Understanding the Economies of Inland California

Economy White Paper Series

Rising High Requires the Right Foundation: Understanding the Economies of Inland California

October 2019 2 ECONOMY WHITE PAPER SERIES Introduction May 10,2019. regions inland help to devises continue toprosper. state the policies any inform turn, in should, understanding in shift this and light, examination from a number of perspectives. In context, Inland California appears in a much an more favorablerequires and economic nuanced more far is reality The heading. are they where and are, actually regions inland the what characterize properly to level serious a on fail statistics such that evident becomes it applied, contextis reasonable but misinformedacademicsandanalysts,oftenby inlandpoliticalandbusinessesleadersthemselves. Yet, when Such a dismal view is hardly unique to the current administration. Rather, it is commonly expressed by well-meaning have seentheirpercapita incomesdropfromcloseto90%ofthestatemedianbelow65%.” Direstraits, indeed. Angeles, San Diego, and the Bay Area” and that “residents in counties as varied as Merced, Kern, and San Bernardino The recent op-ed stating that “nearly 70% of job growth jobs. from 2010 to 2018 came from the coastal areas around Los‘quality’ of lack a from suffering are residents inland that and ones, coastal the to compared disadvantaged economically are state the of regions inland the that assumption basic a with started has team Rise Regions The an incorrectassumptionandlabelingofoneasasuccesstheotherfailure. to leading are economies state’sinland the and between coastal differences The economies. coastal the lagging and broken, somehow are economies inland the that assumption faulty the with begun has conversation the often, too behind this worthy initiative do not fully or accurately reflect the reality of the state’s inland economies. As happens motivations the and fundamentals, current of understanding solid a with start however,must choices, policy Good especially inlandregions,inordertoforgebetterstatepolicyforall,isanauspiciousstartchangingthatdynamic. regions, all from input Topursue state. actively the of regions interior the hurt or help may policies such how to as regard little with centers urban policy coastal, state’slarge, the of California’sgoals political and interests often, the Tooby driven are decisions effort. this of supportive more be not could Forecasting Economic for Center The leaders aboutthevariousthingsdifferentregionsneed. local with talking and state the touring been has team Rise Regions The statewide. growth economic balanced more encourage that policies state-level craft help would regions coastal and inland from leaders local that is idea The California region with the goal of creating a comprehensive plan that lifts the prospects of all areas and all residents. every in leaders from input strategic elicit and conversations convene to seeks initiative the Diego, San and Area, Bay Francisco San the Angeles, Los coastal around heavily concentrated prosperity high-profile state’s the With California. inland and coastal existsbetween ostensibly that chasm growth economic the at takesprogramaim The forhis policypriorities new Inland Empireviaanop-ed busysetting the to introduced been Together,was Rise which Regions called has initiative new a is efforts these of One Newsom administration. Gavin Governor California office taking Since 1 Lenny Mendonca andKateGordon.“RegionsRiseTogether: BuildingaPlanforInclusive, Sustainable GrowthAcrossCalifornia.” ThePress-Enterprise, 1 . 3 ECONOMY WHITE PAPER SERIES up through the greater Sacramento region) have grown their total jobs base by 45%, while southern inland areas havegrown theirsby amassive 85%(alargemajorityofthatjobgrowth wasinRiverside andSanBernardinoCounties). areas inland southern while 45%, by base jobs total their grown have region) Sacramento greater the through up southern inland regions of the state have been the economic rock stars in the past 25 years. Northern inland areas (Fresno centralcontrast,and the In 1994. since growth 17% just with north far the is state the of laggard true The decade. last the in occurring growth that half with phenomena, new relatively a is that but 37%, at better modestly performed Area Bay California have grown their employment bases 33% and 30%, respectively. Over this period, the nine-county San Francisco Southern coastal and Coast Central the 1994, Since new. nothing is California Southern coastal in rate growth slow The regions whereLos Angeles,SantaBarbara, andVentura have notperformednearlyaswellSanJoseandFrancisco. well—with Kings and Imperial Counties experiencing the lowest growth—but the same disparities hold true among coastal 5th fastest growing have been the Inland Empire, Fresno, and Stockton, respectively. Other inland regions have not done as and 4th, 3rd, The basis. percentage a on state the in economies growing Franciscofastest San two and the haveJose been San 2010, Since variation. regional wide the of much misses statistic this even And 24.4%. at period, this over either than to 2018, considerably faster than growth in the nation as a whole (16.5%). But the state’s inland regions actually grew faster How do things stack up on a percentage basis? The coastal regions, in sum, grew their employment base by 21% from 2010 Growth Trends California’s Regional Francisco andSanJosecombined. San than jobs more Franciscoadded LosSan has 2010 or Angeles since Jose that economySan fact than the despite for a ranking of economic health. It’s safe to say that few in state government would consider Los Angeles a stronger basis a as jobs new of numbers absolute base. use larger cannot significantly You a off building is it because regions coastal state’s the in form will jobs more far definition, by rates, growth equivalent At million. 4 over slightly had areas inland the whereas job, payroll non-farm million 10 over contained California of economies coastal the 2010 In place. first the in there jobs more many were there because only is coastal this But California’sregions. inland its in in than economies formed have jobs new more Recession’ ‘Great the of end the since that true certainly is It 4 ECONOMY WHITE PAPER SERIES has commonly andhistoricallybeencharacterized. Tampa, St.Louis, and Baltimore.TheInlandEmpireisvastlymorethan a large‘bedroomcommunity’ofLos Angelesasit making itthe13thlargestmetropolitan areainthenationby bothpopulationandlabor force;that’slargerthanDenver, California have locatedinRiverside andSanBernardino Counties.Today, 4.6millionpeoplecalltheInlandEmpirehome, The InlandEmpire,incontrast, isthestate’s newestmetropolis.Since1970,one-thirdofallnewresidentstotheSouthern Austin, andLasVegas. population basemakes itthe26thlargestmetropolitanstatisticalareainnation,roughlysamesizeasPortland, running closeto3%forthelasttwoyears, anditstotalnonfarmemployment standsatwellabove 1millionpositions.Its that have migrated totheregion to getoutofthehigh-costSanFrancisco Bay Area.Sacramento’s jobgrowthhasbeen growth amongtheeconomiesthatstretchintofoothills eastofthecapitalaswelladditionman 5th largesteconomy isnosmallfeat),ithasbeenhaving itsownrenaissanceinrecentyears, driven inpart by strong in theUnitedStates.WhileSacramento isstilllargelydominatedby government employment (managingtheworld’s Sacramento wasthefirsttruemetropolisinstate by virtueofitslocationinsomethemostproductive farmland The twobiggestcomponentsofInlandCalifornia’s economy aretheInlandEmpireandgreaterSacramento region. Jersey, orVirginia.Thatisabigeconomy, even ifnotaslargeCalifornia’s coastalregions. would make thearea8thlargeststateinnationby jobcount,largerthanGeorgia,NorthCarolina,Michigan,New sensible andrepresentative perspective. The4.9millionpayroll jobsthatarelocatedintheinlandregionsofCalifornia than halfthetotalnumberofjobsexist incoastalregions.Butabroadernationalcontext isnecessarytogaina Despite alltheexpansion, becauseCalifornia’s inlandregionsarebuildingoffamuchsmallerbase,they stillhave fewer Graph 1-Index of Payroll JobGrowth by Region 100 120 140 160 180 200 80 Source: QuarterlyCensusofEmployment andWages, Analysisby UCRCenterforEconomicForecasting andDevelopment Q1-94

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Q1-18 5 ECONOMY WHITE PAPER SERIES workers wholeave theregiondailyforworkisnearinganall-timelowlevel. County withinafewshortyears. Local jobsaregrowingfasterthanthenumberofcommuters,andshareresident surpassed theSanDiegoMSAintermsoftotalnumberlocalpa employment basehasgrownconsistentlyfasterthanitscoastalneighborsover thelasttwodecades.Recently, theregion region hascloseto1.5millionlocalpayroll jobs,morethantheentirestateofNevada. Moreover, theInlandEmpire’s While asignificantshareofInlandEmpireresidentsstillcommutedailytoneighboringcoastaleconomiesforwork,the time lowof4.0%. much ofthestate(andnation)faces—agrowingshortageworkers. Unemployment intheregioncurrentlysitsatanall- collectively representtwo-thirdsofallurbanjobs.ThebiggestproblemintheInlandEmpiretoday isthesameproblem Austin. Over thisperiod,theInlandEmpirealsocamein4thamong50fastestgrowingeconomiesnation, which highest growthrate intheUnitedStates,andagreaterrate ofgrowththanoccurredinSeattle,Philadelphia,Denver, or nation. Between2012and2017thenumberofemployed residentsintheregiongrewby 325,000,representingthe12th Moreover, thegrowthrates intheInlandEmpiredon’t juststandoutinthestate—they areamongthehighestin than suggesting an average Americans’ degree of personal health can only be determined by comparing it to the vital the to it statistics ofanOlympicathlete. comparing by determined be only can health personal of degree Americans’ average an suggesting than comparison a relevant more no is County Clara Santa with up keeping not are wages local because trouble in or failing is of Silicon Valley and one of the highest income economies in the entire world. Suggesting that the Inland Empire’s economy however,Again, Claraheart Santa the negativethat is this consider County regarding trend, conclusions to leaping before $41,500 forCalifornia. and whole a as States United the for $40,000 to yearovercompared per slightly time) $36,000 were part and (full Empire Inland the of residents for earnings median by2017 earnings In analyzing residence. when of apparent place is gap similar average payroll wage in the Inland Empire is 70% of the statewide average and one-third what it is in Santa Clara County. A substantially.Today,grown has gap wage the this growth, employment Empire’sspectacular Inland the Over County.despite years, the Clara Santa in wage payroll average the two-thirds and whole a as state the in wage average the of 85% overallthe of economy,component state small a still was was Counties averageBernardino the San Riverside and in wage There is little doubt that the Inland Empire has fallen behind when looking at wage metrics. In 1990, when the Inland Empire Empire residentsarefinanciallydistressedandtrapped in‘bad’jobswithfewprospectsforlongrunprosperity. Inland many that judgement in leap a to led has statistic single This nation. the across economies sized similarly many in than lower specifically, are economically they Empire, Inland the For areas. coastal in than as lower average,are on areas, inland in characterizedwages that fact often the on based are been primarily state has this for the reasoning The of California. of areas portions other lagging inland and underdeveloped the statistics, growth its to contrast sharp In MIND THEINCOME GAP yroll jobs,andatitscurrentpace,willexceed Orange 6 ECONOMY WHITE PAPER SERIES degrees, average pay in the Inland Empire is lower graduatethan in the state as a whole, but higher or than in the United States overall.bachelor with those For nation. the and state the in is it as Empire Inland the in same the roughly is degree bachelor’s a than less with workers for pay average out, turns it As levels. skill comparable at opportunities comparable offers region the if see to level education by incomes workers’examine to is Empire Inland the at looking of way better A way ofensuringthatmostany policyprescriptionwillfail. because they don’t look more like San Jose or Orange County, and if they develop strategies accordingly, it becomes a good regions California’sinland in problem a is there that assumption the with economy.begin of leaders type state different If workforce. Prosperity within a community or local economy is not properly measured by a static comparison to a completely of type different a with base job of type different a to home is region the because Empire Inland the in lower are Incomes Source: AmericanCommunity Survey, Analysisby UCRCenterforEconomic Forecasting andDevelopment Table 1-Median Income by Level of Eduction(2017) Graph 2-Relative Payroll Wages 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% Graduate Degree Bachelors Degree Some College High School < HighSchool All 0.0% Source: QuarterlyCensusofEmployment andWages, Analysisby UCRCenterforEconomicForecasting and Development Q1-90 Q1-91 Q1-92 Q1-93 Q1-94 Q1-95 Q1-96 Q1-97 United States

$71,097 $52,484 $36,190 $30,624 $23,031 $40,069 Q1-98 Q1-99 Q1-00 Q1-01 Q1-02 IE/CA

California Q1-03 $85,555 $60,940 $38,296 $30,918 $22,648 $41,122 Q1-04 Q1-05 IE/SC Q1-06 Q1-07 Q1-08 Riverside $80,064 $55,461 $36,943 $30,829 $25,340 $36,321 Q1-09 Q1-10 Q1-11 Q1-12

San Bernardino Q1-13

$75,241 $53,264 $36,977 $30,663 $23,642 $36,684 Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 7 ECONOMY WHITE PAPER SERIES to solve thosekindsofbroadissues. drivenbytrade government,global state in A trends change. isn’ttechnological intentioned, and well how matter no going being is turn, in workers,which skilled low and high between gap income global the mimics largely forming is that gap the This isn’t to suggest that there isn’t a growing income gap between the inland regions of the state and the coastal areas. But for workers atevery level—but moresoforlowskilledworkers. smaller being up ends housing for households inland by used income of share the that is means this What regions. coastal theylivedin calculates if theywould than housing on approximatelyCalifornia’sless spend in one-third regions residents inland that Forecasting Economic for Center The living. of cost lower substantially a offers region the similar, fairly are level education by earnings state—while the to relative Empire Inland the to applied be can that upside an is there And Source: AmericanCommunitySurvey, Analysisby UCRCenterforEconomicForecasting and Development Table 2-MedianPercent Shareof Income Usedfor Housingby Level of Education (2017) Graduate Degree Bachelors Degree Some College High School < HighSchool Los Angeles 24.7 27.6 32.0 36.2 39.0 Orange County 25.7 26.8 31.8 36.9 41.4 Riverside 23.4 25.8 28.4 31.6 34.9 San Bernardino 24.3 26.3 29.2 31.5 33.6 8 ECONOMY WHITE PAPER SERIES certain high-skilled/high-income economiesonthecoast. pundits have suggestedthatanti-business legislationinSacramento istoblame—thatignores theobvious successof in SanFrancisco orOrange Countyhaven’t foundsome‘secretsauce’ thatislackinginland.Andwhile someinlandarea driven by afailureof economicdevelopment effortsintheinlandregionsofstate.Economicdevelopment agencies But, again,analystsandpolicymakers have tobecarefulaboutleapingconclusions.Thisdearthofskilledjobsisnot rather alackoflocaljobstoemploy suchworkers. educational institutionsoftenleave theregionforwork.Inother words—itisn’t afailuretodevelop skilledworkers but commute tothecoastonadailybasis.Moreover, anecdotalevidence suggeststhatmany highachieving graduates oflocal that ininlandregionscloselybordercoastal(suchastheInlandEmpire This issueiscompoundedby anotherinterestingtrend.Past studiesby theCenterforEconomicForecasting indicate higher skilledones. being driven by aself-selectionmechanismwhereby lowerskilledworkers aremorelikely tomove totheregionthan of thelocallaborforcehasn’t received theireducationlocally. Thehighconcentration oflowerskilledworkers isclearly that isgrowingthisfastgainingfrompeoplemoving intotheareasoitshouldbeunderstoodthatavery largeportion Consider Riverside County, hometo2.5millionpeople,onemorethanlived inthearea20years ago.Any region The wrong,andillogical,answeristhattheeducationaloreconomicde one infive workers. Bernardino or Riverside Counties has a bachelor’s degree, while in Tulare and Kern Counties the share shrinks to less than bachelor’s degree or higher, and in San Francisco, the share is 66%. In contrast less than one-fourth of the labor force in San a have Counties Diego San and Orange in workers resident of 40% Over stark. quite is gap The regions. coastal are than workers skilled lower of concentrations higher to home are regions inland California’s of many why is question next The Source: AmericanCommunitySurvey, Analysisby UCRCenterforEconomicForecasting and Development Table 3-Shareof LaborForce WithBachelor’sDegreeormore,2017 LAND USEANDZONINGAHEAD LAND San Diego Orange Alameda Santa Clara San Francisco 42.1% 43.1% 51.9% 56.2% 66.7% Sacramento Ventura Santa Barbara Los Angeles Sonoma 35.1% 35.6% 35.9% 36.7% 36.7% velopment systemsintheseregionsarefailing. ), skilledworkers aremorelikely to Tulare Kern Fresno Riverside San Bernardino 16.5% 18.9% 23.6% 23.7% 24.2% 9 ECONOMY WHITE PAPER SERIES Forecasting andDevelopment, November 2017. that isthewrongkindofsuccess. lower skilledworkers toflee, yet again,andmay leave theInlandEmpirewithahigherandgrowing average income,but now hasarecordlowunemployment rate—and willsurelyseehomepricesrisesharplyintheyears ahead.Thiswillcause amount tolessthanone-thirdwhatthey werein2005despitethehothousingmarket acrossthestate.TheInlandEmpire housing market fromexpanding asithasinthepast.Thenumberofresidentialbuildingpermitsregion today Unfortunately, intheInlandEmpire,changeszoningandlocalhomepermittingsystemshave prevented thelocal not duetofaileddevelopment, butrevolves aroundlanduse anddensity. but by gentrification.Atthesametime,concentration oflowerpaidworkers andjobsinthestate’s inlandregionsis in theSanFrancisco Bay Areahasnotbeendriven by incomparable educationsystemsoruniqueeconomicdevelopment, to inlandregionsofthestate,oroutCaliforniaaltogether. Inshort,theconcentration ofincrediblyhighpaidworkers workers, sendinghomepricesintothestratosphere anddrivinglowerskilledworkers andthecompaniesthathirethem Bay Area.Butlocalzoninghasprevented anything closetoenoughhousingbeingbuiltaccommodateallthesenew Notably, thetechindustryhassuccessfullycreatedahugenumberofhighskilled/highpaying jobsintheSanFrancisco denser coastalareaswhereskilledjobsaremoreplentifulandwageshigher largely suburbanjobs(i.e.lowerskilled/lowerpaid)andsignificantnumbersoflocalwork development. Iftheregioncontinuestousezoningmaintainasuburbanenvironment, thenitwillcontinuetocreate absence ofadensejobcenterintheregionisfunctionlocalzoningdecisionsr for EconomicForecasting publishedaprevious WhitePaper addressingjobconcentration intheInlandEmpire job center, whichtypicallycharacterizes any areathatishometohighskilledindustrysectorsandjobs(theCenter In theInlandEmpire,lackofhigherskilledemployment opportunitiesislargelyconnectedtothelackofadense base tosomethingmorehighskilled. for labor. Shortofshuttingdownthisessentialindustryitisdifficulttoimaginehowonecould shift thelocaldemographic college and gain skills that widen and elevate their opportunities, another very low skilled farm worker must be brought in every croppicker’s childwhoisassistedby localeconomicdevelopment andeducationalprograms tosucceedthrough economy isstilldriven by California’s boomingagricultureindustry. Thatindustryreliesheavily onlowerskilledlabor. For revolves aroundlanduseandpolicies.For example, inplacessuchasFresno andBakersfield, muchofthelocal The CenterforEconomicForecasting believes thatthelackofhighskilledemployment inCalifornia’s inlandregions 2 ChristopherThornberg,JustinNiakamal, JordanGiali.“JobConcentr ation andtheInlandEmpire.” UCRiverside SchoolofBusinessCenterforEconomic . ather thanafailureofeconomic ers willcontinuetocommute 2 ). The 10 ECONOMY WHITE PAPER SERIES inland regions.Onesizefits allisthewrongapproach. in Fresno and San Francisco, or transit priorities inasmuch as light rail is simply not an effective solution in the less dense different be should clearly which wage minimum the as such issues major includes This coasts. the along than different is areas inland the for policy good is what that understand to need regulators state that importantly most means This flourish. to economies these needs state the investmentbecause and policy state through supported better be to need economies These coast. in the along growth obtain to of unable are they future life of the quality a are residents class middle they offering California, ways many in because attention more need regions these Rather, solve. to needs state the problem a represent they because not but regions, inland its to attention more pay to need does California middle ofthepack”(September3,2019). O.C. L.A., counties, U.S. big among lowest wages Empire “Inland Enterprise Press the in another to relative 2019) 18, Washington Post article “Bakersfield, once the butt of jokes, is booming. So are many other inland California cities” (June viable workers skilled lower offer don’t opportunities. It is interesting how this seems more clear to those outside the state than those inside. Consider a recent simply out, businesses traditional more squeezed have economies driven tech-industry- their overall,because prosperous but look Francisco,that San regions or Jose San in livedthey if true be likelynot would that something – forward path a and opportunity real residents their offer state the of parts inland The they need help because they don’t match or mimic some of the highest end economies on the planet misses the mark. regions have a different sort of economy and a different sort of resident. Telling inland businesses and residents that doesn’tCalifornia operateor look like FranciscoSan Orangeor County, doesn’tthat these that failure—only suggest Inland that true it’s While decisions. policy and initiativesstrategic affects it because disservice true a does regions inland state’s the about narrative bleak relatively a propagate to continue leaders political and policymakers That Different isNotInferior Conclusion: 11 ECONOMY WHITE PAPER SERIES will beconsideredandthattheconversation willshiftaccordingly. here provided analysis contextual the that hope We Bernardino. San in does it as Angeles Los in way same the families income lower to related issues development economic and needs the address should TogetherCalifornia Rise forums. Regions at discussed be should which approaches, policy of range different entirely an suggests that shift a but phrase, In many ways California needs its inland regions more than the inland regions need California. This is not a trivial turn of and allillsonStateregulatorsisagoodway ofhamstringingsuchefforts. inhelpingInland vital role a can play California attract more high skilled industries and grow in a making more balanced way into decision the future. Placing the blame and for any Local strategies base. economic the in flaw fundamental some or Sacramento from down handed policies by than rather policies, mayuse land face as such they decisions, local issues by driven the be of many that understand to regions inland state’s the in leaders for important equally is It About the Center for Economic Forecasting and Development

The UC Riverside School of Business Center for Economic Forecasting and Development opened its doors in October 2015 and represents a major economic research initiative in one of California’s most vital growth regions. The Center produces a wide variety of research both independently and in collaboration with academic, business, and government partners. Research products include monthly employment analyses, quarterly regional economic forecasts, a quarterly business activity index, a white paper series, and a major regional economic forecast conference, hosted annually.

About the Author

Christopher Thornberg is Director of the UC Riverside School of Business Center for Economic Forecasting and Development and an Adjunct Professor at the School. He is also the Founding Partner of Beacon Economics LLC.

An expert in economic and revenue forecasting, regional economics, economic policy, and labor and real estate markets, Dr. Thornberg has consulted for private industry, cities, counties, and public agencies in Los Angeles, San Francisco and the Bay Area, San Diego, the Inland Empire, Seattle, Orange Christopher Thornberg County, Sacramento, Nevada, and other geographies across the nation. Dr. Thornberg became nationally known for forecasting the subprime mortgage market crash that began in 2007, and was one of the few economists on record to predict the global economic recession that followed.