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Press Release · November 5, 2007

Where Are Businesses Relocating… And What Does It Mean For Employment In Your Part Of California?

SAN FRANCISCO, California, November 5, 2007 When California businesses relocate, most stay within—rather than moving out of—the state, according to a study released today by the Public Policy Institute of California (PPIC). The findings of this study provide more evidence from PPIC that business relocation and job loss are not straightforward evidence of a hostile business climate in the state. In fact, one of the study’s central conclusions is that local business climates—and the local effects of state policy—are as important for job retention as the state’s business climate as a whole. Who wins and who loses in the regional relocation lottery?

Earlier PPIC studies showed that even statewide the claims of a hostile business climate were not borne out by any significant exodus of firms from the state. Between 1992 and 2004, California’s net job loss to other parts of the nation was only 11,000 out of 18 million jobs, with nearly as many businesses coming into the state as leaving. In fact, California’s share of all U.S. employment has risen since 2000.

However, as the new study shows, some regions lost more than others to out-of-state relocation. The San Francisco Bay Area lost the largest share, followed by Los Angeles, while regions such as San Diego and the Inland Empire registered barely any net loss. Even within regions, there were county variations. For example, within the San Francisco Bay Area, the counties of Marin and San Francisco lost many more jobs to other states (4% each between 1992-2004) than other counties in the region. At the same time, some Bay Area counties—Contra Costa and Santa Cruz—actually gained jobs from other parts of the country.

A look at business relocation within California shows similar variation. For example, the Inland Empire’s employment grew five percent due to jobs moving in from other California regions, while employment in the greater Los Angeles area shrank (0.7%). With the exception of Los Angeles and the Bay Area, all of California’s regions gained jobs from other parts of the state, with most relocation occurring from expensive coastal areas to less expensive inland regions.

Of particular note, more relocations also occurred over short distances, with businesses moving to neighboring regions or counties rather than across the state. “These patterns suggest that businesses are moving in search of cheaper real estate, rather than for differently skilled or cheaper labor,” says PPIC research fellow Jed Kolko who co-authored the report, Business Location Decisions and Employment Dynamics in California, with PPIC senior fellow and UC Irvine professor David Neumark.

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.