Attacking AB32 Won’t Lower Unemployment

Fox & Hounds Daily, 12/9/09.

By David Crane, Special Advisor to Governor Schwarzenegger for Jobs & Economic Growth

Recently a State Assemblyman proposed suspending AB 32 until California’s unemployment rate reaches 5.5%.

Putting aside for the moment that AB 32 is not yet in effect and therefore not responsible for our current unemployment and that there’s no support for the view that an AB 32 implemented intelligently would constrain job growth (indeed, there’s evidence that many of AB 32’s efficiency measures in particular would likely boost rather than retard profits and jobs), let’s first ask a fundamental question:

Why has California’s unemployment rate exceeded the national unemployment rate since 1991?

From 1976 to 1991, California’s unemployment rate largely tracked the national rate. In 1991, as a result of the end of the Cold War and subsequent reductions in defense spending that disproportionately benefited California, that state’s unemployment rate rose sharply, reaching more than 140% of the national rate in 1994. With the exception of a brief moment in 2006 when the spread narrowed almost to zero, California’s unemployment rate has stayed above the national rate, in both good and bad times, most recently sitting at slightly more than 120% of the national rate.

Some observers suggest that that spread is due to California’s higher tax rates. Others suggest it’s due to burdensome environmental regulations such as the California Environmental Quality Act enacted under Governor Reagan. Still others suggest that California will always have a higher unemployment rate than the national average because unemployed job-seekers stay here knowing they stand a better chance of landing a job in our huge and rapidly changing market.

I believe that one factor has been the diversion of funding away from one of our principal job engines, higher education. UC, CSU and our community colleges provide the skilled labor and innovations that drive many of our companies yet for some reason our legislators have chosen to reduce their resources, largely in favor of allocating more to government employment. Recently an executive of a signature California technology company said that his company’s number one concern is state support for higher education, and that if the state continues on the current path it will likely move employment elsewhere.

If we’re going to address our structural unemployment rate problem, we must be sure to attack real causes, not illusory ones such as AB 32.

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