By some measures, this should be the best of times for L.A. workers.
The unemployment rate has plunged to a five-year low of 4.5 percent and is now lower than the state and national unemployment rates an extraordinary development. About 145,000 more Angelenos are working than a year ago, a growth rate of 3.2 percent.
Signs of a robust economy appear all over the county, whether in low office and industrial vacancy rates or jammed freeways and roads.
"We now have reached a historical low in the unemployment rate, which indicates that the labor market is becoming extremely tight," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.
But there are other less positive job numbers. Non-farm payrolls, the most closely watched measure of employment, have barely budged, increasing 35,000 jobs or 0.9 percent to a smidgeon over 4 million.
For now, economists are both puzzled and a bit skeptical. Just a year ago, the county's unemployment rate was 6.3 percent, and such precipitous drops are unusual. To be approaching the level of Orange County, which historically has had the region's lowest jobless rate, only adds to the confusion.
So does a survey last month by Manpower Inc. that found only 16 percent of Los Angeles-area employers planned to hire more workers in the fourth quarter, while 30 percent intend to reduce staff. "Employers are showing much more restraint in hiring than they were a year ago," said Manpower spokeswoman Melanie Brown when the survey was released.
'Informal economy' effect
How to explain the disparity? It could be a combination of what jobs are being created and how they're being counted.
Unemployment rates are calculated from survey data collected from households, while payroll jobs data are taken directly from company filings. The household survey is a smaller sample and therefore can be volatile, while the payroll survey, until recently a more reliable gauge, is coming into question because so many more workers are not employed directly by a company.
Instead, they are part of what's become known as the "informal economy," an amalgam of self-employed business owners, independent contractors and workers getting paid off the books. "Los Angeles has become ground zero for this informal economy," said Chris Thornberg, senior economist with UCLA's Anderson Forecast.
Independent contractors, in particular, long have been the norm in the entertainment, trucking and construction industries. But their use has spread to other industries as companies strive to cut costs. By converting full-time employees to independent contractors, companies can save on benefits.
"The rising cost of health care and workers' compensation insurance has been a huge reason why this informal economy has grown," Adibi said.
The region's booming real estate sector has also contributed to this growth. Many real estate agents and mortgage brokers are classified as independent contractors and don't show up on company payrolls.
Also, L.A.'s huge immigrant pool has fueled the spread of small, family-owned businesses with few or no payroll employees, as well as tens of thousands of people working strictly on a cash basis what's considered the underground economy.
Some of the growth in the informal economy shows up in the civilian employment figures from the household survey. In September, civilian employment stood at 4.65 million, up 145,000 or 3.2 percent from September 2004.
(Temporary workers who sign on with temp agencies are not considered part of the informal economy. They show up elsewhere in the payroll jobs data. In L.A. County, there were 112,000 of these temporary workers in September, up 2.4 percent from a year ago.)
Traditionally, economists have been reluctant to rely on the civilian employment data to tell what's going on in a specific county. Some respondents to that survey may live in one county and work in another. More importantly, there's no way to verify whether a respondent is actually working or whether that respondent is working 10 hours a week or 40 hours a week.
But now, with the gap between civilian employment and payroll jobs at a record 630,000, economists are paying more heed to the civilian employment figures.
"However imperfect they are, the civilian employment numbers seem to be giving a more accurate picture of what's going on," said Ryan Ratcliff, an economist with UCLA's Anderson Forecast.
Traditionally, large urban centers like Los Angeles have been magnets for the unemployed, with levels significantly higher than other parts of the region or the nation. For virtually all of the last 15 years, L.A.'s unemployment rate has exceeded the national average; for much of that time, it also exceeded the rates in Orange County and the fast-growing Inland Empire.
But in September, L.A.'s 4.5 percent unemployment rate was lower than the 4.8 percent nationwide level and the 5.1 statewide rate. It was also lower than all surrounding counties, except Orange County's 3.6 percent rate.
"Unlike in any other local county, in L.A. you've got dozens of schools being constructed and several major infrastructure projects like the Orange Line," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
L.A. has also seen robust growth in the tourism sector, which has added 8,000 payroll jobs in the last year. But what role these factors might play in the 4.5 percent rate is unclear, and some local economists are waiting for more months of data to determine sustainability.
Over the last year, the region has been buffeted by rising commodity prices for everything from gasoline to steel and concrete. Consumer confidence has plunged, both statewide and nationally.
And overhanging everything is the potential some economists see for a deflating of the real estate market. That could put an abrupt halt to the growth in the ranks of real estate agents, mortgage brokers and construction workers, not to mention the prospect for decreased consumer spending if home values stall out or start dropping.
Also, while the unemployment rate has matched its recent historic low, there were still 218,000 people unemployed in Los Angeles County last month, making for one of the largest concentrations of unemployed in the nation. Some may be between jobs, but most are considered structurally unemployed either their skills are outmoded or they have other problems such as mental illness or substance abuse that prevent them from holding a steady job.
In any event, employment is considered a lagging indicator, so economists say that if the economy does slow, it could take several months for it to show up in the employment figures.
"We've managed to take care of most of the cyclical unemployment, but we still have these structurally unemployed people," Adibi said. "In order to get some of these people into the job market, the economy has to continue to improve."
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- October Job Picture Flat
- County Unemployement Rate Rises
- L.A. Employment Improving After 'Mediocre Years'
- L.A. Employment Improving After 'Mediocre Years'
- Employment Picture Mixed in April
- L.A.'s Economy Hit Bump in August
- Unemployment Up, Economy Still Strong
- California's Unemployment Rate Dips 0.2 Percent in January