The Old Cowboy Philosopher, Will Rogers, known for, among other things, his pithy observations and proverbs offered this sage advice; “if you find yourself in a hole, stop digging.” This is good advice to individuals who find themselves in some sort of predicament, especially ones that are self-imposed. It is advice, (specifically, advice concerning barriers to job creation and strong economic growth), which the ruling party (A.K.A. Democrat) in California continues to ignore year after year. Instead, it continues to deepen a hole by enacting policies that act as barriers to economic growth and job creation, thus making California even less friendly to job creators. Obviously, this not only harms employers but also job seekers. Nowhere is the example of this continued digging more evident than in the new burdens heaped upon the backs of California’s employers in 2014. While the Governor runs around proclaiming California’s comeback, it is important to note that California’s job creators are not so confident, and they have yet to feel the full impact of the new burdens placed upon them in 2014. For them, the hole will only get deeper.
The ruling party in Sacramento will tell you that things are good in California and that California has made a dramatic comeback. They will cite the balanced budget and the fact that there is a budget surplus this year (never mind the fact that the surplus is a result of a tax increase and irrespective of the negative impact of tax increases on economic behavior), as evidence to support their claim. They can also point to some economic indicators that suggest slow to moderate economic growth as well as an unemployment rate that, while still high at 8.3% (one of the highest in the nation), is several points lower than the high of 12% that occurred during the depth of what has been called the “Great Recession.1” No doubt, things are better in California when compared with the depth of the “Great Recession.” But to say that California is on a comeback disregards empirical evidence to the contrary regarding California’s economic/business climate, e.g. its legal, taxation and regulatory climate. It also disregards what those who actually create jobs are saying about it.
What Job Creators Are Saying
In 2013/2014, California continues to rank among the bottom of the states when considering what fosters or inhibits job creation and economic growth. The following surveys and studies offer a stark contrast to the rosy pictures of California often painted by the ruling party.
For the ninth straight year, Chief Executive’s annual survey of CEO opinion of the best and worst states in which to do business ranks California dead last, considering it the worst state in which to do business. One CEO cited in the survey said that, “California’s labor regulation is a job killer. We will be moving our business out of the state, which will lose hundreds of jobs simply due to the poor regulatory environment.” Another CEO said, “California should secede from the union – it is like doing business in a foreign country, it has its own exchange rate and its regulation is crazy.” Another CEO said that, “California regulations, taxes, and costs will leave only tech, life sciences and entertainment as viable. If you are not an elitist, no room here for the middle or working classes.”
The Small Business & Entrepreneurial Council ranked California as the least friendly policy environment for small business in its “Small Business Policy Index.” According to SBE Council President, Karen Kerrigan, top states in the ranking “are streamlining government and lifting burdens like excessive taxation and regulations. They are passing responsible budgets, and living within their means. The worst ranked states keep treating small businesses and entrepreneurs as piggy banks to fund higher spending and bankrupt programs.”
The Thumbtack.com Small Business Friendliness Survey, a survey that is described as the only survey of its kind to obtain data from an extensive, nationwide universe of job creators and entrepreneurs in order to determine the most business-friendly locations, placed California in the bottom five states for business friendliness.
The Tax Foundation ranked California 48th in its annual “State Business Tax Climate Index” for having one of the most complex, non-neutral taxes with comparatively high rates.
For the second year in a row, the American Tort Reform Association identified California as the No. 1 “Judicial Hellhole” for having a “he-sues-she-sues-everyone-sues litigation climate.”
The U.S. Chamber of Commerce’s Institute for Legal Reform’s most recent report ranking the lawsuit climate in states found that California ranks as the 47th worst state in which to be sued. According to the report, “The state is considered one of the most-regulated for businesses, and more laws mean the opportunity for more lawsuits. The state’s ranking has been sinking steadily over the past decade, while neighboring states Oregon and Nevada have won higher rankings for improving their courts.”
Finally, in the most recent survey, Best Cities for Jobs, published by Forbes Magazine, California’s top ranking for a metropolitan statistical Area (MSA) is Hanford-Corcoran MSA at 36. Only 3 other MSAs in California make the top 100. In contrast, Texas has 20 of the top 100 MSAs and 6 of the top 10 MSAs.
We can see clearly from these reports and surveys that not all believe that happy days are here again in the Golden State. Accordingly, any talk of a comeback is at best premature.
With the enactment of laws, regulations and taxes/fees passed in 2013 and with the higher costs of operating a business that is a result, California’s economic/business climate seems destined to become more hostile and less favorable to job creation and economic growth, hence the hole that interferes with job creation will only get deeper.
Before considering the new burdensome and costly employment laws (e.g. laws that make it more difficult on job creators to survive in this State), it is important to consider the context in which these new laws are being enacted. California businesses are already struggling with significant cost increases over the next three years including higher unemployment insurance taxes, tax increases from Proposition 30, higher energy costs, higher employment assessments from the Department of Industrial Relations, higher workers compensation costs and higher costs related to the implementation of the Affordable Healthcare Act (A.K.A.Obamcare).
And Deeper…Adding Insult to Injury
On top of these costs, employers are also going to have to deal with the costs of complying with what one employment law firm described as 2013 “legislative accomplishments,” which “ensure that the state maintains its reputation as the most overregulated state in the country for employers.” The following is a list of just a few (for brevity sake) of these “accomplishments:”
- AB 10 (Alejo) Raises the minimum wage $2/hour by 2016. It was the only 2013 Cal Chamber Job Killer bill to get signed into law. According to the Economic Policy Institute, AB 10 will cost California at least 11,500 entry-level jobs. According to the National Federation of Independent Businesses (NFIB) Research Foundation, the expected job loss by 2023 as a result of AB 10 will range from 48,000 to 68,000 jobs, depending on the annual rate of inflation.
- AB 241(Ammiano) Enacts the Domestic Worker Bill of Rights, which, until January 1, 2017, mandates that overtime must be paid to personal attendants/nannies who are defined as "domestic work employees."
- AB 263 (Hernandez) Penalizes an employer found to have engaged in ill defined “unfair immigration practices” by authorizing the court to order the suspension of a business license for prescribed periods based upon the number of violations. Subjects employers and individuals to new fines for actions related to employee perceived workplace retaliation. Establishes a new private right of action with plaintiff's only attorney's fees and specifies that administrative remedies do not have to be exhausted before pursuing a private right of action.
- AB 1387 (Hernandez) Repeals the sunset date on “the Carwash Worker Law,” which imposes onerous registration, bonding and records-keeping requirements upon car washing businesses. Increases, from $15,000 to $150,000, the bond that a non-union employer in the car wash industry must post. Exempts employers from posting even the $15,000 bond, if they are unionized.
- SB 168 (Monning) Holds a successor to a licensed or unlicensed farm labor contractor liable for the owed wages or penalties of the predecessor’s former employees if they meet specified criteria.
- SB 435 (Padilla) Adds “recovery periods” to the required breaks (e.g., meal and rest periods) that an employer must provide to employees or else be required to pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the period is not provided.
- SB 462 (Monning) Provides that a prevailing employer may only recover attorneys’ fees if a trial court finds that the employee brought the wage action in bad faith. This unfair measure will make it even more difficult for a prevailing employer to recover attorneys’ fees in wage and hour actions in California.
Individually, the increased costs mentioned above and complying with each of these new laws amounts to a significant burden foisted on employers in the coming years. Collectively, they seem to be a potentially unsurmountable burden for many employers, especially small businesses. Further, these are only the costs we know about now – there will undoubtedly be more costs facing employers over the next three years.
California job creators, and thus California's economy, simply can't afford for the ruling party in Sacramento to continue violating the “First Law of Holes.” It is well past time to stop digging and look for a path out. Facing the truth about what job creators are saying and reversing course would be a good place to start.
For more information on this report or other Labor issues, contact Cory Botts, Senate Republican Office of Policy at 916/651-1501.
1 It is important to note that the unemployment rate only includes those who are unemployed, but actively seeking work. It does not include those who have given up looking for work. It also does not include those who are underemployed or working part time as a result of being unable to find a full-time job. If these individuals were included, the unemployment rate would be over 17% according to the U.S. Department of Labor (http://www.bls.gov/lau/stalt.htm)