When it comes to its economic vitality over the last quarter-century, Los Angeles is in the same league as Cleveland and Detroit, lagging far behind the nation as a whole, and other major metro areas.
Recent figures can obscure this harsh reality, given that the Los Angeles metro area has seen brisk job growth of 2.5 percent each of the last two years. With this boost, L.A.’s employment has finally surpassed its pre-Great Recession level of more than seven years ago. But this is a modest bounce from a deplorable state of affairs.
Even with the recent uptick taken into account, L.A. only increased its payroll jobs by 2 percent between 1990 and 2015. The United States, by contrast, increased payroll jobs by 29 percent during that period—and California created 28 percent more jobs. The country’s second largest metropolitan area is clearly an economic basket case, lagging far behind the national norm, not to mention the country’s more dynamic cities. I don’t mention Detroit and Cleveland for metaphoric event—they really are the only other major cities with comparably weak job-creation records in recent decades.
So what is holding back Los Angeles? I see three main reasons. First, a less friendly environment for business. Second, what economists call low human capital. And third, the high cost of living.
What does that mean? When we’re considering human capital, start with the fact that there are about 1.5 million adult Angelenos—representing 23 percent of the metro area’s adult population—who did not graduate from high school. That is as many adults as live in Manhattan or Silicon Valley. These less-educated Angelenos have a higher unemployment rate, earn lower incomes, and often live in more dangerous, poorer neighborhoods. Children from these families usually go to low-performing public schools, have few role models and little support academically, and therefore have fewer opportunities for advancement and success in their lives. Without such opportunities, the cycle perpetuates for another generation.
In light of this reality, the most important ingredient for achieving long-term shared prosperity for L.A. is to improve our K-12 educational system. Very few people disagree with this. Improvement is elusive, but we have not run out of things to try. There are many innovations that should be on the table in school districts—charter schools, vouchers, early childhood education initiatives, programs that engage parents, longer school hours, community mentor programs, incentives for good teachers. If possible, we should pay those teachers teaching in the low-income areas even more because their job is demanding.
Teachers’ unions must be willing to accept the need for change and innovation, but too often they protect the status quo. And when a union becomes more powerful than a school, city, or even state government, the imbalance of power leads to more injustices. We should ask ourselves: Do we need teachers unions in our 21st-century democracy? Teachers are highly professional and should obviously be respected. Who would want to exploit them? How could publically elected school boards abuse teachers now like robber barons did to blue-collar workers a hundred years ago?
Labor power is an issue beyond L.A. schools and the question of human capital. Labor power can impact the second big reason for L.A.’s struggles: the business environment. Since labor unions have formed colossal coalitions and turned themselves into nationwide monopolies, labor power can scare away small and big businesses from a city or state. For example, in October 2014, a union group used the California Environmental Quality Act as a tool to stop Kinkisharyo International from building rail cars in Palmdale in order to increase its union members. L.A. can’t afford that—it needs businesses and private-sector unions working together on the challenges of globalization and technological progress.
Labor is hardly the only challenge to business. In the 2014 Thumbtack Small Business Friendliness Survey, L.A. County received a “D” for overall friendliness. In detailed grading, Los Angeles’ marks were low for the ease of starting a business, for regulations, for health and safety, for the tax code, for licensing, for environmental, for zoning, and for training and networking programs that support employees and employers.
The high cost of living—the final of the three big factors holding back L.A.’s growth—also hurts the business climate. It’s not only higher land costs but also the extra compensation that employees here demand largely so they can afford housing. In 2015, the median home price in L.A. is $530,000, much higher than $230,000 in Austin and $175,000 in Phoenix. The best way to contain escalating home prices is to increase home supply to meet strong demand. The only way for L.A. to develop is up, but efforts to develop high-density housing have been blocked because of traffic congestion concern. Efforts to develop must include public transportation investments to make higher-density living feasible. It is time to overcome infrastructure shortcomings and prioritize building more multi-family homes.
Addressing these three big challenges to L.A. requires investments—in education, in infrastructure, in housing. If L.A. makes these investments, it could grow out of its problems and see an increase in employment, population, tax base, and revenue, enabling more investment in the future. A change in mindset in favor of investment would transform the current bifurcated Los Angeles into a city of prosperity for all.
William Yu is an economist with the UCLA Anderson Forecast.
*Photos courtesy of Doug Geisler.