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Get Used to Unemployment

The U.S. has lost more than 8 million jobs since the Great Recession began in late 2007. San Diego County has lost more than 80,000. They aren’t coming back soon, say local economists. A high unemployment rate may be the new reality in the U.S. and San Diego.

During the doldrums, San Diego has done better than California but worse than the nation. The local unemployment rate soared from 4 percent in 2006 to a high of 11.1 percent in January of this year — the highest rate in 50 years. In June, San Diego’s rate of 10.5 percent compared with the nation’s 9.6 percent and California’s 12.2. But San Diego’s increase from 10.1 percent in May was larger than the May–June increase for both the state and nation.

On the surface, San Diego’s employment should evince some stability, points out Kelly Cunningham, chief economist for the National University System Institute for Policy Research. The ten largest employers are either the government or nonprofit health-care facilities whose employment tends to be more stable over time. Last year, according to the Daily Transcript’s San Diego Source, the top ten employers were the federal government, state government, University of California San Diego, County of San Diego, U.S. Navy (both uniformed and civilian personnel), City of San Diego, San Diego Unified School District, Sharp HealthCare, Scripps Health, and Scripps Mercy Hospital (combined with Scripps Mercy Chula Vista).

In 11th place was Qualcomm, followed by Kaiser Foundation Hospital, San Diego State University, and the U.S. Postal Service. That’s one private-sector firm out of the 14 biggest employers.

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While governments and nonprofits may lend some stability, their jobs won’t rise significantly unless the population grows, and that’s a problem. Cunningham predicts that San Diego population, which in halcyon years would go up around 3 percent annually, will rise 1 percent this year and 0.9 percent next year.

In 2010, the population will go up 31,500. About 14,000 will come from international immigration and 26,500 from natural increase (births minus deaths). But 9000 will depart San Diego for other communities. “People are actually moving away from San Diego. The main reason is lack of jobs and the prohibitive cost of living,” says Cunningham.

That can be demonstrated statistically. According to the Council for Community and Economic Research, San Diego’s cost of living is 32.3 percent above the national average. Among 22 major metro areas, the only places with a higher cost of living are San Francisco (62.1 percent above the national average), Los Angeles (36.2), Washington D.C. (37.9), and Manhattan (118.0). San Diego compares poorly with other high-tech areas such as Austin, Charlotte, Orlando, and Raleigh, whose living costs are all below the national average. San Jose (Silicon Valley), at 55 percent above the national norm, is the most expensive of the tech centers.

San Diego’s average household income is barely above the nation’s: $69,000 in 2008 versus the U.S.’s $63,000. So San Diegans get the squeezeroo — moderate incomes and a high cost of living.

The San Diego Association of Governments has done a study showing that over the past 35 years, San Diegans’ inflation-adjusted personal income has grown at 1 percent a year. That’s half the national rate of 2 percent over the same period. There have been two reasons for this income lag: “the type of jobs and the relatively high rate of inflation, driven by home prices,” says Marney Cox, chief economist of the association.

Back in the 1970s, the high proportion of government jobs pushed the income average lower, but in the past 10 to 15 years, government salaries have gone steadily upward while private-sector pay has done poorly, says Cox. Now, the low-paying jobs holding down San Diego are in such private-sector areas as tourism, he says.

Over the 35 years, “There have been eight jobs generated in the bottom third [of income] for every one in the top third,” says Cox.

Is it any wonder people are leaving San Diego and its high cost of living and high taxes?

One of the most important reasons for current job weakness is the real estate bust, says Cunningham. In 2008, an amazing 20.1 percent of the San Diego area’s economic output was in real estate sales and administration. That made San Diego the nation’s third most real estate–intensive metro area, behind Orlando and Miami. Construction jobs would add another 4 percentage points, so before the collapse, real estate amounted to almost one-fourth of the San Diego economy. Real estate prices have plunged 35 percent since peaking in late 2005 and at one point were down more than 40 percent; they have been coming up in recent months but could begin dropping again as government housing stimulus programs are phased out. It will be many years before commercial and residential real estate get back to their old heights.

The military, which has always been a big part of the economy, “will probably slacken a bit with the drawdown of military spending,” says Cunningham. Research jobs in tech, biotech, and telecom are holding up well, but some of those jobs are going to countries such as India and China. “I always thought the smart people wanted to live here, but now biotechs are finding they can do that kind of research for much lower expenses” in foreign countries, he says.

So will high unemployment become part of the fabric — woven in for a long time? “In the downturn, companies cut back on costs, streamlined their workforces, and will continue doing this for a while,” says Alan Gin of the University of San Diego. “The unemployment rate will be above 8 percent for the next couple of years.” He thinks the county will add only 3000 to 5000 jobs this year but might tack on 10,000 next year. (However, that is a small part of 1.23 million total civilian jobs.)

Cox sees an addition of 6000 to 12,000 jobs this year and a small improvement next year, crawling up a bit each year. “The unemployment rate will be relatively high for five years, to around 2015,” says Cox. “We will still be above 6 percent in five years, dropping only by about a half a percent per year.”

Murtaza Baxamusa of the Center on Policy Initiatives says that San Diego’s shortage of middle-class jobs “is a very pertinent problem.” He feels that unemployment in San Diego “will hover around 10 percent for a while.” But he doesn’t think high unemployment will become the new reality: “There is more awareness of the macroeconomic impact [of high unemployment] on Main Street. This will not be accepted for too long.”

Nationally, “Unemployment will be above 8 percent for several years,” says economist James Hamilton of the University of California San Diego. Like Baxamusa, he believes a weaker dollar could help employment. On August 6, the U.S. Labor Department revealed that July job numbers were weak, and the unemployment rate remained at 9.5 percent. Some economists think the Federal Reserve will try to push long-term interest rates even lower, and the government might try even more fiscal stimulus. Hamilton, however, doesn’t think that such initiatives will dramatically improve the job picture. And they will worsen the nation’s financial stability: “We don’t have unlimited ability to borrow,” he warns.

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The U.S. has lost more than 8 million jobs since the Great Recession began in late 2007. San Diego County has lost more than 80,000. They aren’t coming back soon, say local economists. A high unemployment rate may be the new reality in the U.S. and San Diego.

During the doldrums, San Diego has done better than California but worse than the nation. The local unemployment rate soared from 4 percent in 2006 to a high of 11.1 percent in January of this year — the highest rate in 50 years. In June, San Diego’s rate of 10.5 percent compared with the nation’s 9.6 percent and California’s 12.2. But San Diego’s increase from 10.1 percent in May was larger than the May–June increase for both the state and nation.

On the surface, San Diego’s employment should evince some stability, points out Kelly Cunningham, chief economist for the National University System Institute for Policy Research. The ten largest employers are either the government or nonprofit health-care facilities whose employment tends to be more stable over time. Last year, according to the Daily Transcript’s San Diego Source, the top ten employers were the federal government, state government, University of California San Diego, County of San Diego, U.S. Navy (both uniformed and civilian personnel), City of San Diego, San Diego Unified School District, Sharp HealthCare, Scripps Health, and Scripps Mercy Hospital (combined with Scripps Mercy Chula Vista).

In 11th place was Qualcomm, followed by Kaiser Foundation Hospital, San Diego State University, and the U.S. Postal Service. That’s one private-sector firm out of the 14 biggest employers.

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While governments and nonprofits may lend some stability, their jobs won’t rise significantly unless the population grows, and that’s a problem. Cunningham predicts that San Diego population, which in halcyon years would go up around 3 percent annually, will rise 1 percent this year and 0.9 percent next year.

In 2010, the population will go up 31,500. About 14,000 will come from international immigration and 26,500 from natural increase (births minus deaths). But 9000 will depart San Diego for other communities. “People are actually moving away from San Diego. The main reason is lack of jobs and the prohibitive cost of living,” says Cunningham.

That can be demonstrated statistically. According to the Council for Community and Economic Research, San Diego’s cost of living is 32.3 percent above the national average. Among 22 major metro areas, the only places with a higher cost of living are San Francisco (62.1 percent above the national average), Los Angeles (36.2), Washington D.C. (37.9), and Manhattan (118.0). San Diego compares poorly with other high-tech areas such as Austin, Charlotte, Orlando, and Raleigh, whose living costs are all below the national average. San Jose (Silicon Valley), at 55 percent above the national norm, is the most expensive of the tech centers.

San Diego’s average household income is barely above the nation’s: $69,000 in 2008 versus the U.S.’s $63,000. So San Diegans get the squeezeroo — moderate incomes and a high cost of living.

The San Diego Association of Governments has done a study showing that over the past 35 years, San Diegans’ inflation-adjusted personal income has grown at 1 percent a year. That’s half the national rate of 2 percent over the same period. There have been two reasons for this income lag: “the type of jobs and the relatively high rate of inflation, driven by home prices,” says Marney Cox, chief economist of the association.

Back in the 1970s, the high proportion of government jobs pushed the income average lower, but in the past 10 to 15 years, government salaries have gone steadily upward while private-sector pay has done poorly, says Cox. Now, the low-paying jobs holding down San Diego are in such private-sector areas as tourism, he says.

Over the 35 years, “There have been eight jobs generated in the bottom third [of income] for every one in the top third,” says Cox.

Is it any wonder people are leaving San Diego and its high cost of living and high taxes?

One of the most important reasons for current job weakness is the real estate bust, says Cunningham. In 2008, an amazing 20.1 percent of the San Diego area’s economic output was in real estate sales and administration. That made San Diego the nation’s third most real estate–intensive metro area, behind Orlando and Miami. Construction jobs would add another 4 percentage points, so before the collapse, real estate amounted to almost one-fourth of the San Diego economy. Real estate prices have plunged 35 percent since peaking in late 2005 and at one point were down more than 40 percent; they have been coming up in recent months but could begin dropping again as government housing stimulus programs are phased out. It will be many years before commercial and residential real estate get back to their old heights.

The military, which has always been a big part of the economy, “will probably slacken a bit with the drawdown of military spending,” says Cunningham. Research jobs in tech, biotech, and telecom are holding up well, but some of those jobs are going to countries such as India and China. “I always thought the smart people wanted to live here, but now biotechs are finding they can do that kind of research for much lower expenses” in foreign countries, he says.

So will high unemployment become part of the fabric — woven in for a long time? “In the downturn, companies cut back on costs, streamlined their workforces, and will continue doing this for a while,” says Alan Gin of the University of San Diego. “The unemployment rate will be above 8 percent for the next couple of years.” He thinks the county will add only 3000 to 5000 jobs this year but might tack on 10,000 next year. (However, that is a small part of 1.23 million total civilian jobs.)

Cox sees an addition of 6000 to 12,000 jobs this year and a small improvement next year, crawling up a bit each year. “The unemployment rate will be relatively high for five years, to around 2015,” says Cox. “We will still be above 6 percent in five years, dropping only by about a half a percent per year.”

Murtaza Baxamusa of the Center on Policy Initiatives says that San Diego’s shortage of middle-class jobs “is a very pertinent problem.” He feels that unemployment in San Diego “will hover around 10 percent for a while.” But he doesn’t think high unemployment will become the new reality: “There is more awareness of the macroeconomic impact [of high unemployment] on Main Street. This will not be accepted for too long.”

Nationally, “Unemployment will be above 8 percent for several years,” says economist James Hamilton of the University of California San Diego. Like Baxamusa, he believes a weaker dollar could help employment. On August 6, the U.S. Labor Department revealed that July job numbers were weak, and the unemployment rate remained at 9.5 percent. Some economists think the Federal Reserve will try to push long-term interest rates even lower, and the government might try even more fiscal stimulus. Hamilton, however, doesn’t think that such initiatives will dramatically improve the job picture. And they will worsen the nation’s financial stability: “We don’t have unlimited ability to borrow,” he warns.

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Aug. 18, 2010
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