California’s Economy: Worse Than Originally Thought and Recovering With Fits and Starts

The Great Recession’s impact on California’s job market is worse than analysts originally thought. The state has lost nearly 1.4 million jobs since the recession began in California in July 2007, according to revised data from the Employment Development Department. That’s 339,000 more jobs lost than the data suggested prior to the recent revisions. If it’s hard to fathom this hole in the job market, consider this: Losing 1.4 million jobs is equivalent to losing the entire population of Sacramento County. In fact, California now has about the same number of jobs as it did 11 years ago, when the state was home to 3.6 million fewer working-age individuals. This means that the Great Recession has wiped out an entire decade of job growth, while the number of individuals who want jobs has continued to grow.

It’s hard to tell where California’s job market is headed from here. On the upside, job growth appears to be returning – albeit with fits and starts. The state gained 32,500 jobs in January. However, California added an equivalent number of jobs in October, then lost more than 75,000 jobs over the next two months. It will take at least a couple more months of data to determine whether January’s gain is the beginning of an upward trend. Still, there is a downside in the latest data: California’s unemployment rate rose to 12.5 percent in January, up from 12.3 percent in December. In this respect, California is lagging behind the rest of the nation, where the jobless rate declined between October and January. However, a small part of the increase in California’s unemployment rate may be due to individuals who had given up their job search coming back into the workforce to look for work – a sign of renewed optimism among some jobless Californians.

The slow pace of recovery – if we can call it that yet – in California’s job market increases the need for additional federal funds to assist struggling workers and their families and to help the state avert another round of deep spending cuts. According to testimony by Mark McMullen, director of Moody’s Economy.com, at yesterday’s Senate Human Services Committee hearing, federal spending on food stamps, Unemployment Insurance (UI), and Temporary Assistance for Needy Families (TANF) constitutes among “the most efficient ways to prime the economy’s pump.” Every dollar spent to increase food stamp benefits boosts California’s economic output by $1.70, each dollar used to extend UI benefits increases output by $1.56, and increasing TANF payments by one dollar boosts output by $1.66.

— Alissa Anderson

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