Hiltzik: Hoover Institution gets California job growth wrong, again

By Michael HiltzikBusiness Columnist

Dec. 3, 2024 3 AM PT

Last week, while most sensible Californians were concerning themselves with Thanksgiving preparations, the California-bashing right wing went hog wild over a stunning report that almost all private job growth in the state collapsed from January 2022 to June 2024 and almost all growth — 96.5% — was in government jobs.

“California’s Businesses Stop Hiring,” was the headline on the report published by the conservative Hoover Institution. Its main claim was that from January 2022 to June 2024, private employers in the state only added 5,400 jobs.

You can imagine how California bashers, including some within the state, greeted the news that government was propping up the state’s economy.

“This is what a failing state looks like,” Rep. Kevin Kiley (R-Rocklin), who badly lost a bid to replace Gov. Gavin Newsom in the 2021 recall election, tweeted Wednesday. Others who gleefully tweeted about the Hoover claim included Rep. Vince Fong (R-Bakersfield), and venture investor Steve Jurvetson. Right-wingers outside California also joined the choir.

The Hoover article was what we in the news biz often pigeonhole as “interesting, if true.”

But it’s not true.

The original article, by UCLA economics professor Lee Ohanian, a Hoover Institution senior fellow, asserted that California added only 156,000 nonfarm jobs in the January 2022-June 2024 period. Since government statistics also showed that government employment in the state rose by 150,500, that left (after rounding) only about 5,400 new jobs created outside the government sector.

The picture painted was one in which private employers are shutting down and only government hiring is keeping the California economy afloat. The opposite is true, however.

(The Hoover Institution has retracted the original article and removed it from its website. An archived version of the original can be found here.)

Here’s the main problem with the Hoover analysis: During the sample period, California actually added 672,300 nonfarm jobs, not 156,000. Consequently, the 150,500 new government jobs accounted for only about 22.4% of the total, not 96.5%. The accurate figures show that not only did California’s businesses not stop hiring, but continued to hire fairly robustly from January 2022 to June 2024.

How did this calculation go so awry? The answer is simple. Ohanian conflated the two separate monthly employment surveys issued by the Bureau of Labor Statistics: One is its so-called household survey, which asks a national sample of about 60,000 households how many people in the household are employed. The other is its establishment or “payroll” survey, which asks about 629,000 workplaces how many people they employ.

Generally, the household survey yields a higher number of employed persons than the establishment survey. That’s because it counts the self-employed (including gig workers) and farm workers, among others who are excluded from the payroll statistics. But that relationship breaks down when you’re counting only payroll workers, slicing and dicing the statistics into industry sectors.

Mixing together the BLS household data and the BLS establishment data is “a cardinal sin of BLS data analysis,” observes the pseudonymous economics commentator Invictus on The Big Picture blog of Ritholtz Wealth Management, in an indispensable deconstruction of Ohanian’s original post.

In that post, Ohanian subtracted the government jobs figure reported in the establishment survey from the nonfarm employment figure in the household survey. That effectively overstated the government jobs percentage of California employment growth. The proper approach, Invictus notes, would have been to use the establishment survey for both measures.

Ohanian acknowledged in an email that he had erroneously considered the household and establishment figures similar enough to treat them as effectively equivalent. “If I had seen the differences in the two series,” he says, “I would have written the piece differently. Mea Culpa.”

In a corrective article posted Tuesday on the Hoover website, Ohanian makes public his mea culpa, but also reiterates a point he made in the original article, which is that California’s job growth is weakening. That’s echoed by other studies, including a recent warning from the state’s Legislative Analyst’s Office.

Yet there’s much more to be said about Ohanian’s original article, as well as the glee with which conservatives seized on its headline claim as the basis for largely groundless attacks on California’s economic policies. First, it’s proper to note that the original piece was published Aug. 7, which is why its analysis covers only the period that ended in June.

The government issues two distinct sets of employment statistics that shouldn't be mixed.

Why it got resurrected and shot around the right-wing echo chamber last week is a mystery. Ohanian himself seemed uncertain when I asked him about it. Kiley, Fong and Jurvetson haven’t responded to my requests for comment.

That brings us to the statistics themselves. Employment data bristle with pitfalls for the unwary, even among experienced economists such as Ohanian. Indeed, in April, Ohanian posted an analysis on the Hoover website that purported to show a loss of 10,000 fast-food jobs in California from September 2023, when Newsom signed a minimum wage increase for that sector, through January this year — even before the increase went into effect.

As I reported, Ohanian based his post on a Wall Street Journal article that used employment figures that weren’t seasonally adjusted. That was a crucial error when tracking jobs in seasonal industries such as restaurants.

The Journal’s article, and consequently Ohanian’s, mistook a seasonal decline in restaurant employment that occurs from September to January every single year for the one-time consequences of the minimum wage increase. Fast-food jobs, seasonally adjusted, actually rose by 6,300 in the period being reported. Ohanian told me at the time that he had been unaware that the Journal used nonseasonally adjusted figures.

BLS employment figures may be especially confusing because the bureau’s two surveys superficially seem to measure the same thing, but are very different — so much so that the bureau itself has issued a detailed explainer about the distinction. It notes that the establishment survey is “a highly reliable gauge of monthly change in nonfarm payroll employment.” The household survey is oriented more toward demographics and is best known as the source of the national unemployment rate.

Ohanian used his misconstruction of employment figures as the basis for a wide-ranging critique of California economic policy, mostly citing how the high cost of living drives people out of the state.

“Part of California’s job weakness,” he wrote, “reflects the number of people and businesses leaving the state.” California’s population fell by about 75,000 from 2022 and 2023, he wrote, adding that (the latest data available), while companies such as Tesla, Oracle, and Chevron have moved or are moving their headquarters elsewhere.

“Population loss naturally leads to job loss,” Ohanian told me by email. “It is challenging to see how California could be gaining jobs as portrayed in the Establishment Survey, given a smaller population.”

That may well be true over the longer term and with larger numbers. But the 75,000 departed residents in 2022-23 represent less than two hundredths of a percent of the state’s population. Even the larger population decline of about 538,000 since 2020 represents about 1.4% of the state’s population.

The key question would be who’s leaving? Many emigrants may be retirees, who don’t have occupational reasons to stay in the high-cost state and may have sizable equity in their homes to pocket for a move to a cheaper location; about 7.5 million of California’s residents today are older than 65. The pandemic also drove the population down — COVID-related deaths numbered at least 60,000 in 2020 and 2021.

As for the emigration of corporate headquarters, California still leads the nation in headquarters of Fortune 500 companies, with 57. New York and Texas were runners up with 52 each. California remains a national leader in business creation, with nearly 560,000 new business applications filed with the state in 2023. When new technologies emerge with the potential to economic expansion, they tend to start in California.

One other subtext of the debate over California job growth needs to be mentioned. That’s the picture that conservatives paint about government jobs. The tweeted hand-wringings about the purported explosion in government jobs, which implies that the government workers are an army of faceless bureaucrats engaged in writing anti-business regulations.

The idea that the Musk/Ramaswamy Department of Government Efficiency can cashier them without affecting your daily life is a fantasy. In fact, the federal government employs only about 3 million workers, about half of whom are in the military, the Department of Veterans Affairs, and the Department of Homeland Security; the overall figure has remained fairly stable since the 1960s.

An additional 20 million are state and local employees, the majority of whom are teachers, along with police and fire fighters. Which of these workers should we fire?

Any discussion of California’s economy limited to periods of a year or two needs to be viewed in relation to the big picture, which is that California’s economy is by far the biggest in the country — indeed, it would rank in the top five or six countries if it were a sovereign state. At an estimated $4.08 trillion in gross domestic product, its economy is more than half again as large as the runner-up among U.S. states, Texas ($2.7 trillion).

Ohanian is right to argue that there’s reason for concern about where the state goes from here. But to suggest that there’s something fundamentally faulty about policies that still undergird the most powerful state economy in the nation or that California is a “failing state” — that’s “interesting, if true” ... but, again, not true.