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State’s Gains in Jobs, Wages Called Modest

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Contra Costa Times

BERKELEY – Despite a sizzling economic recovery, the job market in California remains a chilly environment for some workers, UC Berkeley researchers said in a report released Sunday.

California’s economy also has become more vulnerable to a correction in the super-heated housing market because a growing share of the statewide employment base consists of construction and real estate jobs, economists at the school warned in a briefing timed for Labor Day weekend.

The bottom line: Californians have seen no more than a modest improvement in employment and wages in the recent recovery, according to the study by the Berkeley-based Center for Labor Research.

This has happened, the researchers say, despite the economy’s ability to chalk up impressive and widespread gains the past two years in California and across the country. The gross domestic product — the most comprehensive measure of the nation’s economy — has expanded at well above its historic average. Consumer spending has surged. Productivity is on the rise. Corporations have seen profits jump.

And California has been increasing employment, especially in the past 12 months. A survey of employer payrolls recorded a gain of 198,000jobs during the 12 months that ended in July. A separate survey of households shows a gain of 376,000 jobs over that same period.

Both sets of numbers suggest robust job gains. But the researchers at the Labor Center question the quality of the jobs and the paychecks that come with them, suggesting that employers are still not in a hurry to hire.

“The labor market is still soft,” said Arindrajit Dube, a UC Berkeley research economist. “Job growth has been in slow motion. There is a gap between where the economy should be and where it is today. That gap is being erased, but only quite slowly.”

The problem, the Berkeley researchers believe, is that the labor market still contains considerable slack.

Dube points to data that show a smaller percentage of the working-age population, defined as those age 18 to 65, is currently employed than was the case at the peak of employment in mid-2001. In California, 71.7 percent of working-age Californians were on the job in mid-2005. That was 2.1 points below the percentage in mid-2001. A similar decline occurred nationwide over the same period.

“We believe there are still a lot of discouraged workers out there,” Dube said. “This is a reminder of how much catching up we have to do.”

A number of workers may believe they cannot find the kind of job that pays them enough, so they hold off taking a position.

“The question they face is are there enough jobs paying a salary in the range of what people expect or want to get,” Dube said. “And if there is enough of a labor supply out there, employers
may not feel that they have to raise wages because the labor market is not tight enough yet in California.”

The result of this is that wages in California have not kept pace with increases in consumer prices, according to Dube’s research. Real wages, adjusted for inflation, fell 0.7 percent in California during the first six months of 2005 compared to the first six months of 2004.

“We are seeing great gains in company profits and revenue, but if you look at wages and the number of jobs being created, it is still an incredibly slow recovery in the state and nation,” said Liz
Doyle, policy director with the California Labor Federation.

Some economists, though, disagree that California workers are struggling to the extent portrayed by the UC Berkeley study.

“You can’t call it a jobless recovery in California,” said Brian Wesbury, chief economist with Claymore Advisors, an investment firm. “Both California and the United States have reached record levels of employment. The year-over-year gains are very strong.”

What’s more, Wesbury maintains that job growth both at the national and the statewide level is far stronger than what is officially reported through the closely watched and widely cited payroll survey.

“The housing boom has led to the creation of many small businesses, you have more self-employed people, you have illegal immigrants who are not reported in the payroll survey,” Wesbury said. “And in California, you have a lot of entrepreneurs who are working but don’t show up on the surveys right away.”

A new state Employment Development Department report predicts that job growth in California will expand at an annual rate of 1.6 percent in 2006. That would be faster than the most recent trend: In July, California added jobs at an annual rate of 1.3 percent.

Other economists, though, believe something remains amiss with California’s job market.

“This has certainly been a sub-par expansion in terms of jobs,” said Michael Bazdarich, an economist with the UCLA Anderson Forecast. “This has been a corporate profits and housing recovery. It hasn’t been much of a jobs recovery.”

The UC Berkeley study also warned of the widening influence of the real estate boom on the California economy.

“We have a troubling reliance on the housing market,” Dube said.

New jobs in construction and real estate accounted for 21 percent of the jobs added in California between mid-2004 and mid-2005, the researchers found. That could have ominous implications should a chill descend on the housing market.

“The continuing importance of real estate and construction in job creation should raise concerns,” Dube wrote in his research report. “Jobs and wages are at risk if there are price corrections
in the housing market.”