California's Missile Gap

There are fundamental problems with the basic numbers for the key period 1990 to 1992 that underlie all analysis—and all the politics—of job loss in California. The estimate has been revised repeatedly. In June 1992, the Bureau of Labor Statistics made its official revision to national job losses. It substantially increased the estimate. This provided the basis for the estimate of California job losses at 800,000. (That figure is basic to all subsequent analyses by the State of California, Commission on State Finance. See for example, their Impact of Defense Cuts on California, Fall 1992; and its 1993 up-date.) Subsequent preliminary revisions followed, for both national and California totals. These encompassed a range of almost 300,000 for California. At the time of this writing (July 93), a new rectification of 575,000 has been estimated by California Department of Finance.

The governmental statistical agencies messed up, real bad (colloquialism appropriate). The somewhat ludicrous, but nonetheless important saga of the repeatedly revised, but incurably inaccurate official estimate of job loss became the object of a special New York Times article (May 7, 1993), which reported:

“The department [of Labor] says it overstated by 540,000 the number of jobs that were created [nationally] in the late 1980's. And then it overstated how many jobs had disappeared in the recession.

“Not until early this year did the Labor Department realize that any of these figures were incorrect, and that data processing companies that deliver payroll information to the Government had miscounted … [in June 1992 the Bureau of Labor statistics officially revised its count of job losses in the 1990–1991 recession and] stated they the job loss had been 1.7 million, not 1.2 million. The bureau had issued what it now says was an incorrect correction… . Somehow a number of the data processors made similar mistakes: Among other things they were counting paychecks rather than people so that a person getting a paycheck and then an overtime check came out in the data as two workers… . [Software was changed at data processors in 1992 and] the new software had corrected, in one swoop, most of the 540,000 overcount.”

California Employment Development Department.

California Department of Finance, 1994.

California GDP for 1991 was $724 billion. For G-7 GNPs for 1991, see World Competitiveness Report (Lausanne: World Economic Forum, 1992), p. 282. Recent currency fluctuations will have likely moved California up in the league standings.

See for example: Michael Storper and Scott A.J. , eds., Pathways to Industrialization and Regional Development (New York, NY: Routledge, 1992); Scott A.J. Paul A.S. , “Industrial Development and Regional Growth in Southern California, 1970–1987,” in Mitchell D.J.B. Wildhorn J. , eds., Can California be Competitive and Caring? Institute of Industrial Relations, Monograph Series, no. 49, UCLA, 1989; Scott A.J. , “The Role of Large Producers in Industrial Districts: A Case Study of High-tech Systems Houses in Southern California,” Regional Studies, 26/3 (1992): 265–275; Goodnough R. , “The Nature and Implications of Recent Population Growth in California,” Geography, 77/335 (April 1992): 123–133; Shallbit Bob , California: Triumph of Entrepreneurial Spirit (Northridge, CA: Windsor Publications, 1989); SRI International, Understanding Changes in the Southern California Economy. Menlo Park, CA, June 1991.

In this theme, see McWilliams Carey , California, the Great Exception (New York, NY: Current Books, 1949); for the latest reprise of this theme see, Didion Joan . “Trouble in Lakewood,” The New Yorker, July 26, 1993.

Munroe Tapan , PG&E Economic Outlook, Pacific Gas and Electric Company, San Francisco, CA, Spring 1993, p. 9.

Metro, City and County Data Book, 1993 County and City Extra (Lanham, MD: Bernan Press), pp. 875 and 952, shows Los Angeles with about three times Detroit's manufacturing employment. See also Bank of America, Economic and Business Outlook. November 1990, p. 4.

The concept of economic base is a mainstay of regional economics. For a review of its development, see Andrews Richard , “The Mechanics of the Urban Economic Base: The Historical Development of the Base Concept,” Land Economics, 29 (August 1953): 161–167; Hoyt Homer , “Homer Hoyt on the Concept of Economic Base,” Land Economics, 30 (August 1954): 182–186.

Data provided by California Association of Realtors, 1993; more anecdotal sources hint at far sharper declines during 1993, especially in the luxury housing segment. See, for example, Didion , op. cit., p. 60.

Wages from BLS C-13; California consumer price index from UCLA Business Forecast.

Half the prime contracts in California went to L.A.-based firms.

Hall P. Markusen A. , “The Pentagon and the Gunbelt” in Kirby A. , ed., The Pentagon and the Cities (Newbury Park, CA: Sage Publications. 1992), p. 66.

Davis Mike , City of Quartz: Excavating the Future in Los Angeles (New York, NY: Verso. 1990).

Slate of California, Commission on State Finance, op. cit. The proportion rises to 80% for prime contracts.

An increase that represents about the 80% of total jobs added in manufacturing industries between 1980 and 1989.

California DDE, Monthly Labor Market Bulletin (April 1993), table 23.

Ibid., p. 68.

U.S. Dept. of Commerce, Economics and Statistics Administration, Foreign Direct Investment in the United States, Benchmark Survey. Final Results, 1993, table d2I: California.

California DDE, op. cit.

The UCLA Business Forecast, annual averages.

Center for Real Estate and Urban Economics, University of California at Berkeley, California Real Estate Opportunities in the 1990s. September 1991.

See for example, “Gold Rush, Los Angeles-Style: Urban Giant Overtakes San Francisco as Financial Center,” Christian Science Monitor, January 30, 1987, p. 3; Business Week. November 11, 1991, p. 173ff.

Scott Allen Paul Alan , “Industrial Development and Regional Growth in Southern California, 1970–1987,” in Mitchell Wildhom , eds., op. cit.

BLS, ES 202.

Wages in apparel are about one-third of aerospace wages, and in furniture about one-half. See California DDE, Monthly Labor Market Bulletin (April 1993).

For non-American readers: California has 54 electoral votes. Presidents are elected by electoral, not popular votes. In a two candidate race, if a candidate gets 49% of the votes in California, he gets zero electoral votes.

See Commission on State Finance, Quarterly General Fund Forecast, January 1993, p. 6; Dertouzos J. Dadia M. , Defense Spending, Aerospace, and the California Economy, RAND Corporation, 1993.

See Hughes J.W. Seneca J.J. , “Bicoastal Economic Recovery and Lag: Post-Recession State Employment Growth Patterns,” Rutgers Regional Report, Issue Paper #10, April 1994.

National Real Estate Index, Market History Report.

PG&E Economic Outlook, Spring 1993, fig. 23.

Ibid., p. 7.

California Association of Realtors, 1993.

The classic formulation of this “product cycle theory,” which is a pillar of regional analysis, was made by Vernon and Hoover in the 1950s for the New York Regional Plan. See Hoover Edgar Vernon Raymond , Anatomy of a Metropolis (Boston, MA: Harvard University Press, 1959).

California Industry Migration Study, October 1992, prepared for Los Angeles Department of Water and Power, PG&E, San Diego Gas and Electric Company, Southern California Edison Company, and Southern California Gas Company.

The Economist, relying on the California Industry Migration Study cited above, reports that 5 to 10% of total California job loss is due to out-migration of jobs, bin that out-migration is responsible for 40% of industrial job loss. The Economist, July 17, 1993, p. 24.

Data on illegal immigrants are notoriously unreliable. Official estimates are subject to mood swings, and revisions. The latest is the U.S. Bureau of the Census revision of its estimate of illegal immigrants residing in California. In July 1993, it was doubled, from one to two million, although California's proportion, about one-half the national total, was kept constant. Official publication is anticipated by the end of 1993. See San Francisco Chronicle, August 7, 1993, p. 1.

Commission on Slate Finance, Impact of Defense Cuts on California, Fall 1992, exhibit 10, p. 21.

Built under the assumption that the sectoral ratios between industrial production in California and the national aggregate have been constant since 1982.

Our estimates of employment effects are taken from background studies and models of impacts of changes in defense procurement on employment undertaken at BRIE with Oscar Loureiro, a Ph.D. student at Berkeley. A complete description of that model along with tests for exogeniety, non-linearity and asymmetry is contained in BRIE working paper #64, From Boom to Bust in the Golden State: The Structural Dimension of California's Prolonged Recession, by Cohen Stephen S. , Clara Eugenia Garcia, and Oscar Loureiro, Berkeley, CA, BRIE, September 1993.

See Bradshaw T Kroll C. Innes J. , Defense Conversion, Base Closure, and the California Economy, IURD. U.C. Berkeley, January 1994, p. ii.

Pasinetti L. , Structural Economic Dynamics: A Theory of the Economic Consequences of Human Learning (Cambridge: Cambridge University Press, 1993).

Baker Dean Lee Thea , “Employment Multipliers in U.S. Economy.” Economic Policy Institute, Washington, D.C., 1993.