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California’s Economy Takes a Hit

photo - Closed Business in Downtown Los Angeles

Unemployment in California now stands at 15.5%, higher than at any point in the past 50 years.  Measured in mid-April, the unemployment rate now is likely even higher as new unemployment claims continue to grow—from 3.3 million in mid-April to 4.7 million in mid-May. Early insights into hard-hit sectors foretold the magnitude of California’s economic downturn. With official labor market data released for April, what do we know about the impact across the state?

Between February and April, 2.1 million Californians joined the ranks of the unemployed and about 1 million have left the labor force all together, meaning they are no longer looking for employment. For comparison, during the Great Recession about 1.2 million Californians became unemployed but the labor force actually grew slightly.

No region of California has been spared.  Unemployment has doubled—or much more—in all but nine counties since February, before the pandemic set in. As of April, the unemployment rate was highest in Imperial, Los Angeles, Monterey, and San Benito counties, along with a handful of counties in the Sierras (Mono, Alpine, Plumas).

Job loss continues to be concentrated in service sectors, but no sector has been spared cuts. Between February and April, 156,000 Californians lost jobs in the arts, entertainment, and recreation sector while 805,000 lost their jobs in accommodation and food, translating to a 47% drop in employment in these areas. In “other services”—a category that includes automotive repair, personal care, and dry cleaning—170,000 people lost jobs, a 29% drop. Cuts are larger by percentage among these service sectors today than during the entire Great Recession.

In retail trade and construction, employment fell by 17% each: because these are larger sectors, the number of jobs lost is substantial. In construction, the decline was about half the rate in the last recession.

Concentrated job loss in hard-hit sectors stung more sharply in some regions. In metro Santa Cruz and Santa Rosa job losses in the accommodation and food sector exceeded 60%.  Santa Cruz, along with San Diego and Sacramento, each suffered severe losses in arts and entertainment, at rates around 50%.

Many of these areas rely on these key service sectors in usual times.  For example, the four hardest-hit industries in San Luis Obispo, Santa Cruz, Napa, Anaheim, San Diego and Riverside metro areas account for more than a quarter of local employment. However, the severity of shelter-in-place regulations across the state may have contributed to differential job losses as well.

As California moves toward reopening, regional differences will contribute to the pace of recovery.  The current depth of job losses—and reliance on service sectors—means some regions will have more ground to make up. How quickly businesses reopen and rehire will depend on their viability, as well as on how public health risks evolve within the state.

For sectors and businesses that rely on in-person interaction, the pace of recovery is likely to be slow. Support to these businesses through loans and grants and to workers laid off from them through unemployment insurance can lessen the long-term repercussions of the downturn. State and federal policymakers must track the pace of recovery to revise expiration dates of these supports if needed.

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