It’s a double dose of bad news for California’s economy.

A recent study from a respected think tank has found that not only have the state’s major industries all suffered some net job loss from business relocations, but that this effect is most pronounced among industries that tend to pay higher wages.

The findings by the Public Policy Institute of California which studied business relocations into and out of the state between 1992 and 2003 runs contrary to conventional wisdom that lower-wage jobs are most susceptible to relocation. Most losses were found to have occurred in finance and insurance, manufacturing, and business and professional services.

And while the study’s co-authors said that taken as a whole the losses were small, the study still gives additional weight to the argument that California’s business climate is not hospitable.

“We found that every major industry in the state experienced a small amount of net job migration out of state, but these particular high-paying industries saw more movement,” said Jed Kolko, a research fellow at the Institute and a study co-author.

The study, undertaken specifically to address the issue of the state’s business climate, is not the first to conclude that California’s higher-paying jobs may be at risk.

The Business Roundtable, which comprises top executives from the state’s major corporations, released its own study three years ago that also concluded that “high-value mobile jobs are in jeopardy” because of business relocations. That study singled out many of the same industries insurance, computer software, and manufacturing along with entertainment.

However, while Kolko and the two other co-authors of the Institute study point out that the net job loss from business relocations was just 9,000 jobs out of 15 million payroll jobs statewide, business leaders say the fact that high-wage industries are more prone to relocation should be a cause for concern among the state’s decision makers.

Indeed, the Business Roundtable study painted an even direr picture of the state’s economy, citing repeated surveys of corporate executives indicating that at least 40 percent were considering relocating some or all of their operations out of state. It also pointed out that an even bigger problem is companies deciding to expand operations outside the state.

“Most of the state’s jobs are tied to local markets and really can’t move. But this study shows that those that can move tend to be the high-paying industries with high job multipliers,” said Bill Hauck, president of the Business Roundtable. “They are the ones that bring the most value to our economy, that we can’t afford to lose.”

Lack of consensus


These conflicting views of the impact of business relocations are at the heart of one of the longest-running debates in state politics. Business interests and their Republican allies in Sacramento have for decades claimed that state-imposed regulations have created the most hostile business climate of any state in the nation, forcing repeated exoduses of companies.

But environmental groups, consumer advocates, labor unions and their Democratic allies have been just as fierce in their arguments that the rhetoric surrounding business flight is overblown. They claim business groups are merely exploiting fears of job flight when their real aim is to gut environmental and consumer regulations and to limit union power.

This debate last took center stage during the 2003 gubernatorial recall campaign, when then-candidate Arnold Schwarzenegger cited skyrocketing workers’ compensation costs and other state regulations as the reason why companies were fleeing the state and promised to “blow up boxes” in state government to turn this around.

In late 2004, after the Legislature passed a fiscal recovery package and workers’ compensation reform, Schwarzenegger made a high-profile trip to Las Vegas with a moving van to bring a sign company back to California.

It is in that context that the Public Policy Institute launched its series of studies to determine the scope and the impact of business relocations out of state. The institute examined a relatively new database known as the National Employment Time Series, established in the 1990s and the first to track the location and movement of company facilities.

An initial study, released in 2005, concluded that “California generally loses establishments and jobs due to business relocation, but the flow is small and hence the impact on employment is negligible.” The study also concluded that other factors, including business startups and closings, play a much larger role in job gain and job loss.

Labor unions and Democratic lawmakers immediately seized on this study to buttress their claims that the Schwarzenegger Administration and business groups had blown the relocation issue out of proportion in their opposition to bills increasing worker benefits and protections.

Business groups shot back that the study ignored the issue of whether a hostile state business climate was dissuading companies from expanding facilities here. Kolko said the Institute plans to tackle the expansion issue in a third study.

“With (the first) study and the one we just released, at least we moved the debate from what we found to be the negligible issue of outright business relocation to this larger issue of where companies choose to expand,” Kolko said.

In the most recent institute study released late last month, Kolko said the intent was to use the National Employment database to analyze which industries were most likely to relocate. The results bucked the popular notion that industries with low-paying jobs are most likely to relocate. Instead, industries like insurance, transportation and warehousing, manufacturing, professional and technical services and information technology came out at the top of the scale. While each of these industries has low-paying jobs, the average salaries are higher than food service, hospitality or apparel.

Economists speculate


The study did not examine why these industries were most susceptible to relocation. But Kolko believes companies that make extensive use of technology that can be operated from anywhere, as well finance and insurance sector companies may be at most risk.

“Take the finance and insurance sector, which had the highest level of out-migration relative to its overall employment base. We have seen a tremendous amount of consolidation of backroom operations as a result of mergers and acquisitions,” Kolko said.

Among these: NationsBank bought Bank of America, and though its kept the San Francisco bank’s name made its combined headquarters in Charlotte, N.C. Other industries have also seen their share of relocations.

Other recent high profile relocations include Pomona-based Keystone Automotive Group, which announced in May it was relocating its top executives to Nashville, Tenn. That followed on the heels of Nissan Motor Corp.’s announcement that it was moving its U.S. headquarters from Gardena to Nashville.

Still, Kolko said that in all industries, the numbers were so small that they were not worth basing making major policy decisions on. But business groups dispute this notion.

Indeed, for the last several years, the Chapman Center for Economic Research has surveyed Orange County executives and found that roughly one-third of the respondents have been contacted by other states about relocating. And about the same percentage were seriously considering relocating their firms, either to cheaper locales in California (such as the Inland Empire) or out of state.

And while there has been no official documentation of how many firms have relocated some or all of their operations out of state, late last year, just after Nissan announced it was leaving Gardena, the Los Angeles County Economic Development Corp. released a list of 70 companies that had left or announced their departure from Southern California.

“There is a real disconnect between what the authors are saying and what we’re seeing on the ground,” said Ron Gastelum, a board member of the Los Angeles Area Chamber of Commerce. “Other states are aggressively lobbying our businesses with incentives and promises of a better regulatory environment.”