DOES WATER = JOBS?

http://forecast.pacific.edu

Dr. Jeff Michael

Director, Business Forecasting Center

Eberhardt School of Business

California Water Myth #1:Water = (insert number here) jobs

Understanding Economic Numbers Facts Good Sample Data Good Forecast Estimates Bad Forecast Estimates

Economic Facts

Employment and Income Facts Lag Nearly 2 Years Tax records tabulated and aggregated by

county and industry Other Facts Come Quicker (e.g. building

permits) Use Facts (and theory) to Build Models Study Trends and the Entire Regional

Economy

Economic Change:Fresno County in Recent Wet Years

1996 2006 Change

Unemployment Rate

13.4% 8.0% - 40%

Labor Force 370,500 414,600 + 44,100

Non-Farm Jobs 246,800 302,600 + 55,800

Farm Employment (includes labor contractors)

62,000 46,500 - 15,500

Farm Output $3.33 bil. $4.85 bil.

+ 46%

San Joaquin Valley:Farm and Construction Employment

Economic Facts: Other Stressors Annual Private Building Activity Has

Decreased By About $5 billion in the San Joaquin Valley

Residential Building Permits2005 2009

Merced 1,444 7

Los Banos 690 11

Mendota 214 NA(23 in 2008)

Good Sample Data

Current Payroll Jobs Reports, CA Farm Jobs

County Unemployment Estimates (Monthly) Positively Correlated with Farm Jobs Labor Flows to Agriculture in Recessions

Decennial Census Unemployment Rate Estimates for Small Towns Mendota Unemployment Rate in 2000: 32% Highest of California’s 474 towns

2008 2009 change % change

390,850 389,225 -1,625 -0.4%

San Joaquin Valley:Farm and Non-Farm Jobs

Interpret Carefully! 2009 Will Likely Be Revised Down 2009 farm jobs with full water unknown

2009 Change since 2008

Change from 2007

Farm 193,600 + 1,200 + 6,700

Non-Farm 1,113,500 - 33,300 - 46,500

Unemployment Near Westlands

1968: First CVP Delivery of Water From Delta1982: Reclamation Reform Act: Removes residency requirement and increases acreage limit for subsidized water. Economically efficient from macro perspective, but more farm income can leave the area.

Good Forecast Estimates

Berkeley Economic Consulting (December 2008) Impact of Delta Smelt Restrictions Agriculture: Loss of 720 jobs, $48 million in revenue

in an average water year. (Adding salmon restrictions will increase effects.)

University of the Pacific August 2009: Farm Water vs. Construction December 2009: Update Farm Water Loss

Estimates Water Employment Projects In Progress:

Salmon Fishery Closure Removing Ammonia From Sacramento Wastewater

Pacific Farm Job Estimates

Utilize 2 approaches + reasonableness check1. Start with projected change in farm revenues2. Start with change in direct jobs3. Use fallowed acres and employment ratios as

“reasonableness check” Account for upstream (food processing)

impacts Use “industry standard” multipliers for

indirect and induced losses

Pacific Farm Job Loss Estimates August 2009

6,000 lost jobs (range: 0 to 12,000) No more than 2,000 due to ESA Majority of income loss to farmers not farm

labor December 2009 Revision

Use newly released agriculture employment estimates from CDFA for lower bound, other minor adjustments

8,500 lost jobs (range: 7,000 to 10,000) About 2,000 due to ESA

Related Pacific Job Loss Estimates San Joaquin Valley Construction (Aug. 2009)

47,000 lost jobs (very conservative, 60,000+ under more typical assumptions)

Salmon Fishery Closure (preliminary, in progress) 2,200 jobs (split evenly between Commercial and

Recreational effects) Sacramento Regional Wastewater Treatment (very

preliminary, in progress) Ammonia removal: 1,000+ jobs ($100 million annual

loss in disposable income, + commercial) Further upgrades and wastewater plants increase costs

Bad Forecast Estimates

Other Considerations

Short-run vs. Long-run Labor is Mobile Land and Some Capital is Fixed (stranded

costs). All jobs are not equal (wages, hours,

seasonality, work conditions). Many valuable environmental, urban,

and agricultural uses do not impact employment, but can be valued in dollars.

Conclusions

Link Between Water and Unemployment Rate is Very Weak

All Choices Have Job Impacts. Farm and Fish advocates overstate effects. Westlands is less than 1% of SJ Valley Economy. No option clearly dominates on jobs.

The Big Impacts (positive and negative) Come From Long-Run Proposals. Water Bond and Delta Conveyance Need Serious

Economic Analysis.

Thank you.

Jeffrey Michael, DirectorBusiness Forecasting Center

Eberhardt School of BusinessUniversity of the Pacific

http://forecast.pacific.edu