cyclical change vs. secular change – San Bernardino Sun

By Manfred Keil and Fernando Lozano | Inland Empire Economic Partnership

“The focus on short-term events often results in information that is incomplete, irrelevant, or both. What happened today, this week or even this month is not very illuminating, because the fundamentals of an economy evolve at a much slower pace.”

E. Moretti, The New Geography of Jobs | Inland Empire Economic Partnership

Everyone in California is, or should be, marveling on how well the Inland Empire is currently doing with regards to employment and job creation. There is concern about a possible national recession in 2023 and its impact on the region, but it is hard to focus on the dangers ahead while we still party like it’s 2019 (the last months before the COVID-19 shutdown). And if you have problems, because of myopia, to focus on 2023, what about your vision for 20 years from now in 2043?

We are celebrating right now because we are seemingly the powerhouse among the 10 largest Metropolitan Statistical Areas, or MSAs, in California. Employment in the Inland Empire returned to pre-recession levels relatively early by December 2021, and even the labor force exceeded numbers seen in February 2020 by October 2021. This was not the typical “First In, Last Out” business cycle for Riverside and San Bernardino counties, and different from other regions, there was no “Where Have All the Workers Gone?” The “other” areas have not been this lucky.

At the national level, discussions about the “missing workers” continue, with the labor force only returning in August 2022 to where the U.S. stood in early 2020. Employment actually caught up to that level in May 2022. Not so for the Golden State. California is 484,000 workers (labor force) and 428,000 jobs (employment) short of the levels seen at the end of the previous expansion. And this has little to do with being in the right region (Southern California). Los Angeles County is 310,000 short of employment and 316,000 short of the previous labor force.

The difference in labor market performance levels comes from one industry – Logistics (Transportation, Warehousing, and Wholesale Trade). Of all new jobs added in the Inland Empire, the Logistics sector had a share of 67% or two-thirds. Employment grew at a stunning rate of 51% since February 2020, and of all Logistics jobs created in California, 83% originated from the Inland Empire. This is clearly the result of the Retail Industry undergoing a massive shift accelerated by the coronavirus recession. In addition, 40% of all U.S. imports come through the Ports of Los Angeles and Long Beach (just think of the iPhone, basically assembled in Shenzhen, China then shipped to consumers somewhere in the U.S. through the two ports). Most imported goods are not just loaded on trains before they travel across the U.S. — many end up in Inland Empire warehouses, are redistributed from there, or even reassembled.

To top things off, the Inland Empire has just become the 12th most populous MSA in the U.S. There are about 390 of these, consisting of either one or two counties. San Bernardino County and Riverside County passed San Francisco in 2021 becoming the second largest in the state behind the Greater Los Angeles MSA composed of both Los Angeles County and Orange County.

But not everything is rosy: there is much talk about the environmental damage done by the industry and communities are considering moratoriums on further expansions in warehouses. Add to that the fact that many jobs in the Logistics industry will be eliminated as a result of artificial intelligence and robotics, the current positive outlook can turn negative quickly.

Looking at a general measure of economic well-being, per capita GDP, the Inland Empire drops way down to 340 out of the 390 MSAs. The region produces a value of goods and services per person similar to what Waco, Texas does. This explains, in part, the large number of commuters in the labor force: 35% of Inland Empire residents travel to their workplace, primarily into Los Angeles County and Orange County. If you add their income to the earnings of Inland Empire residents who work here, then the area rises slightly to 290 out of 390 — still not where you want to be. Let’s face it, no one gets satisfaction out of commuting and if there were better paying jobs available in the Inland Empire, some commuters would be willing to give up a small fraction of their pay to avoid sitting in the car or the train for hours daily.

This is where secular change comes in.

Industry clusters, defined as the aggregation of firms and workers in closely related industries, can focus on the local economy or on exporting goods and ideas to the rest of the world. The former are called non-tradable or local clusters, and the latter called tradable.

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