Study: Job-Flight Theory Bombs

(Nevada Economic Development Partnership file)

One of the favored attacks by business interest on progressive economic policies is the claim that they will drive employers away. It is one we have heard frequently during the living wage battle in LA. They like to use anecdotal evidence or simply scary language to try and deny fair working conditions and wages. They have a theory and it was just disproved by the PPIC, again.

The study, being released today by the nonpartisan San Francisco-based institute, says that while some California companies are moving jobs out of state, non-California companies are moving operations here. And, of course, existing companies are adding jobs.

"California's share of national employment dipped in the early to mid-1990s and has risen since then," says the study, co-authored by the institute's Jed Kolko and David Neumark. The numbers "make it difficult to argue that these changes reflect a bad business climate in recent years."

California is doing well because "cost is only one element of the equation," said Kolko, an economist and research fellow, in an interview. "If firms can be more productive here ... firms will choose to be here."

Like the rest of the country, the growth here is not coming in industrial jobs, but in the service industry. However, even in factory jobs we are doing well compared to the rest of the country.

Of course, business interests try and put up a straw man again.

"The economy is vibrant and dynamic, but we could do better if we had a more friendly business environment," said economist Jack Kyser of the Los Angeles County Economic Development Corp. "You have other states ... constantly trolling for jobs in California."

Vince Sollitto, a former Schwarzenegger aide and current spokesman for the California Chamber of Commerce, agreed.

"Clearly we've made progress with our business climate. ... But I have no doubt that there are businesses that have chosen not to expand here in the past and have chosen to expand elsewhere," he said.

Kyser is living in theoretical land, dreaming about this mythic better place for business, where they could run rough shod over everyone in the name of profits. Sollitto pulls out the "but but we know there are companies who haven't come, see look..." card. If you go anywhere in the country, you will find a state or a town that was passed over for an expansion for one reason or another. California is no different, but to suggest that it is due to our progressive economic policies is a fallacy.

Sure, other states have launched marketing plans to try and lure companies to their local, like the picture above, but they are not particularly successful. The migration out of state was actually at its peak during the booming 90s. (link to study (pdf))

In our view, this evidence has two implications. First, it seems difficult to interpret the shift of the locus of employment of California-headquartered firms to out of state as a reflection of a deteriorating California business climate in the state in recent years. Given that this shift was sharpest during the economic boom of the late 1990s, it cannot be attributed to business climate problems unless one is willing to argue that the business climate was worse during that period, which strikes us as implausible.

Frank Russo notes:

By the way, this is not the first time that the PPIC has released as study debunking the "jobs are leaving the state" argument. Last year in June they issued a 36 page report, "Interstate Business Relocation: An Industry-Level Analysis", which was criticized by the Chamber and their fellow travelers. So, you find a curious reference in today's report:

Business groups responding to our earlier research suggested that this was occurring, based in part on anecdotal or limited survey evidence,3 and we wanted to explore more systematic evidence on this hypothesis. [page 2]

Our flourished economy is further proof that you can have progressive political leadership and a strong vibrant state. Now will the business interests leave this false argument to rest once and for all? (Somehow I don't think that is likely.)