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'Innovation Industry' Fueling San Diego County's Economy

A chart displaying job gains and losses in San Diego County during November 2013 to November 2014.
San Diego Workforce Partnership
A chart displaying job gains and losses in San Diego County during November 2013 to November 2014.
Streak of Solid Hiring In U.S. Bolsters Confidence About 2015
Streak of Solid Hiring In U.S. Bolsters Confidence About 2015
Streak of Solid Hiring In U.S. Bolsters Confidence About 2015 GUESTS Tony Cherin, finance professor emeritus, San Diego State University Erik Bruvold, president, National University System Institute for Policy Research

Maureen Cavanaugh: Our top story on Midday Edition. There is good reason to be pleased with the latest national jobs numbers, some economists are calling 2014 a stellar year for job growth in the U.S. with more than three millions jobs created. But just as the employment rate goes down, many are waiting so far in vain for salaries to increase. Hourly wages actually fell slightly in December with an average increase for the year at an anemic 1.7%. So the great jobs numbers come with some problems attached. Joining me to talk about the new national jobs report and its implication for San Diego are my guests: Tony Cherin is San Diego State University Professor Emeritus in Finance, and Tony welcome to the program. Tony Cherin: Thank you for having me. Maureen Cavanaugh: Erik Bruvold is President of the National University System Institute for Policy Research. Erik welcome back to the show. Erik Bruvold: Good to be back. Maureen Cavanaugh: Tony, I wonder if you could give us an overview of what the labor department is saying about job growth in the U.S. in 2014? Tony Cherin: Well, the labor market itself is due of labor statistics you know putting out information obviously that is, you now – information that shall we say is congratulatory almost in a sense that you know that things that definitely improve, and for the most part, I think that’s true, I mean if you look a little bit deeply, I mean you can still find some source. Maureen Cavanaugh: Okay. Now December’s national job growth, Erik, wasn’t impressive, 252,000 jobs. Is that due to holiday hiring? Erik Bruvold: No, you know, we saw – and that’s way I termed 2014 I wouldn’t call a specular, but I’d say solid progress, and so we saw job gains in a variety of different areas inside the economy, we saw growth in professional services, and growth in manufacturing, which is always good to see, trading transportation, indeed retail numbers went up, but did not go up dramatically, and some of that may really reflect some change in holiday shopping patterns, where we had people who are really buying their gifts over a much more extended period of time, and then just some of the efficiencies were seen in the retail sector as a sort of fundamental changes. Maureen Cavanaugh: So, Tony, how are these improved job numbers? What have they done to improve the nation’s unemployment rate? Tony Cherin: Well, they have brought the unemployment rate down that at least nationally, new employment rate is down by 5.6, I believe, something in that room, and so that you now that’s a good news at least on the phase of it. Maureen Cavanaugh: And that’s – Erik, that’s the lowest since 2008. Since the recession began. Erik Bruvold: Yeah, I mean, it has been a long slow slog out of this. It’s always true, really true if these kind of speculative bubble recessions and we’re starting to see some real progress in terms of putting employment back into a positive peak territory. Maureen Cavanaugh: What are the reasons, Tony, that jobs grew in such as a strong rate in 2014? Tony Cherin: Well, I think the reason for – you know I think we could probably put it on both – in both terms of monitory policy and in terms of physical policy as well. It’s obvious that the federal reserves has kept interest rates low, and low interest rates and encourages borrowing not only for you know for home owners and building homes, but also industry borrowing, and then in terms of physical policy, we had a continuation of an act that came on board five years ago called the American Recovery and Reinvestment Act or sometimes referred to as the stimulus, which was a form of physical policy that involved both tax cuts and involvement in federal projects. Maureen Cavanaugh: And would you concur with that anything to add to why last year was such a strong year for job growth. Erik Bruvold: Yeah, I mean, I think that’s right, I think it just is part of this is the business cycle and we know that the business cycle in terms of the back sort of coming back out of the trough is longer in these kinds of recessions as compared to others. I think one of the underappreciated stories also really over the last about five years has been really the expansion in terms of mineral and petroleum extraction in the United States, and then we’ve seen a real fundamental shift in that, and there are areas in the country that have really benefited in terms of employment. Now, you know, with oil now at 40 dollars or 50 dollar a barrel, we’ll see how long that sustains that price level and what that sustains in employment, but that’s been another source of strength for coming out of the recession has been the new technologies that have allowed the oil extraction industry to expand. Maureen Cavanaugh: Erik, how does the San Diego job market compared with the national job spectrum? Erik Bruvold: So, we’re doing better, and so really since 2012 there has been a little bit of a gap that’s emerged in our economy in terms of a little bit stronger growth, in terms of employment when we compare to where national numbers are. We… Maureen Cavanaugh: What is our employment? Erik Bruvold: So we’re at you know about 5.8% unemployment and but in terms of jobs growth the year-over-year job growth we’ve been doing a little bit better in terms of the rate. We chalk it up to two things and so we’ll talk sort of in the first period of time. We just simply benefit from sort of [indiscernible] [00:06:02] in economics of defense spending and so to the extent to which that the United States government sort of in that period was continuing to wait just wars in Iraq and Afghanistan; they were spending in San Diego. That’s tapered off, but what we’ve seen in 2013 and 2014 is expansion in San Diego’s innovation economy, its health sciences, its telecommunications industry parts of its advanced manufacturing, and that’s been fuming growth in 2013 and 2014 and keeping us a little bit better than the state, a little bit better than the nation. Maureen Cavanaugh: Is construction still struggling? Erik Bruvold: Yeah, and that’s I think the biggest problem. I know one of the things you let into was this issue about wages, and we still have a challenge and what we might call our opportunity economy. Construction meager job growth, and in terms of housing permits being pulled still relatively low though picking up, we still sort of have manufacturing, took some hits and has been very slow, and I’m not sure we ever going to see 100,000 manufacturing jobs in this county anymore. So, those are the challenges in our economy and they remain both short-term and structural in terms of our opportunities, our ability to create jobs with good wages that allow middleclass lifestyles. Maureen Cavanaugh: Professor Tony Cherin, going back to the national jobs numbers for a moment, I was struck with one of the things I read about that and that is that the job gains last year had a profound impact on the long-term unemployed. Apparently, the number of people who’ve been unemployed six months or more fell 28% last year. Does that indicate to you a fundamental turn around in the economy? Tony Cherin: Well, if that’s truly the number, yes, I think that would signal that, but at least my reading of the data is that 32% of the unemployed today are long-term unemployed, and the over at least the relatively recent past, that level hasn’t changed much. Maureen Cavanaugh: Tony Cherin, let’s talk about the issue that I raised in the open and Erik Bruvold just talked about and that is pay scales, they don’t seem to be going up at the same time that more jobs are being created, would you say that the hourly pay rate is at this point stagnant? Tony Cherin: Well, I’m not sure what do you mean by stagnant, in other words is it something that then put on the backburner I doubt that is that – is that what you’re getting it? Maureen Cavanaugh: I’m saying it’s not really moving. Tony Cherin: Well, minimum wage is not moving which would, you know, which would suggest the whole bunch of different, you know, a bunch of different things. For instance, it would suggest that there are still more job seekers than there are jobs out there that would be one thing, another thing would be that in the past, companies are findings ways through technology to do things more efficiently, and therefore, don’t need to hire. So, those are some of the things that are keeping wages down. Maureen Cavanaugh: Right, I wasn’t actually talking about the minimum wage, I was talking about the hourly wage. Erik Bruvold: Yeah. So I think, Maureen, if you look at this – may there is a way to think about it both at the national level and the local level except there is a little bit different issues going on here. At the national level, we’re still really swag in a way at the damage that was done in the great recession. So, if you look at sort of not just the unemployment number, but those people that are working part-time, that say they want to work fulltime, and some but not all of the people that have dropped down entirely of the labor, the workforce, you know, we’re looking at a “true unemployment number” or whatever that number is more close to 11%. So, you know, we’re still chip in a way of that. Maureen Cavanaugh: Right now? Erik Bruvold: Yeah. And so, you know, there are a lot of people out there who would rather work more hours, who would like to get back into the workforce, but aren’t actively seeking a job. And so until we start to chip away about that, employers are sort of the wage makers, and so they are not – there is not a tightness in the labor market to encourage raises. Now San Diego’s challenge in another area is just a structural one, and we have talked about it before and we’ll probably talk about it again. We have a lot of people in our community who work in the hospitality industry, and the challenge in that industry is that it’s labor intensive and it’s not been an industry that’s had huge gains and efficiencies and productivity that thing could be passed on and wage increases to its workforce. And so, you know, I think at the national level, we’ve got to see another good year, may be another two good years and really push tightness in the labor market to get that demand up for workers, so it see wages. And in San Diego, it’s this challenge of how do we continue to balance, not to diminish our tourism industry, but how do we continue to balance it with other kinds of industrial growth that’s going to have higher wages and higher rates of wage gain, so we can see that kind of standard living rise. Maureen Cavanaugh: Professor Cherin, outside of the fact that there still seemed to be more people looking for work than their odd jobs even though the labor pool is tightening up a bit. From your point of view, are there any other factors that are keeping wages down? Tony Cherin: Well, as I mentioned earlier, I think that, you know, in various situations we are finding ways of using technology to replace workers. In another words, actual human beings that there are ways that one way to keep wages down or one way to keep overall – the overall cost of labor down is to replace labor with technology, and I think that that’s occurring to a large assent depending on the industry. As Erik mentioned, in the hospitality industry that’s pretty labor intensive, but there are other industries, which are which are very capital intensive, and as a consequence and perhaps do away with adding labor in place of by using technology. Maureen Cavanaugh: I’m wondering, Erik, if a large number of people are working, they’re employed and happy to have – to be working, but they still can’t make a middleclass wage. Does that indicate that we still have a major economic problem in the United States? Erik Bruvold: Problem – I think it’s the structural fact, and you know, I think that politicians on both sides, the economists, you known, it is the challenge of this postindustrial economy which we’re in a globalized world. How do we create a service sector-oriented economy that’s going to see wage and productivity growth that accrues to lots of people throughout the economy and not just narrow slices. And, you know, there is no magic answer to that. It’s conundrum, which is challenging to people because what we’ve seen is we’ve seen productivity gains, but not wage gains, and we’ve seen the pace of technological change really outpaced any kind of optimistic idea that people are going to be able to retrained and sort of keep up with the demands and the changing nature of work in their professions. Maureen Cavanaugh: Do you see that, Tony Cherin, as the underlying program of the numbers that we see coming out of Washington and other labor departments? Tony Cherin: No, I think that’s true, I mean I would, you know, I would definitely backup what Erik is saying again referring, you know, to technology output for – per man can increase while we’re still, you know, having of relatively significant level of unemployment. Maureen Cavanaugh: I have to end it there. I want to thank my guest, Professor Tony Cherin, San Diego State University Professor Emeritus in Finance, and Erik Bruvold President of the National University System Institute for Policy Research. Thank you both very much. Erik Bruvold: Good to see you. Tony Cherin: Thank you. [music….] Maureen Cavanaugh: Coming Up: The annual count of homeless people is about to take place in San Diego. We’ll check in on San Diego’s efforts to end homelessness. It’s 12:20, you’re listening to KPBS Midday Edition. [music….]

San Diego County's "innovation industry" — businesses linked to the health sciences, biotech and telecommunications — is keeping the region's unemployment rate low, a local public policy analyst said Tuesday.

The county's most recent unemployment rate was 5.8 percent in November — down from 7 percent from the same month last year. It's also lower than California's unemployment rate of 7.1 percent, according to the state Employment Development Department.

"What we've seen is this expansion in San Diego's innovation economy, said Erik Bruvold, president of the National University System Institute for Policy Research.


"It's the health sciences, the telecommunications. It's been fueling growth in 2013 and 2014, and keeping us a little bit better than the state and a little bit better than the nation," Bruvold told KPBS Midday Edition.

But industries such as construction and hospitality are struggling in San Diego County, he said.

"We still have a challenge in what we might call our opportunity economy," Bruvold said. "We have a lot of people in our community who work in the hospitality industry. And the challenge in that industry is that it's labor intensive, and it's not been an industry that's had huge gains and efficiencies in productivity that can then be passed on in wage increases to its work force."

San Diego employees saw their wages grow slowly, with the average worker earning about $1,044 a week. The average weekly salary is 1.2 percent more compared to the salary of the same time period in 2013, according to U-T San Diego.

Despite the slow increase in wages, December brought nearly 3 million new jobs in the U.S.


Bruvold said it's "solid progress" but there are still many people who are working part time but want to work full time.

"We're looking at a true unemployment number of 11 percent," Bruvold said. "There's still a lot of people out there who would rather work more hours. Those are the challenges in our economy, and they remain both short-term and structural in terms of our ability to create jobs with good wages that allow for middle-class lifestyles."

More about San Diego County's economy will be discussed Friday at the 31st annual San Diego County Economic Roundtable. It's from 8:30 a.m. to noon Friday at the University of San Diego. Admission is free, but registration is required.