Business Update with Mark Lacter

Jobless rate; construction projects

KPCC business analyst Mark Lacter explains how and why the jobless rate goes up at the same time new jobs are created; he also talks about L.A. jobs for local construction projects that are under a new program.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, how does jobless rate go up at the same time new jobs are created?

Mark Lacter: Yeah, it might seem a little confusing - the unemployment rate for L.A. County actually increased in November from 12.6 percent to 12.9 percent (that's a big jump), but the state did a separate survey of businesses and found that about 16,000 jobs had been added to the rolls in L.A. (also a big number). Same thing happened in Orange County - the jobless rate went up and new jobs were created. Now, the basic explanation is that the state prepares two surveys to gauge employment and they don't always work in sync.

Julian: So why did the unemployment rate go up?

Lacter: It went up because more people tried to find work in November, perhaps because folks were more hopeful about the economy or they just got out of school, or whatever the reason. And if there are more people coming into the market than jobs available, the jobless rate probably increases. It doesn't necessarily mean that the local economy suddenly got a lot worse. The fact that there were more payroll jobs created could suggest that the employment situation is improving, especially since the increases came in a variety of industries. Retail was up big, as you might expect, but so was education and health services. Technology is also starting to pick up. Also worth noting is that this was the third straight month that the payroll number showed an increase, which is another good sign.

Julian: That said, Mark, 13 percent unemployment is high.

Lacter: Crazy high, Steve. But this is pretty much what had been expected going into next year. No one sees the jobless rate falling below 10 percent in L.A. for several years - and that's assuming the recovery continues to take hold. Southern California just has too many big industries that got creamed in the last recession – especially construction - and those industries will be coming back very slowly.

Julian: There will, however, be jobs in LA for construction projects under new program...

Lacter: You’d think that with L.A. so desperate to find jobs, city officials would make it a little easier for businesspeople who are looking for workers. Instead, they've just made it harder. The city council agreed to a deal with local labor unions that involves almost 100 city-funded construction projects. These are called Project Labor Agreements, and they essentially require all contractors, whether or not they're unionized, to abide by union rules - and wage levels - which means that a lot of smaller non-union companies are going to be squeezed out of business.

Julian: Because of conditions?

Lacter: Yes. One part of these Project Labor Agreements is a requirement that 30 percent of the people working on these projects be Los Angeles residents. Now, there's nothing wrong with hiring local, but in a place like Southern California, where people often don't work and live in the same city, having this kind of mandate doesn't make much economic sense. It actually winds up costing contractors more money because they're drawing people from a smaller pool of workers. And eventually, that will result in the overall project costing more.

Julian: Is this more a political than economic story?

Lacter: In some ways, it is. Unions played a large role in the adoption of these work rules, which is bound to raise the question as to whether this is in the best interest of the city in general or simply in organized labor’s best interest. What it really shows is the inability of local government to get beyond these sweetheart deals and consider more innovative ways of jump-starting the local economy. When business owners complain about L.A. being a tough place to operate in, these hiring requirements are the kind of thing they’re talking about. Just another excuse to look elsewhere.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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