Three-Year Study Shows Loss of Manufacturing Jobs
By HOWARD FINE
Staff Reporter
Despite sporadic anecdotes about a mass exodus of L.A.-area companies for cheaper-cost states, only about 75 manufacturing companies employing 7,400 people actually left the county for other states from mid-1999 through 2002, according to a study to be released Friday.
The study also found that while 9,157 manufacturing companies closed their doors during the same period, the figure was more than offset by the 11,307 companies that started up or moved into the area.
The study did find that those 9,157 companies shed 286,000 jobs, leading to a net decrease of 156,000 manufacturing jobs in the county.
“While we may have more manufacturing companies now, the bigger companies are either moving out of state, offshore or going out of business entirely,” said Larry Kosmont, president of Kosmont Cos., which conducted the study on behalf of a group of local economic development agencies.
“What we’re seeing is a net loss of high-wage, value-added jobs,” Kosmont said, “and that’s not good for the long-term health of the region. We risk becoming a showroom economy, where the sales and a smattering of front-office jobs remain but all the manufacturing is done outside the area.”
The study, which will be released at a countywide manufacturing summit convened by L.A. County Supervisor Don Knabe, was commissioned by the Keystone Group, which consists of 12 local economic development authorities including the Economic Development Corp. of Los Angeles County and Southern California Edison, the electric utility subsidiary of Edison International.
The study focuses primarily on job losses in the manufacturing sector, both in Los Angeles County and throughout California. It was intended to show that the state’s high cost of doing business is a major factor behind the job losses.
One local economist cautioned against placing too much emphasis on the business climate.
“You have to look at the timing of this study,” said Esmael Adibi, director of the Andersen Center for Economic Research at Chapman University in Orange. “The period from mid-1999 through 2002 marked a time of recession in the manufacturing industry. In that kind of environment, some businesses will go under and others may choose to go to a place that’s lower cost and more business-friendly.”
Adibi said the recession makes it difficult to determine the true impact of a high-cost business environment. “It’s awfully hard to separate out how much of these closures is due to the cyclical nature and how much is due to the business climate.”
Nonetheless, Adibi said costs for a manufacturer doing business in California are very high, especially in comparison to surrounding states. That high cost environment was examined in part by another Kosmont study due out this week: the annual Cost of Doing Business Survey, which looks at the cumulative impact of state and local taxes on businesses.
Not surprisingly, the study shows California cities consistently ranking towards the expensive end of the spectrum, while cities in other Western states such as Las Vegas, Albuquerque, N.M., Seattle, Denver, Dallas and Houston are at the lower end.
Among the tax increases considered: hikes in the sales tax, increases in the taxes paid by upper-income filers, and higher commercial property taxes.
Kosmont noted that his study does not factor in what has become the most burdensome business cost in California: workers’ compensation premiums. “When you look at workers’ comp, then California becomes even more high-cost than what our study indicates,” he said.
State legislators are holding hearings this month on Gov. Arnold Schwarzenegger’s plan for sweeping cuts in the workers’ comp system. Schwarzenegger has threatened to take his plan to the voters if the Legislature does not agree to an alternative by next month.
As has been the case for each of the last seven years, the City of Los Angeles ranks as the most expensive city in the county to do business. Joining L.A. in the highest-cost category are: Compton, El Monte, Hawthorne, Huntington Park, Inglewood, Palmdale, Pico Rivera, Pomona and Santa Monica.
Kosmont said Los Angeles is likely to remain at the top of the list for quite some time, especially since lowering the business tax does not appear to be on the horizon.
“Everything that’s on the table now is at best revenue-neutral, which means some businesses will pay more, others will pay less, but the overall business tax will remain at the current high level,” he said. “There just isn’t the political will right now to make any cuts in the business tax.”
