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Economists Warn Many Jobs Will Never Return In Global Economy

Paresh Dave |
December 21, 2011 | 12:28 a.m. PST



Faces of L.A.’s Jobless: A Neon Tommy Special Report >>>

Los Angeles County has 370,000 fewer jobs than it did when unemployment hit a record high in November 2007. More than twice as many people -- 580,000 -- are without work than back then.

This year, their patience and that of many other Angelenos has been tested by global crises and stalled action on key legislative efforts in Congress.

The cat-and-mouse game between government and business has made Swiss cheese of the bank accounts of middle-class America. Banks remain skittish about loaning money to businesses, and businesses are cautious about hiring.

What L.A. Mayor Antonio Villaraigosa recently termed as “dithering” in Congress has kept what many on both sides of the aisle consider much-needed federal investments locked up.

Those in L.A. caught in the middle are captured in the stories that follow in this special project.

The unemployed or underemployed population among L.A. County's 10 million residents totals far more than 580,000 figure captured in the Bureau of Labor Statistics' most recent available survey.

Many beyond those accounted for in the county's 11.9 percent unemployment rate have adapted to a restructuring of the L.A. economy and its certain linkage to the global economy. The construction jobs and low-skilled manufacturing jobs many once held won't return for the next few years, if ever. L.A.'s leaders are hoping to welcome bioscience, clean energy technology and hospitality jobs, while restoring vibrancy to the region's education and creative industries.

“L.A. is figuring out what it is going to be,” said Brad Kemp, a regional labor market expert at Beacon Economics, a Los Angeles-based independent research firm.“You don't say a child is in puberty and that's a bad thing. You say they are going through puberty, and it's not positive or negative.”

L.A.'s coming of age challenges its leaders to exercise stewardship of the economy unlike any generation before.

“It's not a problem that's going to sort itself out,” said Daniel Flaming, president of L.A.'s Economic Roundtable. “It's not a problem that's going to be solved by having Hollywood and the beaches. This is really protracted.”

So how was L.A. suddenly pushed into pubescent uncertainty and what will its mature self look like?

“We way overbuilt the construction industry,” Kemp said. “During the period from 2004 to 2007, everyone jumped on the same bandwagon.”

Banks allowed people to buy homes they could not afford, fueling an unhealthy buying and building craze. Now, the American Dream has shifted from homeownership to just being able to rent a decent home.

Retailers saw opportunity in the new wealth. People who were not buying new homes were securing loans against their overvalued houses, essentially borrowing money they had no way of paying back.

“We seriously overbuilt the retail industry,” said Jerry Nickelsburg, the senior economist for the UCLA Anderson Forecast. “Not only are now people saving more and spending less, but they are spending a greater portion of their disposable income over the Internet rather than in brick and mortar stores, so retail establishments have become more automated.”

Though Nickelsburg hasn't drilled down the numbers to just L.A., he says 5.3 million jobs lost nationwide between 2007 and 2009 are never coming back.

Two million of the jobs belong to people who built homes and buildings, 2.5 million jobs belong to people who made products and 800,000 belonged to people who sold the products.

The drop in home values, stock prices and consumer spending left nearly every American with smaller paychecks or weaker retirement accounts. To make up for the difference, people are working later into their lives.

“Entrants to the workforce keep coming in, but there's no entry-level jobs since the people at the top are not exiting,” Kemp said.

Yet, many have pointed to how healthy the profits are at many American companies. Experts say hiring new workers is not cheap, forcing companies to prefer investments in technology and machinery over workers.

“The cost of employing people is just too high,” Euro Pacific Capital CEO Peter Schiff recently said at a forum on unemployment at UCLA. “Government has made it difficult to employ people profitably.”

The people who can't find work as a result aren't finding cheap or high quality schooling to recalibrate their lives because education is being badly underfunded in California, Flaming said.

“We weren't doing good before the recession, and we're doing worse now,” he said.

The Census Bureau reported last week that the state decreased spending on education  for the third straight year in 2010. Kemp said such declines are “staggering.”

“The very areas we should be focusing on, we're neglecting,” he said.

After his trip through China, Japan and South Korea, Villaraigosa said “what became crystal clear” to him was that the Asian countries ARE investing in education and emphasizing the subjects of math, science and engineering.

Partially because of education gaps or costs, Flaming noted that this decade will be particularly tough for college graduates, African-Americans and teenagers looking for work. He said their sense of being part of the labor force might atrophy.

“The longer you are disconnected, the harder it is to be competitive for reemployment and hold onto the culture of employment,” Flaming said. “Having a job is a source of validation, social connection and economic survival.”

L.A.'s health might become more dependent on industries that Villaraigosa and others have tried to foster here, from tourism to healthcare research to green energy start-ups.

“At the end of the day, there's a link between government and business,” said Michael Kelly, the executive director of a bipartisan group of people from business and academia pushing for job growth in L.A. “We need to have a conversation going. You need the right time for policy and politics to work and for the policies to be implemented.”

The right time has not been this year. A divided Congress–with the Senate majority being Democrats and the House majority being Republicans—has been unable to accomplish much more than the quashing of the other party's ideas.

“Our elected officials are unable to act in a responsible way and understand that politics is the art of compromise,” said Phillip Hart, a real estate developer who wrote in 2007 of the undersupply of housing in L.A.

Whatever the crisis, he said the solution will always come from finding a way to make elected officials be problem-solvers instead of “people who are at each other's throats.”

There's worry that European countries not being able to pay their bills or China's government spending money too fast might produce an uber-crisis in America.

Kemp said the market has already built in the threat, meaning the lack of surprise decreases the likelihood that American businesses would be tragically upended as they were by the collapse of Lehman Brothers in 2008.

It was rush followed by pessimism that brought the nation to this dangerous low. Kemp advocates for patience and optimism to bring America to a safe high.

Those who can't collect unemployment insurance or those who can't collect it forever are left to be entrepreneurs, he said.

“The traditional employment path will not be available to them,” Kemp said. “Now people are going to have to be creative.”

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