Is L.A. the Next Detroit?

By Octavio Nuiry

According to the latest UCLA Anderson School of Management study, Los Angeles, Detroit and Cleveland share the dubious distinction of cities with the weakest job growth since 1990. The researchers at UCLA say Los Angeles has lost 3.1 percent of its employment base since 1990, more than Detroit (-2.8 percent) and Cleveland (-0.2 percent). Moreover, among the 30 largest metropolitan areas, only three cities have declining payrolls since 1990, according to UCLA economist William Yu. They are Los Angeles (-7.1 percent), Detroit (-6 percent) and Cleveland (-2.6 percent). By contrast, payroll jobs in the United States overall grew by 26 percent during the last 23 years, reports UCLA.

“Sunny L.A. has had deeper losses in payroll employment than those two cities in the Rust Belt,” wrote Yu.

Not only has Los Angeles suffered a greater economic collapse than Detroit in the last two decades, but Southern California is increasingly becoming a bifurcated east-west community, according to UCLA researchers. For example, unemployment in tony Manhattan Beach is 3.1 percent compared to 11.3 percent in the east Los Angeles suburb of Baldwin Park, a largely Latino community. In Manhattan Beach (85 percent white) the poverty rate is 2.9 percent versus 26.8 percent in east L.A. and 26.2 percent in Compton, which is predominantly black and Latino.

The UCLA researchers suggest three reasons for L.A. underperformance and the growing east-west bifurcation: unfriendly business environment, high cost of housing and low human capital.

One reason homes are so expensive in Southern California is that many coastal communities have passed land use restrictions and draconian zoning laws that have squeezed the housing supply and driven up home costs, keeping less affluent people at bay according to real estate data and research firm RealtyTrac. Laws affecting the use of land drive up home prices by restricting the building of houses.

Moreover, Los Angeles has one of the nation’s largest pension obligations. In 2003, L.A.’s pension benefits were only $157 million, or three percent of the overall budget. Ten years later, Los Angele’s pension costs ballooned to $1.3 billion, or 18 percent of the city’s budgeted expenditures, according to California Common Sense. Unless the city gets a handle on this out of control expense, the city could be headed towards bankruptcy.

“City government is staggering under a heavy burden of pension liabilities and neglected infrastructure,” wrote Edward E. Leamer and Judy D. Olian in the Los Angeles Business Journal, describing the study’s findings. “These burdens will crush us if we endure another two decades of job losses. It’s time for Los Angeles to wake up; in fact, it’s well past time.”

To many Angelenos, Southern California has lost its luster. More than any other region, Southern California is starting to look like Detroit. Islands of wealth are clustered near the Pacific Ocean, while the rest live in far-flung suburbs and exurbs connected by rivers of clogged interstate freeways. Southern California is experiencing ever greater economic inequality and the thinning of its middle class.

“We ignore the lessons of Detroit and Cleveland at our peril,” argue researchers Leamer and Olian. “It’s time for all of us in Los Angeles to wake up and rebuild.”