The Center for Jobs and the Economy has released our initial analysis of the March Employment Report released by the California Employment Development Department. For additional information and data about the California economy visit centerforjobs.org/ca.

The March numbers reported below are based on surveys done the week containing March 12.  Consequently, they only begin to incorporate the effects coming from domestic actions especially social distancing measures taken to control the spread of COVID-19.  Additional information on the economic effects coming from the current measures will see a more complete accounting in the April numbers scheduled for release on May 22.

The emergency response measures also have had an effect on the data itself.  US Bureau of Labor Statistics (BLS) reports that due to various factors, the response rate to the labor force survey (household data) was down 10% and the jobs survey (establishment data) down 9%.  In the household survey, there was also apparent widespread confusion among respondents in their answers on how the unemployed status applied in their case (primarily workers who were absent from work but not yet formally laid off).  BLS estimates that accounting for this factor would have raised the reported unemployment rate by another 1% to 5.4% nationally, although no related adjustments were made to the data.

As typical, data reported below is primarily taken from the seasonally adjusted data, with our more detailed analysis next week considering the unadjusted data as well. While both series show considerable weakening in both employment and jobs, there are also considerable differences between these due to the current economic disruptions.  The seasonally adjusted data is a statistical smoothing of the reported data to account for seasonal factors that affect various industries and states differently, and is particularly useful for longer trend analysis.  The unadjusted data, however, is more a snapshot of the actual conditions currently faced by households and employers.  But from this comparison, two points are useful in considering actions that could be used to restart the economy after the current crisis eases.

First, both numbers are a measure of a given point in time.  In normal times, there is considerable churn within each month with workers leaving and taking jobs, taking on part time work, and other factors that affect the reported numbers.  For example, the Business Employment Dynamics show a jobs flow of hirings and separations that is about 12% of reported job levels each quarter.  Except for essential jobs such as food delivery, this process has largely been shut down and is now dominated by separations.  This situation also has been exacerbated for California workers due to last year’s enactment of AB 5, which has eliminated many alternative work situations as households seek to retain some cash flow in the current circumstances.  The AB 5 restrictions will also limit these supplemental income opportunities only for California workers during the economy restart phase, a factor that will be particularly important if the recovery period is marked by a more gradual return to prior jobs and employment levels.  During the recovery period from the previous recession that began in 2008, self-employment and independent contractor opportunities was a strategy used by many households until full time jobs recovered.  This option will not be available for many in the current crisis due to AB 5.

Second, the second quarter is a critical point for many businesses and in particular households with hourly workers.  Seasonal changes are particularly pronounced in the first quarter as sales ease from the holiday period highs, and many businesses particularly in retail and food service are more likely to close in that quarter based on whether the holiday period cash flows are sufficient to help carry them through the upcoming year.  The second quarter, particularly in California with its high tourism, agricultural, and recreation components, is more indicative of the year overall.  The building of cash flows in this period is critical to overall hiring and investment plans for employers, and income and consumption expectations for workers and households.  The current shutdowns have eliminated cash flows in this critical period across large parts of the economy, including the 4th quarter bump essential to survival for retail and food service operations.  Business as usual under California’s high costs from regulations, taxes, and fees—costs that continue to grow as the state agencies continue to issue proposed regulations while the rest of the economy is focused on basic survival—means essential cash flows when they do recover for both employers and households will continue to be allocated to these purposes to a greater extent than other states rather than to jobs, wage, and income recovery.

The regulatory agencies have often tried to justify the higher costs of living and higher costs of doing business coming from the state’s regulations on presumed counter-balancing benefits from “green jobs” or “clean energy jobs.”  As previously analyzed by the Center, these job claims are considerably overestimated and often rely on temporary, primarily construction and installation jobs and reclassification of existing, largely government jobs.  The potential contribution from this source also does not reflect the initial distribution of job losses from the current measures.  As indicated below, the greatest initial job losses have been in Accommodation & Food Services, Arts, Entertainment & Recreation, and Other Services.  There are no counterbalancing “green” benefits to these industries, and the state’s growing regulatory, tax, and fee costs instead represent primarily higher operating costs that will continue to siphon off cash flow needed to work back to prior levels of business, employment, and wages.  These workers in particular are among the hardest hit in resulting higher costs of living for housing, utilities and fuel, commuting, and resulting increases for food and other goods and services as these California-only costs percolate through the cost chain.  As an example, Caltrans’ proposal released this week to analyze wider highways based on the potential effect on vehicle miles traveled (VMT) focuses on the state’s climate change policies, but ignores the potential resulting impacts on the ability of workers in particular lower income workers to access a wider range of housing in order to reduce their housing costs, access a wider range of jobs in order to increase their wages, working hours, and incomes, and to free up household time now spent on commuting for education, childcare, and other personal and family priorities.