The City of Los Angeles, battered not long ago by the departure of high-end aerospace and manufacturing firms, the consolidation of the local banking industry and a recession, has made a dramatic comeback thanks to the creation of thousands of small businesses over the past decade.
But if the city′s economy is to grow into the global powerhouse its leaders envision, they must do much more to bridge the gap between its high-tech, research-oriented assets and its low-skilled immigrant workforce. These are the main findings of a year-long study, the "Los Angeles Economy Project," released today by the Milken Institute. "The City of Los Angeles is a city of tremendous resilience, best described as an economy with a core in large business and a future in small business," the study states. "At the same time, the city also remains polarized between high-end and low-end jobs. It suffers from a labor force that is disproportionately unskilled." Two factors have dramatically impacted the city′s economy in recent years, and how the city deals with them will have major repercussions on its future:
- Two of the three sectors that defined the Los Angeles economy just two decades ago have significantly declined: manufacturing and financial services.
- The city′s diverse business base is severely constrained from participating in the knowledge-based industries that are the key to the region′s long-term prosperity.
While job growth has been stagnant in large corporations, where much of the city′s employment lies, small businesses have been booming, more than filling the employment void left by the big firms. The problem is, these firms tend to be very local, serving just the surrounding community, and they generally employ low-skill workers making low wages — not the kind of jobs that will help the city economy grow and prosper, researchers say.
The study also focuses on the need to improve business owners′ access to capital to help build, grow and sustain their firms, especially in the city′s poorer neighborhoods.
"If a well-trained labor force is one key to the city′s future prosperity, the other is an environment that attracts and sustains small and medium-sized businesses," the study says. "Here, the critical factor is access to reasonably priced capital appropriate to a given firm′s size and stage of growth."
The study makes dozens of recommendations on how the city can meet theses challenges in three areas: entrepreneurial growth, capital access and workforce training. Among the key recommendations:
- Induce and assist employers and workers in the so-called "underground" to move into the formal economy.
- Provide Los Angeles residents with expanded opportunities for improved educational attainment and English-language proficiency.
- Focus the city′s worker-training efforts on industries with the greatest potential for growth, stability and good wages. Among the dozens of target industries identified in the report are residential building construction, financial services, motion pictures and hospitals.
- Use the vast research potential of local research institutions like USC and UCLA by encouraging their development of commercially utilizable technology and the transfer of this technology to entrepreneurs who can apply it for the economic benefit of both the universities and the local economy.
- Create initiatives to improve small-business access to capital, such as leveraging city funds to provide loss guarantees as a way of encouraging lenders to loan to these firms.
- Help small-business owners in the city′s ethnic neighborhoods take advantage of their growing customer base and international ties by creating partnerships across the city′s diverse communities.
- Link job-training and economic-development objectives with the needs of each community.
The report′s recommendations revolve around the most urgent action item that the city has to address and effectively tackle — building a regional economy that fosters faster business growth to create enough jobs, particularly high-quality ones, for the people who are in need of work.
"Los Angeles will improve its economic performance by upgrading the skills of its workforce, providing adequate capital for its businesses and supporting entrepreneurial growth, including promoting the commercialization of the intellectual property provided by our leading research universities," said Michael L. Klowden, President and CEO of the Milken Institute.
The study was conducted by researchers at the Milken Institute, under the leadership of Senior Research Economist Perry Wong and Research Economist Kevin Klowden, and the Economic Roundtable. Financial support was given by the City of Los Angeles, the Los Angeles Workforce Investment Board and the Los Angeles Department of Water & Power.
L.A. Economy Project web site
For more information, including detailed statistics on each of the city's planning areas, and to view the chapters online, visit www.laeconomyproject.com.