Study Optimistic About State’s Economic Future : But UCLA Says New Immigration Law May Shrink Unskilled Labor Pool

California’s economy will continue to outperform the nation as a whole through the 1990s, but early signs indicate that the new immigration law could darken any predictions of a rosy future, forecasters at UCLA said Wednesday.

California’s population, labor force, employment and income are expected to rise faster than in the rest of the United States in the 1990s, said David Hensley, UCLA Business Forecasting Project’s director of California Modeling.

Optimistic Forecast

“Our forecast is pretty optimistic,” Hensley said. “We’ve got the same sort of advantages of growth in terms of job growth and income growth that we had in the ‘60s, ‘70s and ‘80s.”

California’s share of U.S. personal income after taxes is expected to increase to 14% by the year 2000, compared to slightly more than 13% this year, the study said. The figure was about 10.5% in 1960.

The state’s portion of the nation’s jobs will rise to 12% from slightly less than 11.5% in 1987. California accounted for 9% of the national job total in 1960.

However, income and employment will grow more slowly for both California and the nation because of certain demographic factors, including slower growth in the labor force caused in part by an aging population, Hensley said.

But one uncertainty in the state’s future is the possible effect of immigration reform, which prohibited the hiring of illegal aliens.

“I think it potentially is a big deal,” Hensley said.

Although employer sanctions have not been in force long enough to determine if there will be any lasting impact on immigration and economic growth, Hensley said, there are some indications that the new law is having at least a temporary effect.

California, which has added manufacturing jobs at four to five times the nationwide rate since 1960, saw a decline last quarter in manufacturing employment, which are the jobs most frequently held by illegal aliens, Hensley said. Agriculture also is a big employer of immigrants.

Employment in California’s manufacturing industries fell at an annual rate of 0.6% during the second quarter while jobs were added in all other major employment categories, the study said. National manufacturing employment edged up at a 0.8% annual rate during the quarter.

Many manufacturing industries that employ an above-average share of Mexican immigrants--among them, leather, textiles and furniture--have lost job share compared to the rest of the nation since the fourth quarter of 1986.

Growth in Jeopardy

“Although not all California manufacturing industries which rely heavily on Mexican immigrants have performed poorly by this criterion since passage of the immigration reform law, the majority of them have,” the study stated.

Added Hensley: “That, I think, really puts that very robust growth forecast that we have in jeopardy.”

Total employment in California is expected to grow less than 2% per year in the 1990s, compared to annual growth rates of more than 3% during the past several decades. Jobs in services, trade and finance will increase faster than total employment, while agricultural and manufacturing jobs will grow more slowly.

The short-term outlook for the national economy is one of stronger growth during this quarter. But the strength will not last because of unanticipated increases in interest rates, the forecast said.

Interest Rate Uncertainties

Real GNP is expected to grow at an annual rate of 5.5% during the third quarter, but will decline in 1988, ending the year with two quarters of 1.6% growth each.

But in a note headlined, “Explain recent interest rate movements and you win the Nobel Prize,” UCLA Business Forecasting Project Director Larry J. Kimbell said that uncertainty over future movements of interest rates based on uncertainty over why rates jumped in the first place has caused the economists to provide alternative forecasts that are more pessimistic and more optimistic than the primary forecast.

The pessimistic alternative forecast highlights the “serious risks” of a recession, predicting a downturn in 1988 with a rebound in 1990 and 1991.

The optimistic alternative forecast projects that interest rates will decline from current levels and the economy will perform significantly better than projected in the primary forecast.