Compiled by Howard Fine
It’s a double dose of bad news for California’s economy.
A recent think tank study found that all of the state’s major industries have suffered some net job loss from business relocations. But the effect is most pronounced in industries that pay higher wages.
The findings by the San Francisco-based Public Policy Institute of California, which studied business relocations into and out of the state from 1992 to 2003, counters the notion that lower-wage jobs are most at risk of leaving.
Most losses were found to have occurred in finance and insurance, manufacturing and business and professional services.
Orange County has seen its share of losses.
Last year, credit card issuer MBNA Corp. closed its regional administrative offices and call center in Aliso Viejo, shifting the work elsewhere.
In 2004, State Farm Insurance Cos. closed a regional office and automobile claim center in Costa Mesa. The site employed as many as 500 workers at its peak. The insurer moved some jobs to Irvine, though most went to regional operation centers in Bakersfield and Northern California.
Other businesses, from chipmakers to engineering companies, have outsourced work to India, the Philippines and elsewhere. Most of those moves haven’t resulted in local job losses but reflect a willingness to expand elsewhere instead of here.
Losses Small
Statewide, the high-paying job losses have been small, the study’s authors said. The net loss from business relocations was just 9,000 jobs out of 15 million payroll jobs statewide, according to the study.
But the findings add weight to the argument that California’s business climate is inhospitable, even to better paying jobs.
“We found that every major industry in the state experienced a small amount of net job migration out of state, but these particular high-paying industries saw more movement,” said Jed Kolko, a research fellow at the Institute and a study co-author.
The study, undertaken specifically to address the issue of the state’s business climate, isn’t the first to conclude that California’s white collar jobs may be at risk.
The Business Roundtable, which comprises top executives from the state’s major corporations, released its own study three years ago that concluded that “high-value mobile jobs are in jeopardy” because of business relocations.
That study singled out many of the same industries,insurance, software and manufacturing.
The Business Roundtable painted an even starker picture of the state’s economy, citing repeated surveys of corporate executives indicating that at least 40% were considering moving some or all of their operations out of state.
A more common problem: companies deciding to expand outside the state, instead of growing operations here.
“Most of the state’s jobs are tied to local markets and really can’t move. But this study shows that those that can move tend to be the high-paying industries,” said Bill Hauck, president of the Business Roundtable. “They are the ones that bring the most value to our economy.”
The impact of business relocations are at the heart of one of the longest-running debates in state politics. Business interests and their Republican allies in Sacramento for decades have claimed that state-imposed regulations have created the most hostile business climate of any state in the nation, forcing repeated exoduses of companies.
Environmental groups, consumer advocates, labor unions and their Democratic allies have been just as fierce in their arguments that the rhetoric surrounding business flight is overblown. They claim business groups merely are exploiting fears of job flight when their real aim is to gut environmental and consumer regulations and to limit union power.
The Public Policy Institute launched its series of studies to determine the scope and the impact of business relocations out of state. The institute examined a relatively new database known as the National Employment Time Series, established in the 1990s and the first to track the location and movement of company facilities.
An initial study, released in 2005, concluded that “California generally loses establishments and jobs due to business relocation, but the flow is small and hence the impact on employment is negligible.”
The study also concluded that other factors, including business startups and closings, play a much larger role in job gain and job loss.
Business Climate War
Labor unions and Democratic lawmakers immediately seized on this study to buttress their claims that the Schwarzenegger administration and business groups had blown the relocation issue out of proportion in their opposition to bills increasing worker benefits and protections.
Business groups shot back that the study ignored the issue of whether a hostile business climate was dissuading companies from expanding here. Kolko said the Institute plans to tackle the expansion issue in a third study.
“With (the first) study and the one we just released, at least we moved the debate from what we found to be the negligible issue of outright business relocation to this larger issue of where companies choose to expand,” Kolko said.
The study didn’t look at why these industries were most susceptible to relocation. But Kolko said he believes companies that make extensive use of technology that can be operated from anywhere, as well finance and insurance sector companies may be at most risk.
“Take the finance and insurance sector, which had the highest level of out-migration relative to its overall employment base. We have seen a tremendous amount of consolidation of backroom operations as a result of mergers and acquisitions,” Kolko said.
Still, Kolko said that in all industries, the numbers were so small that they were not worth basing major policy decisions on. Business groups dispute this notion.
For the past several years, the Chapman Center for Economic Research at Chapman University has surveyed OC executives and found that roughly one-third of the respondents have been contacted by other states about relocating. About the same percentage were seriously considering relocating their firms, either to cheaper locales in California (such as the Inland Empire) or out of state.
Fine is a staff writer with the Los Angeles Business Journal.
