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Press Release · February 15, 2007

California Employment Not Hurt By Companies Expanding Operations To Other States

Claims that California is losing employment because its businesses are choosing to expand in other states – rather than staying put – are inaccurate, according to a study released today by the Public Policy Institute of California (PPIC). Building on previous PPIC research that found state employment has not suffered from business relocation, the new study shows it also is not being hurt by companies shifting jobs to other states.

California’s share of employment in California-headquartered firms dipped during the economic boom years of the 1990s, from a high of 73 percent in 1996 to a low of 67 percent in 2000, but rebounded to 70 percent in 2004. In other words, California firms expanded their operations outside the state the most during robust boom years. “Because these were periods of such strong economic growth and expansion in California, it seems implausible that firms were moving operations because of the business environment,” says PPIC research fellow Jed Kolko, who co-authored the study with PPIC senior fellow David Neumark. “There are other possible drivers to consider such as the growing tendency of all companies to diversify their business locations.”

While some California firms have moved operations to other places in the nation, the effect is more than offset by companies based in other states moving operations and jobs into California – especially recently. The overall result of business operations moving in and out is that California’s share of national employment has remained roughly constant – and even risen between 2000 and 2004 when concerns about the business climate were raised most strongly. “Overall, the two-way dynamic more than cancels out employment losses,” says Kolko.

The study, Are California’s Companies Shifting Their Employment to Other States?, suggests that if the goal is to strengthen and expand California’s economy, policy should not simply focus on relocation and out-of-state expansions. Limiting their focus may be causing policymakers to overlook relevant questions – such as whether the increasing share of California workers employed by companies based in other states is something to be concerned about.

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The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.