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California: You’re Doing Alright After All


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Newly revised benchmark estimates of employment in California paint a completely different picture of the state’s economic recovery than has previously been reported—one that shows California has not been trailing the nation in job growth, but has been leading it. In sum, California was home to 150,000 more jobs in 2013 than was reported by the California Employment Development Department (EDD) last year.

Notably, during the current round of benchmarking, a new category of previously excluded healthcare workers were included as nonfarm employees, and will be from now on.  These workers had formerly been counted as private household workers and did not show up in the official statistics. The inclusion of this group in California’s “total employment” figure added roughly 400,000 workers to the state’s overall payrolls in 2013.

However, the new revisions show that nonfarm employment in the state was 555,800 jobs higher in December 2013 than was being reported under the previous benchmark established in March 2013. In other words, even after accounting for the inclusion of the new category of home healthcare workers, employment in California still grew by 150,000 jobs.

This very positive news for the state’s economy is even more significant because it changes the story of the current economic recovery completely. Indeed, through December 2013, California’s data was showing comparatively lackluster labor market growth. The estimates were that employment growth was slow in both the state and the nation, but 2013 was the first time since the recovery began that the United States appeared to be consistently outpacing California in terms of job growth.

Fast-forward to last Friday (March 7, 2014), and that narrative has been tipped on its head. Instead of falling behind the national average, California led the nation with employment growth that remained in excess of 2% for the entirety of 2013. These revisions have rewritten the script of California being a drag on the nation’s overall job creation to the state being a driver of U.S. employment growth.

Moreover, the revisions were not restricted to any particular industry or region, though some areas did benefit more than others. In terms of industry, only the Financial Activities sector was adversely affected by the benchmark revisions. Every other industry in California was revised up.

Aside from the inclusion of home healthcare workers, the primary beneficiaries of the revised employment figures were the Retail Trade, Information, and Construction sectors. The revisions to Retail and Construction employment in particular are much more in line with trends that have been occurring that drive these sectors. When taxable sales exceeded their pre-recession peak last year, it was odd to see that Retail employment had dropped between late 2012 and late 2013. The revisions make it clear that this was an artifact of a sampling error and it was revised away in the updated benchmark. Similarly, Construction employment had been reported as dipping last year despite the fact that new building permits in 2012 and 2013 grew by double-digit percentages. Again, the revisions now make it clear that Construction sector jobs grew roughly in line with planned construction activity.

Even Government employment, which had been a significant drag on overall nonfarm job growth in the state, has done better than was previously reported. In fact, there were roughly 24,100 more Government sector jobs at the end of 2013 than believed. Government sector employment is still not a particularly significant contributor to statewide job creation, but at least it is no longer offsetting gains across the private sector.

Employment in several relatively high-wage sectors, including Professional, Management, and Information, was revised up while employment in Leisure and Hospitality (a relatively low-paying sector) remained roughly the same. Because of this, the overall wage mix of jobs created in 2013 has been revised upwards, towards higher-wage positions.

Geographically, every single region in the state had their total employment revised up as a result of the new benchmark. Areas that had been largely viewed with disappointment last year were some of the biggest beneficiaries of the revisions. In particular, Los Angeles and the Inland Empire in Southern California, and the East Bay in the San Francisco Bay Area had consistently been reported as underperforming the overall state in terms of job growth. However, these three markets saw the largest increases to their respective nonfarm payrolls as a result of the updated benchmark. San Francisco and San Jose, two of the state’s top-performing areas, also saw increases to their payrolls as a result of the revisions.

It is also important to note that these regions gained jobs as a result of true economic recovery and not just because of the re-categorization of home healthcare workers. After accounting for the new category of workers, the Los Angeles Metropolitan District (MD) added 36,100 more jobs than previously estimated, the Inland Empire added 28,900, the Oakland MD added 21,800, and Fresno added 8,900.

The new benchmark is very significant for California. Not only did it increase total employment by including home healthcare workers, it also revised up the remaining sectors by more than 150,000 jobs. Regardless of the new inclusions, the recovery has been far better than initially believed. The revisions were broad-based with every region and virtually every sector in the state performing better.

California was not the economic disappointment in 2013 that has been presented. The new revisions illustrate that  that the state continued to lead the nation in job growth throughout 2013. California has been performing after all.

California Employment Development Department Annual Benchmark Revisions
Each month, Beacon Economics receives and processes information from the EDD on employment in California differentiated by both region and industry. These monthly estimates are based upon a survey of a sample of firms throughout the state. The EDD also collects an actual census of employment counts at each firm in California. Each year, before releasing the January data, the EDD goes through a benchmarking process to calibrate the more current, but less accurate survey-based data with the more lagged, but more accurate Quarterly Census of Employment and Wages (QCEW). Changes to the monthly survey-based estimates of employment in California are commonly referred to as “benchmark revisions.”

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