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

In the latest data, California’s seasonally adjusted unemployment rate eased from the revised 16.4% in May to 14.9% in June. The unadjusted rate—the more relevant measure given the extent to which seasonal factors have been overwhelmed by the economic closures—went from 16.0% to 15.1%.

Neither measure, however, reflects the current situation. The numbers released today are based on surveys done the week of June 12, prior to the recent order reclosing many businesses throughout the state. The more current initial unemployment insurance claims data indicate that the unemployment situation had been worsening even prior to this order. The number of new unemployed had been stabilizing up to the week of June 12th, but then began accelerating again in the following weeks. The most recent numbers (regular UI plus PUA for self-employed) were a full third above the week of June 12 level.

The employment data also has been suffering from technical issues related to the surveys used to estimate it, including misclassifications and a sharp drop in survey response rates. Corrections made by the agencies appear to have reduced this source of undercount in the June numbers, but the official “unemployed” still does not cover the many workers not counted in the official labor force. The official (unadjusted) number of California unemployed in June was 2.85 million. Analysis of the unemployment insurance claims data released yesterday indicates the current number is likely 74% higher.

More troubling are indicators about who is unemployed. The weekly data for the state income tax shows that cumulative withholding since March is only about 2% below the same period in 2019. Given the state’s steeply progressive income tax structure, this result indicates that higher wage workers who are subject to tax have been far less likely to have been laid off, including because of widespread adoption of telework and other flexible work schedules that have managed to keep workers at these wage levels employed. This result is particularly seen in a comparison to weekly withholding for federal income tax—which begins to apply at much lower wage levels—which is down about 10%.

The number of permanent layoffs is also growing. Nationally, the initial round of layoffs captured in the April data showed only 10% of layoffs were permanent. Employers at that point largely still expected to bring workers back as soon as they were able. The June numbers show the share of permanent layoffs has jumped to 20% as employers, especially small businesses and employers in some of the hardest hit industries such as travel and food service, have had to make hard choices. The Center’s analysis of the WARN Act data released yesterday indicates the same trend towards permanent layoffs is occurring in California.

The weekly Census Bureau pulse survey data suggests this trend may accelerate. In the most recent data for the week of June 27, 10% of California small businesses (less than 500 employees) reported having cash on hand covering only two weeks or less of business operations. In total, a quarter had only four weeks or less. Many of them used the first half of July spending these reserves down to ready their businesses for reopening, only then to face the new orders to reclose and forgo the prospect of sales to cover these costs. This financial weakening is likely to produce additions to the number of permanent layoffs.

The economic projections behind the recently approved state budget already indicate low expectations from both the Administration and LAO on how quickly California will be able to recover from the current crisis. Both job and employment levels currently are not expected to return to their pre-COVID levels until 2024 or beyond. The current upsurge in layoffs, the trend towards more of these layoffs being permanent, and the weakened cash position of many small businesses as they are being buffeted by the current series of openings and reclosings are likely to push the recovery date even further into the future. The federal government and other states are taking steps to accelerate recoveries once reopening becomes the stable norm. In its adherence if not expansion of its high tax and high regulation policies, California has yet to adopt any significant measures in this regard.