California unemployment to drop closer to U.S. rate

California unemployment to drop closer to U.S. rate
California's jobless rate currently is 7.3%, well above the U.S. rate of 5.8%. Above, attendees at a career fair in Ontario in September. (Patrick T. Fallon / Bloomberg)

California's unemployment rate will nearly equal that of the nation within two years, according to a new forecast.

The state's jobless rate currently sits at 7.3% — the nation's fifth highest, and well above the overall U.S. rate of 5.8%. But California's job creation has outpaced the national average since 2012, a trend that will continue, according to the quarterly UCLA Anderson Forecast released Wednesday.


The analysis predicts that the state's unemployment rate will fall to 5.3% by the end of 2016, just slightly higher than the projected national unemployment rate of 5%.

"We're making good progress and we expect that to continue," said Jerry Nickelsburg, a senior economist with the Anderson Forecast who focuses on the California economy.

The report cautions that the state's economy has undergone a fundamental shift since the Great Recession, one that means diminished job prospects for middle-class workers in industries such as construction and manufacturing.

As California's workforce shifts toward the higher-skilled information and technology sectors, the change threatens to leave "a sizable segment of the state's working population out in the cold," the report concluded.

"It'll be a different California economy than the one we saw in 2005," Nickelsburg said. "Any kind of transition like this has real costs."

The report zeroed in on trends in the construction and manufacturing industries, which sustained heavy job losses during the recession and are not expected to fully rebound.

Construction has grown jobs faster than any major industry in California over the last year, but the pace is expected to slow.

One reason is the rise of multifamily construction to serve younger buyers and renters who prefer apartments in urban areas. That means less demand for construction workers, because such complexes require far less labor than building single-family homes, according to the analysis.

Manufacturing employment has declined for decades because of automation and a shift to overseas production. But the job losses have been more pronounced — and permanent — in the wake of this recession and previous ones.

The forecast projects slight growth in California manufacturing employment over the next two years but points out that many laid-off workers may lack the advanced skills required in the evolving industry.

The shifts in construction and manufacturing employment mean that the state must prioritize workforce development efforts, or risk having many older workers left with few opportunities.

"These are the principal middle-class jobs," said Edward Leamer, director of the UCLA Anderson Forecast. "It's a very severe problem nationwide to figure out what to do with these workers. The jobs they are going to get are most likely going to pay less than the jobs they had."

Though experts at UCLA project continued economic growth in California that is faster than in the U.S. overall, they point out that the failure to attract and nurture a higher-skilled workforce could put the forecast in jeopardy.

"The ability of California to attract highly skilled labor from other parts of the U.S. and home-grown workforce development could derail, or accelerate, the forecast growth rates presented here," the report said.


One impediment to attracting a skilled workforce to the Los Angeles area, in particular, is the high cost of housing. UCLA economist William Yu noted that, since 2000, Los Angeles has had greater home price appreciation than any other major metro area.

He suggested the problem is one of supply, pointing out that Los Angeles has one of the lowest shares of new housing units built since 2000 — even when compared with much denser metropolitan areas such as New York City and Boston.

"If we don't want to change this lifestyle, the home prices will be even higher, and only the very rich people will be able to afford living here," he said. "The young people with vision, dreams and skills will not be able to afford it, and businesses won't be able to afford it. Eventually we will see that there is no growth for Los Angeles."

Overall, the continued declines in the unemployment rate are expected to come from consistent job gains at both the low- and high-skilled ends of the workforce.

There are steady increases projected in leisure and hospitality, traditionally a lower-paying industry.

But growth is expected to be faster in industries connected to the entertainment and technology sectors — what the report calls "the information economy."

Higher consumer demand in California and across the country is also expected to generate more jobs in the transportation and warehousing sector.

The tech boom also is expected to produce major gains in the professional services industry, which includes IT workers, accountants and other consultants.

"This technological revolution is going on everywhere," Nickelsburg said. "It's really across all sectors, including these supporting sectors."

Twitter: @c_kirkham