Ripples

California unemployment is deepening, heralding delay in Nevada’s road to economic recovery.

Payrolls in California had shown some sign of growth in autumn, but December marked the third straight month of job losses—38,000 jobs in that month alone.

And the figures tell only part of the story. The unemployment rate in California stayed the same—12.4 percent—only because it did not reflect thousands who have dropped out of the job market altogether, meaning the figures do not reflect their numbers.

“It hurts us,” said Nevada economist Glen Atkinson. “We’re connected, totally connected to the California economy. … Some of our major sectors, including gaming, tourism and warehousing [are dependent on California’s economy].”

Economist Thomas Cargill agrees. He says that though California has recently declined in importance to Nevada, it still remains the principal factor in Nevada’s economic health.

“I’m sure it is probably the single most important driver—but that doesn’t mean it’s 50 percent. It is a major driver of economic activity in Nevada in terms of tourism and gaming. … Any activity that draws Californians here, whether it’s gaming, river rafting or skiing, has got to be adversely affected by economic and financial distress in California. It’s two plus two equals four.”

But it doesn’t stop with the tourism sector, the economists said. For instance, construction and warehousing, big parts of the Nevada economy, are affected when Californians are out of work.

“A lot of the construction industry here in the housing boom was highly correlated with what was going on in California,” said Cargill. “In fact, a great many construction workers were from California, and one of the reasons why the labor force has declined is those people have packed their bags and gone somewhere else.”

Since 1949, when Nevada exempted warehoused goods held for resale or shipment from taxation, the state has enjoyed a warehousing industry. Goods are kept in Nevada tax free until they are needed for sale in California and other adjoining states. AllBusiness reports that it has found “577 companies in warehousing & storage - Nevada. Taken together these companies have estimated annual sales of $2,177,807,022 and employ an estimated 4,664 people.”

“Reno area, Northern Nevada, is a distribution point for much of the West Coast market,” said Atkinson, “and if people aren’t buying a lot in California, the warehousing/distribution sector’s going to be affected.”

Nevada is particularly vulnerable to fluctuations in the California economy because the Nevada economy is pretty unstable and heavily dependent on low wage jobs that tend to vanish in hard times.

“Of the 30 biggest occupational categories in Northern Nevada, only 15 percent require a baccalaureate degree,” Atkinson said. “It means we have a low-skilled labor force here. And it means that the people who go to university here, most of them will have to go someplace else for a good job. … There are not a lot of high-paying, high-skilled jobs in the region. … One of our big growing sectors has been retail, for example—you know, cashiers and so forth.”

Nor is Nevada growing in high skilled, high paying jobs.

“Even though tourism’s been declining, we’re not growing enough in other industries—manufacturing, whatever—to make up for that,” Atkinson said.

That’s in spite of efforts to broaden the employment base, both by state government and private groups. A February 2006 report by the Economic Development Authority of Western Nevada (EDAWN), which tries to lure businesses to the state, is provocative to re-read from the perspective of hard times. It said that “increased emphasis should be placed on the quality of jobs (not the quantity of jobs) that are created in the region. With this as a goal, EDAWN has proactively set out on this economic development planning process to heighten the economic opportunities for all citizens in the Northern Nevada region. Embarking on this process could not come at a more opportune time. The region’s economy is far from broken, in fact unemployment is at record lows and business activity is strong. Even though the economy is robust, it is always best to begin planning for the future from a position of strength.”

Of course, the lack of a high-skilled workforce means that some employers are discouraged from relocating in Nevada.

Nevada has always been something of an adjunct of California. The wealth of the state’s early mining booms was shipped to California. A former California governor was president of the second Nevada constitutional convention, which drafted the new constitution by using a copy of the California Constitution as a model. Since the revival of legal Nevada gambling in 1931, Californians have been the largest customer base of Nevada casinos.

But even now, with Nevada casinos losing customers to California tribal casinos, Nevada—particularly the populous south and west that contain most of the population—shares overlapping trade and media markets with California. The dependence of Nevada on California has been so pronounced that the late scholar Hal Rothman suggested that Nevada is in a colonial relationship to California. He noted that at Hoover Dam, Los Angeles Municipal Utility District vehicles have Nevada license plates.

“The fundamental relationship between Nevada and California is as clear as the insignia on the side of these cars: California runs Nevada, so completely and brazenly the most needed resource in the desert state, water, is stored there for consumption in the great economic engine to the west,” Rothman wrote in 2002 in a book of essays about Las Vegas—published by the University of California. “The control is so complete that the relationship seems natural: California entities wear Nevada license plates and no one notices, proof positive of the vast power of the Golden State in the Silver State. Nevadans need look no farther to see where their bread is buttered. … [D]esolate Nevada has survived by catering to the needs of outsiders, in particular Californians.”

When Nevada economic development officials last year started running ads touting the benefits of Californians moving their businesses to Nevada, Fresno Bee writer Jim Boren warned, “So here’s what you won’t hear in those ads: Nevada had the nation’s highest home foreclosure rate for the 31st-straight month. U-Haul dealerships in Nevada can hardly keep moving trucks on their lots as residents fishtail out of the once-booming state. Nevada casino revenues report double-digit revenue declines because of the sour economy and the beating they are taking from California’s Indian casinos. Nevada’s unemployment rate of 12 percent was fifth-worse in the nation—even worse than California’s 11.6 percent rate. … Readers know that I don’t defend California very often. State government is a mess. Our infrastructure is falling apart. We’re taxed every time we turn around. But in this comparison, Nevada is the competition, and California wins hands down. In fact, I’d double down on California’s economic future compared with Nevada.”

Cargill said some people are able to deceive themselves with statistics.

“You know, somebody will say, ‘Oh, well, I’ve got statistics here that show that more Californians are coming than there were last year.’ Well, that doesn’t mean anything. What it is, is you didn’t get near as many as you would have gotten had California Indian gaming not been present.”