Michael Bernick
Adjunct Fellow; Counsel to Duane Morris LLP; former Director, California Employment Development Department California, Human Capital, Labor
California and Human Capital and Labor
Michael Bernick, the former director of the California labor department, the Employment Development Department (EDD), joined the Milken Institute in February 2004, as a research fellow, focusing on job creation and workforce development projects.
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Thoughts on Labor Day 2011
By: Michael Bernick
August 31, 2011
In California, we head into Labor Day 2011 with an unemployment rate of 12%, and 2,257,000 Californians counted as unemployed. This is an improvement over Labor Day 2010, when unemployment was at 12.4% and 2,330,000 Californians were unemployed . But this economic recovery has been very slow, far slower than previous recoveries in California, and predictions are for unemployment to continue over 10% for some time. We have reached the Jobs Perplex.

The past year has seen a small group of California industries expanding employment. Nearby my office, in the South of Market area of San Francisco, hundreds of internet commerce and social media start-ups are in active start-up mode, joining the established Twitter, Zynga, and employment generators in the area.

But technology is among the very small group of sub-sectors that are growing significantly in employment, in San Francisco and statewide. For the most part, since Labor Day 2010 California firms have sought to hold on to employees, not expand, as shown in the figure below from EDD's most recent employment briefing.


Nationwide, policy entrepreneurs have weighed in over the past few weeks with a variety of initiatives to address the jobs perplex. These have ranged from the traditional large-scale public works and infrastructure investments to more exotic proposals, including one by Jonathan Alter to use unemployment insurance payments as vouchers to employers for new hires and a second by Mickey Kaus (channeling economist Martin Weizman) for flexible pay for workers.

In California, the job creation approaches have been more grounded in fiscal and political realities. Last week, Governor Brown proposed a series of tax measures to stimulate hiring, including a sales tax exemption for purchases of manufacturing equipment (paid for by eliminating a tax benefit that allows companies to pick the less expensive of two tax formulas). He also proposed expanding an employer tax credit and increasing the amount per employee from $3000 to $4000.

These approaches are aimed at private sector growth, arise from California industry, and will not have significant impact on the budget. It's difficult to understand the opposition, other than ideology; and the weeks following Labor Day 2011 will be an appropriate time to move these forward.

For the long run, though, Labor Day 2011 might be a start for California government also to address another part of our state's jobs perplex: the enormous gap that has arisen over the past 40 years between government entitlements and work, to better connect our CalWORKS welfare system, Unemployment insurance System, and Social Security Insurance/Social Security Disability Insurance (SSI/SSDI) system to jobs.

The 1996 federal welfare reform act sought to rebuild the nexus between welfare payments and work. Though implementation has been mixed in results, the principle was the right one: reorient the system toward job placement. Even as job placements become most difficult to achieve, the commitment to this jobs orientation cannot be lost.

California's Unemployment Insurance system has been in the press the past few years mainly because it, like the systems of most states, has been operating in the red. Yet, beyond the solvency issue is work orientation. The UI system is a 1930s system that is aimed at paying benefits. It has a re-employment mission and structure, but a limited one.

The SSI/SSDI system is the entitlement system most out of control and removed from work. Nationwide it has grown from 6.6 million recipients in 2000 to 10.2 million recipients in 2010; with more than one million recipients in California. While part of this increase has been a movement of persons from welfare to SSI/SSDI; a greater part has been the rush to get persons with disabilities on the SSI/SSDI rolls, and the little the system has to offer in job placement. The community job training groups that work with persons with disabilities, such as the ARCs of California, scratch and struggle for each placement. What sense does it make to speak of new job placement structures for SSI/SSDI recipients or welfare recipients or UI recipients in this time of job scarcity? Each job opening in California continues to get tens of applicants or more; the Bureau of Labor Statistics reports roughly five unemployed workers for each job opening.

I don't have the answer. Unlike other policy entrepreneurs, I don't have a 10-point jobs plan, or a 6-point jobs plan, or even a 1-point jobs plan. But I do know that work-rather-than-entitlements is precisely the discussion that should begin in California on Labor Day 2011. The idea of a California economy in which a good portion of the workforce is on government entitlements would have unthinkable 20 or 30 years ago.

Is that the ghost of Gus Hawkins I see in our Capitol hallways?