Nearly 40 percent of companies in California plan to move jobs out of state, according to a study released by consulting firm Bain & Co.
Prepared for the California Business Roundtable, a nonprofit organization comprising chief executives of the state’s businesses, the California Competitiveness Project study analyzed interviews conducted with ceo’s and senior decision-makers at 50 companies,ranging in size from those with revenues of $1.5 million to $90 billion. Their unanimous view of the state’s business climate? Unfriendly.
The study cites that the most likely jobs to flee the state are those in “mobile sectors,” such as in engineering, computer programming and manufacturing, including the apparel and textiles industry, where employment and the base of operations can be staggered. And, heading to cheaper labor countries isn’t always the first choice: 60 percent of planned relocations are within the U.S., including other Western states, such as Texas.
Indeed, apparel manufacturing here isn’t showing signs of growth. In the state, there were 84,700 apparel manufacturing jobs as of February, a decrease of 7,400 jobs from last year. Textile mills in California employed 12,600 in February, down by 800 jobs from February 2003.
“The cost of doing business in California is 30 percent higher than the average Western state — and as a result, California is losing ground to other states,” said Jeff Melton, a partner at Bain & Co., during a recent presentation of the study to the board members of the Los Angeles County Economic Development Corp.
Hitting jobs the hardest is the state’s regulatory environment, deemed the most “costly, complex and uncertain” in the nation. The study reports that California enacted 15 statutory changes to labor rules yearly between 1992 and 2002. That rate is four times the average for all states and three times the average for New York.
To compete more effectively, the study encourages the state to reduce its cost gap of doing business here. Measures include overhauling the state’s burdensome workers’ compensation system, supporting the referendum on the mandatory health care law and reforming California’s overtime law that requires payment of overtime after eight hours in a day compared with 40 hours in a week to permit more flexibility in work schedules. In most other states, overtime is paid after a 40-hour work week.In their favor, businesses have an ally in Gov. Arnold Schwarzenegger, who has pledged to build and retain jobs in the state. Last week, he unveiled the California Commission for Jobs and Economic Growth, a nonprofit organization dedicated to promoting California products and keeping employers from leaving the state. Among the 24 members of the commission are Gap Inc. chairman Donald Fisher.
Meanwhile, the governor is conducting almost daily meetings with employers, labor unions and legislative unions to encourage state lawmakers to pass his workers compensation reform package by March 31.
Not all industry observers predict gloom and doom for the state, especially in the apparel sector.
“The study doesn’t get into the heart of consumer products, where you can’t move jobs to Alabama because the industry base isn’t there,” said Ilse Metchek, executive director of the California Fashion Association. “Even with outsourced jobs, we haven’t lost the design rooms, the distribution centers — what we’ve lost is the manufacturing process.”
Metchek notes that the state in 1994 accounted for 10 percent of apparel distribution in the U.S., a number that has risen to 23 percent currently. “We’re doing something right,” she said.
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