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The Cost of California's New Work Rules - 2002-10-26

In California, some labor battles take place on the docks, others in the state legislature. In recent weeks, lawmakers in Sacramento have passed a slew of bills designed to improve wages and benefits for workers throughout the state. But, what's good for labor, may not be good for business.

It's nothing new for California, environmental and workplace regulations that business groups say hurt the state economy. Among the new laws, a first-in-the-nation paid family leave law to allow workers time off to care for a sick relative without losing wages, and another, extending health benefits to domestic partners, not just to spouses. Critics say the family leave law itself is expected to cost businesses $3-billion a year.

Martyn Hopper, the California director of the National Federation of Independent Business, is frustrated. "We have a legislature which continually increases regulation, increases taxes and increases the cost of doing business in California for small entrepreneurs," he says. "It's almost impossible to find a place which is worse."

A recent nationwide survey of business executives backs up that argument. More than half of them said California has the worst business climate in the country. According to the California Manufacturers and Technology Association, it's now 32-percent more expensive to make products in California than anywhere else in the country, and 40-to-50-percent more expensive than nearby states like Nevada, Oregon and Texas. Business leaders here fear that more and more companies will be tempted to move jobs out-of-state or to other countries with lower wages and few benefits.

The effect of the exodus is easy to see in San Diego. A decade ago in this southern California city, the International Association of Machinists and Aerospace Workers union had more than 10,000 members. They made everything from airplane wings to cockpit avionics. Today that number has dwindled to 2,000, having shed another 200 positions since January.

IAM District Director Virginia Cobb says her members are worried. "And they're scared everyday when they go to work. They don't know what day will be their last day. This isn't a good, secure America," she says.

San Diego manufacturers currently employ 128,000 people, about 10 percent of the workforce. But the manufacturing job base has been shrinking every year since 1983. It's partly because of a changing economy, the aerospace industry has all but left and the region has diversified into computer technology, bio-tech, telecommunications, tourism and defense. The diversification has helped the region weather the economic slowdown, but it's not all good news.

"The weakness of manufacturing in San Diego is a potential Achilles' heel as far as the local economy is concerned," says Alan Gin, a business professor at the University of San Diego. "In the old days of manufacturing, people without a lot of skills or education could get a relatively high-paying job in manufacturing, enough to be able to afford to buy a home, put their kids through college and so on to live a middle class life," he says.

But with a soaring cost of living and astronomical housing prices, that's becoming more difficult, if not impossible, for lower-income residents to do.

Erik Bruvold, with the San Diego Regional Economic Development Corporation, sees another worrisome trend. He says what's known as an 'hourglass economy' is taking shape here. "You've got some jobs that are the very high-wage scale and some jobs that are at the very low wage scale. But not a lot in between. A nd that's a real concern. It's been a challenge in San Diego for a number of years. Losing manufacturing jobs just further speeds up that trend."

At the Taylor Guitar factory on the outskirts of the city, a worker is sanding a block of wood. Taylor is typical of the 4,000 manufacturers in the county, typical in that it employs fewer than 200 workers.

Economists say one reason for the manufacturing job cutbacks is the tough climate for small business in California. Business boosters like Erik Bruvold say the state is notorious for high labor costs, excessive regulations, expensive land and pricey electricity.

Bruvold: "What's critical in San Diego, I think, is that we recognize that the costs that we pass on to companies really can't be passed on to customers. At some point it doesn't make sense on the balance sheet to operate in San Diego anymore. And that's when the companies come to us and say, 'We're at wits end. There's nothing we can do to make it work here.'"
Lewis: "How many companies come to you and say that?"
Bruvold" "We've been seeing a distressing number of them in the last six months."

The city of San Diego is feeling that pressure too. The city's Economic Development Division is examining ways to retain manufacturers and even increase jobs. There are a number of city programs including tax rebates, water guarantees and tax-exempt bond financing.

But machinists union director Virginia Cobb says that's not enough to help keep manufacturing jobs in San Diego. And she worries about the impact that will have on blue-collar workers. "What kind of lesson are we teaching the next generation? Where do the masses go? Where should you tell them that there is a need out there for them?"

Ms. Cobb says in her 40-plus years of being in a union, she's never seen it as bad as it is right now. She's placed in a tough spot. She likes many of the new benefits but fears the increase in business costs might mean more job losses for her union workers.