Where recession has hit Southern California hardest

Every workday, hundreds of thousands of residents of Riverside and San Bernardino counties commute to jobs in the coastal economies of Los Angeles, San Diego and Orange counties, according to a recent study conducted for UC Riverside’s School of Business Administration by Beacon Economics. Businesses in these coastal economies are externally oriented, meaning they produce goods and services sold across the United States and the globe, ultimately supporting all of Southern California.

As the Riverside/San Bernardino region looks ahead from the current economic malaise, local policymakers need to recognize that inland Southern California has the capacity and critical need to expand its externally oriented job sector and grow beyond its bedroom-community roots.

For starters, let’s define what we mean. Inland Southern California refers to a large area that includes parts of northern San Diego County and parts of eastern Los Angeles County. Also, it includes Palm Springs, Palm Desert and the rest of Coachella Valley. By coastal Southern California, we mean Los Angeles, Orange and San Diego counties.

The coastal plain, from ocean’s edge to mountain slopes, may be narrower in San Diego County than to the north, but the principle for work, commuting and residential issues is the same. In a tale of two territories, inland has been hit much harder by the recession. It should piggyback on some of the early signs of economic recovery and employ development models that have worked in the coastal strip as a framework for growth.

From inland to coast, the daily worker exodus is a function of history and housing.

It’s not that residents are drawn out of the inland because of a lack of local jobs, but rather that coastal workers have been drawn to the inland region for affordable housing. As the economy in inland Southern California took off during the past decade, so did relative housing affordability, bringing in an enormous number of new families from coastal regions.

Inland Southern California is becoming its own economy, but progress is slow. The proportion of coastal-bound commuters is the same today as it was in 2000, indicating that although the area’s local employment base has grown rapidly, the number of residents leaving the area for work has grown just as fast.

Building a broader job sector to better match the population would have two major impacts.

One, it would reduce inland Southern California’s exposure to housing and economic down cycles. The region’s over-reliance on household spending explains why its economy has felt the downturn more acutely than much of the nation, including the more diversified coastal economies.

Two, it would reduce the number of commuters, alleviating stress on local infrastructure and reducing the massive transportation expenditures needed to keep up with population growth.

The cost of being stuck in traffic should not be underestimated. For example, another recent study done by Beacon Economics for the Riverside County Transportation Commission found that a planned expansion of state Route 91, the region’s lifeline to the coast, would result in a time-savings value of $90 million to $129 million annually.

Diversifying also means a deeper, richer economy.

Given inland Southern California’s legacy as a bedroom community to the more prosperous coastal strip, the majority of jobs that formed there and continue to dominate service the local population base. These jobs tend to have smaller supply chains and don’t have the same multiplier effects as externally oriented sectors. This is why Southern California’s coastal economies lost 250,000 local payroll jobs between 2001 and 2009 but had a 17.5 percent growth in economic output, while the inland region gained 100,000 jobs during the same period, but only grew 13.8 percent.

Inland Southern California has seen small growth in externally oriented sectors such as logistics, administrative services, and professional and financial services. But health care, retail and construction, all tied to the bedroom economy, have had enormous growth. Hence, the pain of the economic downturn.

Moreover, three of the largest contributors to growth in the coastal economy – information, real estate and manufacturing – are sectors in which inland Southern California is falling behind. Real estate growth in the coastal areas is largely in high-density office space rentals. Inland Southern California has yet to develop one of these massive urban job centers – clearly a hole in the economy.

Information, the home of informational technology and entertainment, is also lagging. But perhaps the biggest surprise is manufacturing. While this critical sector is doing well along the coast, in the Inland Empire it has actually shrunk in recent years and now is back to 2001 levels. This sector should be booming inland. Why it is not is worthy of investigation.

The hit that inland Southern California’s economy took during the recession is not an indication of its future growth potential, but a reflection of its history as an affordable bedroom community for coastal workers.

The recent downturn and bursting housing bubble has served as a wake-up call. The interests of the inland communities will be better served by creating a diversified economy that will be more robust and less vulnerable to economic fluctuations, while also providing more local high-value employment opportunities to residents commuting long distances.

To accomplish this, strong private and public sector leadership is required to break with a status quo that has historically undervalued the region’s productive potential.