California’s high cost of employment will stifle recovery; experts suggest 6 issues the state needs to deal with

California faces a tough economic recovery following the pandemic, and the high cost of employment is a significant concern. Historically excessive regulation in the Silicon Valley has inevitably put job growth on the backburners. What is currently happening in California has notable implications for the valley. John M.W. Moorlach reports for CalMatters.

“The now ended long economic boom from 2010-2020 made Californians complacent. Workers were in demand everywhere in America, so employers put up with California’s high minimum wage, stunning housing costs and often absurd regulations. 

“No more. The coronavirus depression has thrown record numbers of Americans into unemployment lines. The jobless rate skyrocketed in two months from under 4% to 31% as of mid-April in Southern California, higher than during the Great Depression of the 1930s. It will get worse.

“The first thing that will happen is the further spread of the underground economy. If work needs to be done, and people are willing to do it outside the official channels and regulations, then it will get done one way or another.

“As I recently warned, “Underground Economy Will Stifle Recovery.” Employers in the underground economy don’t pay unemployment taxes and workers compensation. They probably don’t pay income and other taxes necessary to fund government services at this critical time. They don’t follow worker safety regulations, meaning injuries end up in emergency rooms and will be paid for by everyone.

“Companies that play by the rules, paying all the taxes and observing every labor regulation, will be at a disadvantage to those firms operating in the shadows. The cost structure will just be too high. So many of these honest firms will go out of business, join the underground economy or move to Texas.

“Here’s the question now: Does this state have the chutzpah to pass needed legislation to open the doors wide to recovery? That would include, at a minimum: 

1. Suspending the minimum wage increase. 

2. Repealing Assembly Bill 5, which bans many types of freelance labor.

3. Passing new workers compensation reform, needed as the 2004 reforms have deteriorated.

4. Cutting taxes, not increasing them.

5. Repealing the recent rent control edicts, as rents will be falling anyway.

6. And last, but most important, really reforming all state and local pensions, switching from the defined-benefit plans to shared-risk plans, a bipartisan reform working well in Wisconsin since 1982.

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