The Inland Empire strikes back with employment and labor force, or does it? – Press Enterprise

By Jinghan Hu and Manfred Keil | Inland Empire Economic Partnership

Despite inflation adjusted Gross Domestic Product shrinking for the first two quarters in 2022, the national, state, and regional labor markets continue to boom. True, the national unemployment rate just went up to 3.7% (from 3.5%) in August, but we don’t interpret this as an  alarm of an upcoming recession, since the U.S. economy added almost 450,000 jobs. The labor force finally returned to pre COVID-19 levels, sitting at 0.1% above the pre-pandemic level of February 2020. It took us 30 months to fully recover, not taking into account the growing population since then. Employment did not do as well. We are still 134,000 positions, or 0.1%  short. These numbers also explain why the U.S. unemployment rate is now 0.2% higher than in February 2020.

Next: the Golden State. The result? Not so good. The labor force is short almost 210,000 people, or 1.1% of where we were then. Employment? Down by roughly 165,000. The unemployment rate is lower by 0.2 percentage points only because of the significant shrinking of the labor force. There are a large number of vacancies for every unemployed worker, but these vanished workers simply never returned.

And the winner is … the Inland Empire.

Compared to February 2020, we have added almost 45,000 or 2.1% to the labor force, and 43,000 or 2.1% to employment. This is not a photo finish. The unemployment rate is down to 3.9%. We have returned to where we were prior to the last recession – despite the labor force having increased by a decent number over the past two years. This does not mean that all sectors have recovered – Manufacturing, Information, and Government (Local) have not, but all others have. The king among the athlete’s performance? The Logistics sector. Here we added 59,600 or 27% jobs. This is hardly surprising given the nature of the pandemic and the recovery since then: the retail trade industry is undergoing immense changes with Amazon expanding everywhere.

Clearly, the Inland Empire is outperforming both the state and the nation in terms of employment and labor force growth, just as it did during the last economic expansion following the Great Recession of 2008-09. Riverside County and San Bernardino County have not only recovered employment and labor force numbers but went above and beyond to add new jobs. Is it time to celebrate yet? Perhaps not. These numbers do not necessarily mean residents of the Inland  Empire are doing better economically. To reach that conclusion, we need to consider factors other than the labor market.

First there are the “NIMBY” objections. Pitzer College professor Susan Phillips, who is the director of the Robert Redford Conservancy for Southern California Sustainability Center, on May 1 published an op-ed piece in the LA Times that expressed severe concerns over the expansion of warehouses in the Inland Empire, pointing out the “worsened traffic, air quality, cancer rates and chronic health problems” caused by the booming Logistics sector. While we do not agree with this general characterization, there is little doubt that economic progress has costs. We have already seen this during the Coronavirus pandemic, where states had to make difficult choices between reducing mortality rate through more stringent policies and promoting economic recovery (less stringent policy). The booming of the logistics center clearly brings prosperity to the region, but it comes at environmental costs. This calls for an economic impact study that considers costs and benefits.

Second, and often left out in policy discussion, is the fact that many of the jobs created in the Inland Empire are not high in value added, and hence do not create enough compensation that will prevent 20% of its labor force from commuting every day. We are now the 12th largest Metropolitan Statistical Area in the U.S. out of a total 386, having just passed San Francisco. The GDP produced within the Inland Empire is the 20th largest in the U.S. by dollar value – a bit of a loss in rankings, but still quite high. Here comes the downer: when we look at the standard measure of the Wealth of a Region, per capita GDP, we drop to 340 out of 386 MSAs. Even adding the income of commuters does not get us higher than 290 out of 386. This is a devastating objective statistical indicator.

Since GDP and GDP per capita seem too abstract to some, consider that the average wage in the Inland Empire is currently $28.56, which is $9.18 behind the state average, and $3.70 behind the U.S. average. Compared to pre-COVID-19, wages here increased by $3.06 but went up by $4.18 in California and $3.70 in the U.S. Not only is there a gap, but it widens. This is not a recent  phenomenon. If we go back to the end of the Great Recession in 2009, then nominal wages in the  Inland Empire have increased by $6.05, which is only half the state average.

Third, Professor Johannes Moenius at the University of Redlands has pointed out repeatedly that  the fourth industrial revolution (robotics, artificial intelligence) will have a particularly devastating impact on the logistics industry. Warehouses and transportation will employ fewer and fewer people as technological progress will result in a large number of capital-labor substitutions. A tour around an Amazon warehouse or the cargo section of Ontario Airport and you get a glimpse of this already. The coronavirus recession has moved the industrial revolution forward by more than five years — what would have happened toward 2030 is going to happen much sooner.