The status of California's economy continues to be a major concern among voters. Although crime now leads as the most important issue, an August, 1994 poll indicated that economic problems (the state's economy, creating new jobs, the state's fiscal crisis, and unemployment) accounted for four of the top eight issues.

Persistent public concerns about the economy likely result because of the severity of the most recent recession and the slow rate of economic recovery. Unlike recessions in the 1970s and 1980s, this recession has been both deeper and longer. Employment returned to pre-recession levels in less than two years in the 1970s and 1980s, while employment in 1994 remains more than 4 percent below its original mark in 1990. According to California's Employment Development Department, wage and salary employment has steadied at about 12 million, about 500,000 below employment in 1990. A recently released survey from California's Department of Finance suggests that the EDD data understate the true level of employment by more than 200,000.

Most economists now believe that California's economy is beginning to create jobs and that employment will expand at 1-2 percent annually, or more than 100,000 jobs. Based on these projections, California should regain its 1990 employment level in 1996 or 1997. However, the growth in the number of Californians seeking work since 1990 suggests that the unemployment rate will not return to its pre-recession level until near the end of the decade.

Like the national economy, California's economy continues to restructure as it pulls itself out of recession. However, restructuring in California is different. Defense downsizing, both in terms of procurement and base closures, has affected the state disproportionately because the sector is larger in the state than elsewhere. Unlike many other states, the real estate slump has lasted much longer in California. Finally, like the nation, the shift from manufacturing to service employment continues. However, the rate of manufacturing job loss in California since 1988 is more than double the nation's. Many of the job losses in manufacturing have been in high technology, high wage industries like aerospace and electronics. Job growth in manufacturing has occurred almost exclusively in low-wage industries, including textiles and food products.
Service industries continue to contribute the most to California's recovery. Despite the recession, services added nearly 400,000 between 1988 and 1993. The strongest growth occurred in business, health, engineering, and entertainment industries. Of particular importance, compensation in these industries is generally above the state average and has stemmed the erosion in statewide average compensation.

Federal policies can help speed up California's economic restructuring and establish the foundations for long-term growth. Infrastructure improvements, financial incentives for job training and small businesses, and leadership to support this "new" California economy can help. In addition, federal efforts to update U.S. government economic data collection to reflect the changing economy are needed.

International trade also continues to contribute greatly to California's economic recovery. California now accounts for nearly one-fifth of total US trade, almost double its share twenty years ago. Exports now account for more than 10 percent of Gross State Product, about double the level in 1987. Recent trade liberalization agreements have helped California expand its trade base. For example, trade with Mexico grew from $3 billion in 1987 to more than $6 billion in 1993. Trade with Asian and Latin American partners should continue to accelerate as their economies grow at a rapid pace. California's strength in several industries, particularly business services, should add to exports.

Federal policies to expand trade should focus on infrastructure improvements, including airports, seaports, rail- and roadways. The Alameda transportation corridor in the Los Angeles-Long Beach area is a specific example of a critical improvement.

The restructuring of California's economy and the growing role of trade suggest a bright economic future. Two other issues, empowerment zones and base re-use, suggest significant opportunities.
California is likely to be awarded at least one empowerment zone, and this federal assistance could be critical. However, very little is known about the reasons underlying success in empowerment zones or enterprise communities. While public education and investment in community-wide projects appear to be important to success, policymakers would be well served to investigate further elements that are critical to success.

Despite the large number of actual and planned base closures to date, it is likely that California will suffer additional losses in the 1995 BRAC round. After three rounds of closures, California remains home to 50 major installations (i.e., employment of more than 5,000). Because of the closures to date and the likelihood of additional closures next year, it is important that additional steps to facilitate re-use be taken. These include amending the McKinney Act to expedite re-use, establishing guidelines for acceptable levels of clean-up and release of parcels to local communities, fully funding clean-up of contaminated parcels, and greater flexibility in the use of federal re-use funds for community-wide economic development projects.