It’s been a common refrain in L.A. politics and business: The county has never regained the jobs lost since peak employment of 4.2 million in 1990, despite population growth.

But is it true? The answer is yes and no.

Payroll jobs the ones with benefits and generally higher salaries have never been higher than the 1990 level.

But total employment including freelancers, independent contractors and workers in the underground economy has climbed as high as 4.7 million.

By all indications, including an economic forecast released last week, the trend of stagnant payroll jobs will continue. Once the recovery takes hold, it’s the nonpayroll jobs that are expected to increase.

Economists said the divergent paths illustrate a key structural change in the local economy: Industries with highly coveted payroll jobs have diminished their presence here, while sectors with large numbers of “informal employment” generally lower-paying and less stable jobs that are not on company payrolls have thrived.

“Corporations with large payrolls left and so did a lot of manufacturing,” said Daniel Flaming, president of the Economic Roundtable, an L.A. economic research organization. “Meanwhile, industries with large shares of informal employment have grown.”

Business and political leaders often invoke the county’s job numbers to paint Los Angeles as an unfriendly place for business.

The job numbers (the peak was reached in December 1989 despite constant references to 1990) were raised by developer Rick Caruso as he mulled running for mayor last summer as a pro-business candidate. The numbers were also cited by Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce, two years ago during the debate over whether to extend the city of L.A.’s living wage to airport-area hotels.

While the county’s population grew from 8.8 million in 1990 to 10.2 million in 2008, the number of payroll jobs did not increase at all over that span. As a result, the share of business and payroll taxes that had been funding government services can’t meet the needs of the growing populace. Also, the loss of payroll jobs has a multiplier effect: Workers with higher wages spend more money, keeping dry cleaners and other service providers in business.

Bleak forecast

The number of payroll jobs came close to the 1989-90 level during the peaks of the two most recent booms, but then fell back during subsequent busts. Last week’s bleak midyear forecast from the Los Angeles County Economic Development Corp., in which job losses in the county are expected to mount through 2010, indicates that it will be several years before the 4.2 million level is approached again.

But that’s not the entire story.

If you include the number of informal jobs, the number of people with jobs in Los Angeles County has trended up modestly over the past 20 years, topping out in 2007 at 4.7 million, about 400,000 jobs more than the 1989-90 payroll employment peak. Even with the deepest recession since World War II pushing the county’s unemployment rate past 11 percent, the overall employment level in June was still about 120,000 above the 1989-90 peak.

The shift to more informal jobs, which went into high gear during the collapse of the region’s aerospace industry, has had a profound impact on the local economy and the communities within the county.

The 1990s saw not only the demise of much of the aerospace sector, but also major consolidation in the banking and finance industry, and the retail sector. Especially hard hit was manufacturing, which shed jobs as some companies moved out of Los Angeles and others contracted with foreign factories that paid workers pennies on the dollar.

There was also a precipitous decline in the number of major corporate headquarters operations in the county. Larger companies and corporate headquarters in particular keep dozens of smaller companies in business by contracting for goods and services.

Meanwhile, the flight of large corporations from the county has created a void in business leadership. As a result, labor unions have been able to grow their power and influence. The rise of unions is another factor in the county’s perception as business-unfriendly. The more power that unions have, the more anti-business policies are adopted: The most prominent example is L.A.’s “living wage” ordinance that passed in the 1990s, requiring city contractors to pay their workers more than the state minimum wage.

Business flight

The reasons why large corporations and manufacturers have fled Los Angeles have long been debated. Business advocates claim high taxes and ever-more intrusive regulations have pushed these companies to expand elsewhere or relocate entirely in other more business-friendly locales. Labor and environmental advocates say companies have been motivated chiefly by the search for the cheapest possible labor.

Economists cite several other factors, including the high cost of land and housing, and the lure of other faster-growing regions, chiefly the Inland Empire.

“The largest increases in payroll jobs have gone where the largest population increases have taken place over the past 20 years, and that’s been in the Inland Empire,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

Economists generally agree that once L.A.-area companies reach a certain employee threshold, they often decide not to continue growing here.

“Business flight is definitely a factor once companies reach a certain size, say 50 employees,” said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Economic Development Corp. “Once you cross that threshold, it becomes much more expensive to operate a business here and the offers and incentives that come in from other states are very, very enticing.”

Informal economy

Over the last 20 years, much of the county’s job growth has come from the so-called “informal economy,” in which workers are not put on company payrolls. These include sole proprietors and consultants, independent contractors and those who get paid in cash.

These workers are not counted in the closely watched payroll job figures. But they show up in household survey data, in which L.A. County residents are asked if they have jobs.

Many of these workers also show up in another measure of the local economy: the number of “nonemployer firms” that do not have payrolls. In 2007, the U.S. Census Bureau classified 842,000 entities in Los Angeles County as nonemployer firms, up nearly 50 percent from 1997. Nationwide, the growth rate for that period was about 35 percent, indicating that the county is one of the major hotspots for these types of businesses.

At one time, the informal economy was synonymous with the underground, or cash, economy that included day laborers, domestics, street vendors and the like. But in the last two decades, it has spread to many different industries where cost-cutting has become essential.

Another impact of the trend toward “informal employment” is loss of tax revenue. That occurs on two levels: First, companies make legitimate tax savings by hiring temps, freelancers and independent contractors. Second, because some companies underreport their payroll, experts believe that government gets shortchanged.

Two industries that grew rapidly in the 1990s entertainment and international trade/logistics did so largely by adding nonpayroll jobs. In the entertainment field, as studios have cut costs, production and postproduction workers have joined actors and writers as independent contractors.

“Everyone has had to find ways to cut costs, and one way to do this is to have less people on permanent payrolls and more on a contingency basis,” said Rand Gladden, senior vice president at Fotokem Inc., a Burbank postproduction house that has a payroll staff of at least 500 supplemented by independent contractors.

At the ports, deregulation of the trucking industry 20 years ago lowered the barriers to setting up an independent company, so most truckers are now contractors instead of employees.

“This deregulation allowed truckers for the first time to become business owners,” said Fred Johring, president of Golden State Express Inc. in Rancho Dominguez, which uses truckers that are independent contractors. “Logistics companies simply wouldn’t survive today if they put all the people driving trucks for them on their payrolls.”

Those companies have fought attempts by the Port of Los Angeles to force them to put their truckers on payroll. The port, under pressure from unions, has pushed for payroll jobs as part of an ambitious plan to switch to fleets of cleaner trucks.

A flip side of the truck drivers’ issue is that many make less money as contractors than they used to make as employees. Even more significant, they lost their benefits.

Recession hit

The entertainment and trucking industries are being hit particularly hard during the recession. The logistics industry has been slammed by the sharp decline in global trade volumes, while the entertainment industry has also had to contend with a prolonged period of labor unrest.

The Economic Development Corp. predicts in its recent forecast that both these sectors will lose payroll and nonpayroll jobs through 2010.

Yet economists said they expect that once a recovery begins, more companies will be adding nonpayroll jobs.

“As long as they can operate more cheaply by not putting people on payroll, companies will continue to do this,” Flaming said.

Meanwhile, business leaders don’t feel that there’s been enough progress in making Los Angeles more business-friendly. There’s a perception that government officials aren’t making sufficient efforts to attract companies with payroll jobs to the region.

“We need to focus much more on the economy,” Kyser said. “That’s the message, plain and simple.”

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