While the raw number of jobs created during the recovery are often cited as evidence of California as a successful model of high regulation and high taxation, a more detailed look at the geographic distribution and types of jobs shows a different picture.  The Bay Area has captured the predominant share of growth in higher wage and middle class wage jobs, based largely on emerging industries not yet subject to extensive regulation and still able to use compensation models and tax strategies that are less affected by the state’s high rates.  Much of the jobs growth in the rest of the state remains reliant on low wage and low hour jobs, with jobs declining or slowing in traditional industries more affected by these aspects of the state’s operating conditions. 

 

Bridging this divide and increasingly the means to temper the effects of this uneven progress in the state is the disproportionate flow of state revenues coming from the Bay Area, a relief valve that already failed once at the beginning of this century when the state’s economy was more balanced and more capable of absorbing the loss.  Continued reliance on this public revenue structure to fund programs to ameliorate rather than reforms to resolve the fundamental jobs trends that produce the poverty and low income outcomes in the state are consequently likely to be more severe should the Bay Area experience a similar economic event in the future.

 

This project is not intended to explore ways to counter this trend through underlying changes to the business and jobs investment climate, but instead has focused on strategies to increase the ability of lower income Californians to transverse these conditions in pursuit of upward economic mobility.  But the current growth system dominated by low wage jobs in much of the state remains a challenge if not a barrier given the growing risk aversion identified in the other sections of this report.

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This situation is all the more critical given that California along with the other developed economies is in a phase of transition, as technology is expected to continue transforming large sectors of the economy.  The net effect on jobs is still to be seen:  a net loss of jobs as human workers are replaced or a net gain if, as in past technology waves, new jobs are created both within existing industries and others yet to be.  What is certain is that the nature of work is likely to change for many occupations, requiring skills and training not provided on a sufficient scale today.  While tackling the costs of living is critical to opening up the breathing room lower income Californians need to even contemplate moving ahead, opening up options to prepare for this changing economy is what they will use to get ahead.  This aspect is the goal of the recommendations contained in this section and the next that follow.

 

However, the operating conditions that have helped shape the type of jobs available to Californians now will continue to shape the state’s competitiveness for the jobs that will be evolving in the coming years.  The challenge to the economy as a whole will be whether the state continues evolving on a two tier path, continuing to grow through high wage knowledge and design jobs on one end and lower wage population serving jobs on the other, with the middle ground shifting to other locations as technology enables ever greater mobility for these functions.   Part of the response to the challenges of automation and the other factors affecting income and job opportunities in the state will not only be improving the skills level of Californians to enable them to adapt to and benefit from the shifts, but also to ensure the state embraces policy changes that promotes the jobs to hire them.

 

While this project has not analyzed them in detail, such job enabling strategies would include those currently being pursued by the Los Angeles Economic Development Corporation:

 

• Catalyze and accelerate the state’s basic, applied and translational research and innovation capacities to strengthen the state’s comparative advantages in the current crop of world-leading innovation-intensive industries such as information and communications technology, entertainment, and biotech but also to promote new industries that remain unknown today.

 

• Build demand-side capacity within the state’s key traded or export-oriented innovation-intensive industries, such as aerospace, alternative transportation, biopharmaceuticals, clean energy, digital media, entertainment, information and communications technology, medical devices, professional and technical services, trade/logistics, and others.  Approach this challenge through an idea-to-export perspective by looking at the entire product and service value chain associated with these key, traded industries, from research to design to create to build to market and all the way through to export.  Rather than simple lip service to gaining jobs through state policies promoting the ideas generation in areas such as clean energy, alternative transportation, and green jobs, building this capacity would require greater attention to identify and develop the infrastructure, skills base, capital structures, regulatory and tax reforms, and other economic development assets necessary to secure a wider wage spectrum of jobs as both the current and new industries evolve in the state and world.

 

While these concepts would form part of a more detailed consideration of factors affecting the types of jobs and wage levels being created in the state, the following recommendations cover more immediate actions that can be taken based on the research from the current effort.

 

1.Reduce and Standardize Occupational Licensing

 

Self-employment offers an option to provide either primary or supplementary household income, but with greater flexibility often needed to cope with child care and other family needs.  Starting a business also became a necessary response for many during the recent recession, with persons below poverty showing the highest relative incidence of self-employment among the income groups.

 

Occupational licensing, however, has become an increasing barrier to entry—especially for occupations paying at levels sufficient to carry households beyond poverty—both from the cost of licenses and increasing requirements to qualify.  In all, the share of workers requiring a license has risen five-fold, from 5% of the employed nationally in the 1950s to 25% in 2015.[i]  In a 2012 detailed review, California required licenses for 62 low income occupations, greater than any other state except Arizona and Louisiana.[ii]  The current system—administered by a bewildering array of commissions and agencies—imposes large costs in time, money, and bureaucratic process on those least able to afford the challenge, but who also stand to benefit the most from higher income, greater control over their time and working conditions, and the growth opportunities that can come from state’s long tradition of entrepreneurship.

 

Licensing is often justified on consumer confidence and public health factors.  However, licensing particularly as it is now practiced has significant economic effects as well:  (1) through restricting entry, licensing can increase the holders’ income; (2) through restricting entry, licensing can increase prices, contributing to the rising costs that now represent barriers to upward mobility; (3) the cost, required experience, and training is not always commensurate with the services provided, increasing the cost of entry in particular for immigrants with the necessary skills but not the required credentials; and (4) differing requirements between states and increasingly between localities further reduces labor mobility, in particular negating the income flow altogether for lower income workers who are forced to change residences due to rising housing costs.

 

• Eliminate or Reduce Licensing Requirements for Occupations Requiring Less than a BA Degree.  Through an outside commission or joint committee process and building on the work already done by the Little Hoover Commission[iii] and the sunset reviews conducted to date by the Assembly Committee on Business & Professions and Senate Committee on Business, Professions & Economic Development, the Legislature should review current licensing requirements, and eliminate those provisions not essential to protection of public health and safety and set licensing costs—considering the total costs associated with the required training, experience, and actual fee process—at levels appropriate to promote entrepreneurship attainable by lower income Californians.  Any legislation should include pre-emption of separate local licensing requirements in order to ensure maximum labor mobility within the state.

 

• Replace Current Licensing Boards and Agencies with Community College Certification.  Any remaining licensing requirements for occupations below the BA level should be fulfilled to the extent possible through completion of a certificate program through the community colleges—tuition-free if combined with the other recommendations in this report—in conjunction, if essential, with an apprenticeship or other qualified experience not to exceed a specified reasonable period.

 

• Enter into Inter-State Agreement for Portability of Licenses.  The state should take the lead in developing reciprocity agreements or pursue an interstate compact to ensure acceptance of licenses of persons moving between states.  While some provisions now exist for temporary accreditation for otherwise licensed persons moving into the state, the focus of this component should not just be accommodating the differences, but seeking to remove them and allow for greater economic mobility.

 

2.Create Transportable Employment Benefits Package

 

Obtaining benefits through their employment was one of the highest ranked tools desired by lower income workers as a means to cope with the rising costs they face.  As an employment option, providing these benefits through a transportable package is a means to ensure this coverage between jobs, reduce potential disruption between vesting periods, and tailor the benefits to the circumstances of each household.  The basic components of such a package already exist within state and federal law, but differ as to their requirements, fungibility, tax treatment, and more critically consideration as an asset for purposes of the public assistance programs in the event the holders face an extended period of unemployment or take time to improve their skills through training and education.

 

• Develop a Menu of Transportable Benefit Accounts.  At minimum, accounts should include healthcare, retirement, childcare, and education.  These should build off existing programs (e.g., health savings accounts, flexible spending accounts, 401(k), IRAs, 529 plans), but should be restructured to ensure:  (1) full annual rollovers of contributed amounts, (2) use of pre-tax dollars for contributions by employers and employees (including not being subject to payroll taxes comparable to the treatment now provided to employer-provided health benefits), and (3) a degree of transferability between the accounts without penalty as long as the funds are used for approved purposes.  Equal tax treatment should also be provided to both wage and salary employees and to self-employed, including provisions potentially addressing unpaid family workers. These changes will require amendments to both state and federal law.

 

• Set Appropriate Limits for Purposes of Public Assistance Programs.  The purpose of this measure is to promote individual responsibility, increase the ability of households to cope with rising costs, and reduce the need for public assistance in the long term.  But by being financially responsible, households should not be subject to undue penalty as a result of asset limits under the various assistance programs, including assistance for higher education.  There is a balance that needs to be achieved, comparable to the treatment provided ABLE accounts for SSI/SSP recipients that is considered separately from the standard asset tests.

 

[i] The White House, Occupational Licensing:  A Framework for Policymakers, July 2015.

 

[ii] Institute for Justice, License to Work, A National Study of Burdens from Occupational Licensing, May 2012.

 

[iii] Little Hoover Commission, Jobs for Californians:  Strategies to Ease Occupational Licensing Barriers, October 2016.