewhere, but has found a way to respond, at least in terms of wealth creation, by constant innovation. But today, the Golden State’s hold on the elite reaches of the economy is slipping in ways that could threaten the state’s long-term prosperity.

Innovation is California’s best driver of high wages and upward mobility. Bureau of Labor Statistics data show that in the innovation industry — software, computer and semiconductor manufacturing, technology services and nine other sectors — the median wage was $208,000 in California last year. That’s almost three times the $76,000 median wage for all jobs in California.

But now, prime competition for innovation-based jobs comes not only from low-tax, low-cost states like Texas but also from bluish states such as Colorado and Washington. We found that Washington and Utah have actually created more innovation sector jobs per capita than California over the past decade, while Arizona, Colorado and Idaho have had higher per capita growth rates for such jobs.

Many of these states, noted Christopher Lloyd, chair of the Site Selection Guild, which follows investment flows, are duplicating “many of the great things about California.” This includes building elite university systems in places like Washington, Texas, Colorado and Utah. “The development model has turned on its head,” Lloyd suggests. “These states have learned from California. There seems to be a failure there to recognize things have changed and tech people are much more mobile.”

Keeping tech in California is all the more critical with the state suffering the nation’s highest unemployment rate and Los Angeles the highest of any large metro area. We have already experienced a troubling shift in business and professional service jobs such as accountants, lawyers and management consultants, the largest source of higher-wage jobs. Over the last three decades, Texas saw more than double the level of California’s growth in that sector, but Washington, Oregon and Colorado also outperformed California by a wide margin.

Now tech seems also under assault. Some tech linchpins have already moved their headquarters to Texas, including Hewlett Packard Enterprise, Oracle and, perhaps most crucial, Tesla. Many other firms, like Apple, Airbnb, Amgen, Uber and SpaceX, are expanding largely outside of this state.These trends are accelerating, notes a recent Hoover Institution study.

Of course, big companies often move production and jobs to cheaper locales. But growth in the number of innovation businesses is also slowing. Since 2005, the number of these businesses grew far faster on a per capita basis in Arizona, Utah, Colorado, Florida, Georgia and Oregon. This is not only a reflection of high taxes and regulation; many of our keenest competitors, such as Washington, Oregon and Colorado, are hardly governed by conservative, anti-regulatory politicians.

Read the rest of this piece at Los Angeles Times.

Marshall Toplansky is a clinical assistant professor of management science at the Argyros School of Business and Economics at Chapman University.

Photo: Alek Leckszas, via Wikimedia, CC 4.0 License.