3 / Origins: Economic Shifts in California’s Regions
Economic shifts in California are deeply tied to the state’s geographic and demographic diversity and history.
We focus here on the period from 1979 to 2021 in California’s various regions.
San Diego
From defense to biotechnology
San Diego developed much of its economy around its deepwater port, initially supporting U.S. Navy installations. The economy gradually diversified post-Cold War, with the port becoming a center for international trade and tourism: Port trade eclipsed $7 billion by 2019 and cruise ships created a portion of the estimated 160,000 jobs—13 percent of all jobs in San Diego County—in tourism. Regional business-friendly policies created an environment in which companies that originated their business under defense contracts could commercialize their technologies and services (e.g., Qualcomm).
These favorable conditions help San Diego attract small businesses and startups. The area’s biotechnology startup growth, for example, is facilitated by strong life sciences education programs, robust hospital systems, and proximity to major ports for imported components.
The diversity of San Diego’s industries has contributed, at least in part, to the area’s polarization of jobs and wages.
As of 2018, 27.3 percent of San Diego residents were defined as being in economic hardship; between 2007 and 2018, the proportion of total income declined by 9.73 percent for the bottom fifth of earners and increased 3.64 percent for the top fifth.
Low incomes among the top industries in San Diego are concentrated in retail trade and hospitality/food service, while the region’s science and technology and public administration earn the highest median incomes.
South Coast
From aerospace to agglomeration
The South Coast region (composed of the counties of Ventura, Los Angeles, and Orange) became a national leader in the aerospace industry during the 1970s and 1980s: over a quarter million residents in Los Angeles County alone worked in aerospace each year, including 1 in 3 manufacturing workers and a third of the nation’s aerospace engineers.
Defense companies benefited from large federal defense contracts (e.g., $18 billion total in 1988) and provided well-paying manufacturing, production, and engineering jobs. Average pay in the aerospace industry stayed above 100 percent of comparable jobs in other industries in all occupational groups. Growth in aerospace enabled expansion of the financial services industry and international trade via the Port of LA and Port of Long Beach.
However, as Figure 6 (below) demonstrates, downturns in defense spending in the early 1990s cut the number of aerospace jobs in half from mid-1980s levels. A statewide recession exacerbated the problem, leaving workers with few opportunities to move to equal or better paying jobs. Many workers left the region, while immigrants moved in. L.A.’s Latino population increased from 18 percent of total residents to 47 percent between 1970 and 2000. But the well-paying manufacturing and production jobs never returned, contributing to the region and state’s current overrepresentation of Latino workers in low-wage jobs.
Decline in manufacturing employment in Los Angeles area
Figure 6. Manufacturing in Los Angeles-Long Beach-Anaheim, 1990-2020
Inland Empire
From agriculture to warehousing
The Inland Empire consistently ranks among the fastest-growing metropolitan areas in the country. Citrus farming drove the area’s nineteenth century economic development, while heavy manufacturing and military bases sustained the region’s economy during the Cold War era.
The warehousing industry absorbed land along Interstate 10 (the “San Bernardino Freeway” going from Los Angeles to San Bernardino) beginning in the 1970s and 1980s and accelerating around the time of the housing market downturn in 2008. The combination of major highway access, railways, cheap land, and proximity to the Los Angeles and Long Beach ports made the Inland Empire an ideal landing place for logistics firms who sought to capitalize on increased flows of goods from Asian and Latin American countries.
Local governments eager to promote new jobs also offered various incentives to warehouse developers, in contrast to community opposition to higher-density warehouse construction in open-space areas of Los Angeles and Orange County.
Warehouse construction then continued eastward throughout the 1990s and 2000s, partially due to labor availability in Black and Latino communities that were decimated by military base closures and declines in construction jobs following the housing foreclosure crisis.
For reference, Amazon—which only began opening warehouses in California around 2012—now operates 14 facilities in the region and has become the area’s largest employer with at least 40,000 employees.
From 2010 to 2019, the logistics sector accounted for 26.2 percent of the region’s new jobs. BLS data indicate that these are largely entry level-jobs such as stockers, order fillers, and material movers. These figures do not include a substantial number of temporary laborers—many of whom bounce between warehouses, customer service positions, and the remaining agricultural jobs. Temporary workers accounted for about 60 percent of all warehouse workers in 2013, leading to the temporary staffing industry growing 575 percent between 1990 and 2007. Each of these sets of jobs pays somewhere around the minimum wage.
The growth in temporary employment coincided with the rapid growth of the warehousing industry, indicating the industry’s dependence on on-demand staffing. Temporary labor arrangements exacerbate occupational polarization because job tasks are designed to be learned in a day or less (i.e., skill-building is unlikely to occur when working in a job designed to be temporary).
Central Coast
From farming and fisheries to spaceflight and agricultural technology
The Central Coast is perhaps best known for its natural beauty, attracting tourists from other California regions and the rest of the world who come to visit Big Sur or drive down the scenic stretches of Highway 1 and Route 101 where farmland and the ocean sit next to one another.
The natural amenities have historically been drivers of the region’s economy via agriculture and fisheries. Salinas, for example, is home to under 160,000 residents but contributes an estimated $8 billion economic impact from the production of staple crops like lettuce, celery, broccoli, and strawberries. Agriculture in the Central Coast has been both a source of occupational polarization as well as a driver of efforts against polarization.
Temporary labor agencies occupy at least five of the top 20 spots on the list of largest employers in Monterey County. These agencies provide cheap, temporary labor—often via workers on H-2A visas—to farms for crop management, harvesting, and packing.
The region is emerging as a site of development for at least two types of technology that are critical to California’s future: agricultural technology (AgTech) and aerospace. Both industries benefit from the region’s proximity to the Bay Area, yet the proximity has so far discouraged technology companies from locating in the Central Coast towns in which they deploy their products.
The Central Coast is so critical to AgTech that Forbes holds its annual AgTech Summit in the region each year.
Vandenberg Space Force Base is also a major driver of the Central Coast’s economy: The base provides roughly 16,000 jobs in Santa Barbara and San Luis Obispo Counties, a figure that research from the California Polytechnic Institute (2021) projects will grow by over 1,700 jobs per year in the coming decade as the base becomes a launchpad for private companies such as SpaceX.
San Joaquin Valley From agriculture and oil to prisons and real estate
The San Joaquin Valley (SJV) runs through the geographic center of California and is home to roughly 4.3 million people. Sixty percent of the 8.4 million acres is farmland, with just six percent qualifying as urban centers. The area produces more than half of California’s agricultural output and contributes $160 billion in GDP.
The SJV’s economy has also been partially dependent on oil production, with Kern County at its southern end producing 68 percent of California’s oil. Land availability for farming and oil production, though, has decreased due to intense drought, suburban development, and environmental regulations. The passage of the Sustainable Groundwater Management Act is projected to reduce the amount of land used for farming and oil by at least 10 percent.
Recent economic development has been driven by private and public real estate development of cheap land. Prison development is of particular importance to the regional economy. The region is home to a total of 13 correctional facilities out of 35 in California and to 11 of the 22 prisons built in California since 1987, but it has only one (UC Merced) of the ten University of California campuses and only three (CSU Bakersfield, Fresno, and Stanislaus) of the 23 California State Universities.
At least two California prisons, however, are closing as part of a broader budget directive to save the state $400 million per year. One of these (Deuel Vocational Facility) is in San Joaquin County. The other is in Lassen County in the northeastern part of California.
The closures will undoubtedly impact the local economies. For example, the facility in Susanville in Lassen County employed 45 percent of the town’s workforce with an average pay of $87,500 before it closed in 2021. Likewise, Lassen Community College’s 1,500 students included 200 inmates during any given year; dairy farmers sold large quantities of milk and other goods to the prisons; and local laborers and contractors worked projects at the prison.
The impending declines of agriculture, oil, and prisons place the San Joaquin Valley in a precarious position. Every county in the region outpaces the state’s poverty rate, with five counties exceeding 20 percent of residents living in poverty. High school and college graduation rates are lower than California’s rate in all counties.
These metrics demonstrate the difficulty of reinventing the SJV’s economy with jobs of the future. Furthermore, the SJV is faced with a phenomenon experienced by the Inland Empire a decade or so ago: Warehousing organizations capitalizing on the combination of land availability, proximity to major trucking routes, and cheap labor to move into the area.
If the Inland Empire’s trajectory is any indication, such expansion may not lead to substantial growth in mid- and high-paying jobs. The SJV’s residents therefore could experience an increase in job availability in low-wage sectors while having fewer opportunities to advance into high-quality careers.
Bay Area
From (IT) goods to (IT) services
View regional info
The Bay Area is home to roughly 20 percent of the state’s population, 25 percent of the state’s $1.5 trillion in total adjusted gross income (AGI), and six of the ten highest median income counties in California. Since 2008, the Bay Area created nearly two-thirds of California’s 1.1 million additional jobs, resulting in nearly a quarter of all of California’s jobs being done in the region. Retail sales in the Bay Area also make up a quarter of the state’s total.
The Bay Area’s economic inequality is as staggering as its economic contributions to the state. According to the Bay Area Council Economic Institute (2020), “median household income increased by nearly $250,000 (or 87 percent) among households in the top decile in the region and by only $4,000 (or 36 percent) among households in the bottom decile between 2010 and 2019.”
The technology industry has been a driver of inequality’s growth. Companies developing cutting-edge technologies moved into the region for proximity to one another and to top-tier universities such as the University of California, Berkeley and Stanford University. Venture capital soon followed: By 2016, around 40 percent of all capital ventured on startups went to Bay Area firms.
Bay Area technology firms moved away from computer manufacturing and into technology service provision (e.g., software and analytics) in the late 1990s, reducing the amount of low- and middle-skill occupations available to the region’s residents.
The Information industry category grew from 2.9 percent of total Bay Area jobs in 1990 to 5 percent in 2017. Likewise, the Professional & Business Services industry grew from 13.6 percent to 19 percent. During the same period, the manufacturing category decreased from 15.5 percent to 9 percent.
The share of jobs in the information technology industry is also indicative of the ongoing shift toward services: In 1995, nearly 75 percent of all jobs in IT were manufacturing; by 2006, the proportions had flipped, with over 60 percent of IT jobs in services and only 30 percent in manufacturing.
The decline in manufacturing jobs corresponded with growth in Leisure & Hospitality as well as Education & Health Services, providing some insight into where manufacturing jobs went upon the industry’s contraction.
Sacramento Metro From military and trade to government and education
The Sacramento metropolitan area ranks fifth in California by population size. Its growth was, like San Diego, supported by being an early hub for transportation networks. The Port of Sacramento and robust railroad development enabled traded goods to be routed through Northern California. Agricultural producers in outlying counties benefitted from Sacramento’s hub status and continue to employ 33,000 people across the four counties.
The development of the Port of Stockton and the growing complexity of trade routes moved Sacramento away from its core industries in the 1990s. The state’s growth helped accommodate job growth in the region, particularly in government administration. Over 76,000 people work in state government, over 11,000 work for the county government, and another 5,700 work for the City of Sacramento. School systems, universities, and healthcare organizations make up the rest of the top 10 employers in Sacramento County.
Government jobs have helped keep inequality in check in the Sacramento region, but suburban sprawl and relocations from the Bay Area have had surprising effects on the region’s suburban population: The Arden Arcade community, for example, has the highest level of income inequality in the state. The bottom-fifth of Arden Arcade earners, as of 2016, held just 2.1 percent of the community’s income. The top fifth held 58.2 percent of income. Likewise, statewide racial inequalities are sharper in the Sacramento region than elsewhere in California, owing largely to the exclusion of Black residents from growing areas of the economy (e.g., the emerging technology industry).
Sierras and Far North
From timber and tourism to conservation
The Sierras and Far North regions were critical to California’s early development: they were major sites of the Gold Rush and provided timber for the state’s mines, the Central Pacific Railroad, housing development, and the region’s farmers. The decline of these industries left the region with high levels of unemployment that persist today. Jobs data across the counties indicate that the economy has largely shifted towards accommodation and food services (based largely on tourism), trucking (among the highest-paid jobs in the region), health care and social assistance (owing to the large portion of residents using MediCal), and retail services.
Despite their economic struggles, the health of the regions is critical to California because the state depends on the region’s water: Rain and snow that fall in the region account for 60 percent of the state’s total precipitation and provide water for 23 million Californians. Natural resource protection is emerging as an economic development engine, with ten conservancies calling the Sierras home. The conservancies reside within the state’s Natural Resources Agency and provide grants for projects that help to manage forests and watersheds.
Some counties within these regions are commonly nicknamed “Jefferson” due to some of the area’s population desire to secede from California to become the “State of Jefferson”—a set of California and Oregon counties that, according to proponents, are underrepresented and misrepresented in the current system of government. Initiatives to secede have passed in local and county governments as late as 2016, but have not become law despite continuous lawsuits and other efforts. Nonetheless, the Jefferson movement illustrates many residents’ experiences of polarization in California.
The residents’ desire to be considered separate from the state is in no small part a direct result of state-level decisions that have deeply impacted county economies. California’s strict environmental regulations have all but shuttered the region’s logging industry. While there is growing consensus that environmental protection and mitigation of climate change are critical to California’s long-term economic health, the concerns of vocal Sierras and Far North residents are not to be swept under the rug. The gradual closure of timber mills as part of conservation efforts drove unemployment above the state average. Pre-pandemic unemployment ranged from 6 percent in Shasta County to 16.2 per cent in Colusa County. The Sierras and Far North are also home to five of the 10 counties with the lowest average weekly wages in the state. As of 2014, 13 of the 18 counties in the Far North had a combined state income tax assessment of $1 billion, compared with $4 billion from San Francisco County alone.
The region’s economic struggles are evident in the usage of social safety net programs. Among 18 Far North counties, for example, 31 percent of residents are insured by Medi-Cal. Participation in the program and the region’s high median age—50.5 in Nevada County, 52.3 in Plumas County, 52.5 in Trinity County, and 54.8 in Sierra County, for example, compared to California’s 36.5—has driven demand for healthcare practitioners. The Employment Development Department projects fastest job growth for the region to occur in the following occupations: physicians assistants, interpreters and translators, home health aides, and nurse practitioners.