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When the Big Wheel Turns

December 2, 2001 / By Daniel Flaming, Mark Drayse and Gerald Sumner
Underwriter: Economic Roundtable

When_the_Big_Wheel_Turns_img_01Summary of Findings

  1. Over half of Los Angeles County’s labor force works in industries that are highly synchronous with the business cycle, with employment changes likely to occur in the same year as business cycle changes. More than one-quarter of the effects of a recession are likely to occur in a secondary wave of lagged employment impacts that occur subsequent to the overall business cycle.
  2. In addition to job losses the past two recessions have also seen job growth in some Los Angeles industries. The ratio of job loss to job growth in the downturns was roughly three to one.
  3. By far the largest job losses are projected to occur in the “help supply services” (temp agency) industry, which is expected to account for 15 percent of all layoffs. Nearly 9 percent of all low-wage workers are employed in this industry.
  4. Twenty-two industries with total employment of 54,400 workers in the City of Los Angeles may be at-risk as the current slowdown increases the likelihood of further industrial restructuring. Overall, these industries pay above-average wages – $3,730 a month in 1999 compared to $3,012 for all jobs in the city.
  5. There is a distinct geographic component to the industries that are at risk of setbacks. Most are manufacturing and wholesale industries with significant concentrations of employment in the North San Fernando Valley and some additional concentrations in the South San Fernando Valley.
  6. A seemingly moderate increase of 1 percentage point in the rate of unemployment, which would increase it to the 1997 rate of 6.8 percent, can represent hundreds of thousands unemployed workers — both officially counted job seekers and “invisible” uncounted discouraged workers who are left out of labor force statistics.
  7. The unemployment rate for welfare-to-work participants is roughly five times higher than the rate for the overall labor market, reflecting much bigger swings in employment for this group of workers than for the overall labor market. A positive outcome of this disparity was that when the overall unemployment rate declined by 1 percentage point between 1997 and 1999, the rate for welfare-to-work participants dropped by 7 percentage points. The potential downside is that as unemployment increases there will be disproportionately large impacts on low-wage workers.
  8. Over the most recent three-year period for which we have data, 1997 to 1999, the average annual wage for a job in Los Angeles County increased by 4 percent. During this same period of time the average annual earnings of welfare-to-work participants who had been in the labor market for at least two years and who were employed during the year increased by a remarkable 38 percent. In the 1999, average earnings of these welfare-to-work participants grew to 29 percent of average wages in the labor market, a gain of 6 percentage points in a single year.
  9. Most of this economic progress is attributable to increased labor market demand for entry-level workers, rather than a fundamental change in these workers’ competitive standing in the labor market.
  10. The recent economic progress made by low-wage workers in the Los Angeles region has been greatly facilitated by recent economic growth and consequently it is vulnerable to being reversed by a recession.

Summary of Policy Recommendations

  1. Initiate preemptive outreach activities to: (a) obtain identifying and contact information for at-risk workers, (b) provide workers in vulnerable industries with access to training programs that will help them move laterally to related jobs in other industries, (c) provide workers with information about potential career mobility paths, (d) make business assistance resources available to impacted employers.
  2. Use this period of job scarcity to support more extended and intensive job training programs that qualify workers for occupations that pay sustaining wages. Career planning activities should make use of extensive information that is now available about the occupations that employ workers in each area of the city, the wages they pay, and whether they are growing or declining.
  3. The number of laid-off low-wage workers will be highly disproportionate to their presence in the labor market. It is particularly important to identify at-risk worker in this population as early as possible and to use this interval of unemployment for skill development that will change their competitive standing in the labor market.
  4. Monitor the 23 industries (see Table 2) that are projected to have the have the highest layoff rates and the most laid off workers, accounting for an estimated 55 percent of recession-caused job losses, identify workers in advance of layoffs, and provide workers with appropriate employment services.
  5. Reach out to employers in the 22 at-risk industries (see Table 4) that have experienced both long-term and near-term employment decline to determine how the city can assist in improving the business environment for them. Particular attention should be paid to the large concentration of these industries in the San Fernando Valley.

Chapter Headings

  1. Executive Summary
  2. Introduction
  3. Industry Distribution of Potential Layoffs
  4. Industries at Risk
  5. Increase in Unemployment
  6. Decline in Earnings
  7. Tools for Helping Workers
  8. Notes
Area of Work: Economy, People
Tags: Los Angeles