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LA Economy: Where's the Engine?

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The architecture critic Rayner Banham said that the only way to understand Los Angeles was in motion. The same may be true of understanding the LA economy -- how does it change, and how has it continued to change?

Los Angeles is a huge city and keeps growing. There are very few large corporate headquarters left in Los Angeles since the end of the Cold War shrank the weapons factories and a lot of banks consolidated and moved their headquarters to places like Charlotte. Yet people keep moving here, seeking the California/American dream of a better life. Where are they working? The LA Economy Project, trying to figure it out, produced a big report, based partly on data from Dun & Bradstreet, the Milken Institute, the US Census, the California Employment Development Department, and other sources. It's a long study and we may be oversimplifying some of the results. If you want to read only part of it, we suggest the Executive Summary and the "Labor Market" section.

If you've developed any hunches about the Los Angeles economy by driving around and looking, this study may help confirm them numerically. You may see some big offices and chain stores and a lot of little family-run restaurants, dry cleaners, barber shops, and so on. Indeed, the study confirms, "Most Los Angeles firms are small, employing few individuals and having low sales, with a very small number of firms with large numbers of employees and high sales."

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While it's good that many people are able to run small enterprises, the study also says that "A common vision of jobs formation is that many of the jobs come from small enterprises...(but) the 94 percent of establishments with less than 50 employees provide only 34 percent of jobs in the city." A lot of people are working in jobs like fast food or retail, or are part of what they call the "informal economy" -- taking jobs like nanny or gardener that sometimes don't even get reported. Most jobs are in services that either pay very well (lawyer) or don't pay well at all (babysitter), with less middle ground than there was 30 years earlier.

Also, the growth isn't evenly spread throughout the city. According to the study, "Within Los Angeles city, West Los Angeles is a highly developed area with more than 6,400 businesses per 100,000 people, while the average business density in East Los Angeles was 1,992 businesses per 100,000 people in 2002. Again, this news may not be a surprise to anyone who has experienced rush hour traffic patterns on Interstate 10, but it is nice to have the hunch documented

The authors offer some suggestions for improving things. To help people build these small entrepreneurial businesses into bigger, thriving enterprises that can employ more local people, they want to offer literacy and skills training, small business loans, and Individual Development Accounts that match money that people save for things like education or starting businesses. To help people get better and more stable jobs, they suggest industries where a bit of training could help people make significantly more. The study was specifically designed to inform local government decision-makers. It came out right before Antonio Villaraigosa was elected mayor, and Villaraigosa and his team soon announced their own literacy and job-training plans that addressed many of the same concerns. The data is still interesting to read; it helps you understand Villaraigosa's plans and other local news.

Something the study doesn't address is education for the next generation. Many people in Los Angeles come here work long hours to make better lives for their children, who languish in LA's terrible public schools. Again, Villairagosa and new City Council member/longtime LAUSD president Jose Huizar have announced that improving the quality of public education is a top priority for them, even though they have no formal authority to do it. And yes, we are going to harp on this again: reforming Proposition 13 would help the schools a lot.

The question is not only how the economy is structured, but whether it is possible to move within it. This study provides excellent data, and some history on how many startup businesses succeed, and employment in different sectors over the years. Still, it would be nice to see another study that tracked people to see whether their lives had improved over time. Are the same people holding the same kinds of jobs for years, or are they really entry-level jobs that people hold for a while and move on? What are the factors in people being able to improve their lives?

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Another measure would be whether the next generation is better off than their parents. As Antonio Villaraigosa is certainly very fond of telling us, it is (or has been) possible to grow up working class and rebellious in East Los Angeles and go to UCLA and achieve a prestigious position such as, well, mayor. But how often does that happen? For data on the families of immigrants over the years, UC Irvine is doing a study that that will finish this year. We're looking forward to seeing the results.