HomeMy WebLinkAboutStaff Report 3602
City of Palo Alto (ID # 3602)
Regional Housing Mandate Committee Staff Report
Report Type: Meeting Date: 3/14/2013
City of Palo Alto Page 1
Summary Title: Regional Forecasts by Levy
Title: Presentation by Stephen Levy of Bay Area Regional Economic and
Housing Forecasts
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
This is a presentation and discussion item. No action is requested or may be taken by the
Committee.
Discussion
At the last Regional Housing Mandate Committee meeting, the Committee asked that a future
meeting be set aside to hear a presentation and to engage in discussion with Stephen Levy
regarding the methodology used for the Association of Bay Area Governments (ABAG)
economic and housing projections. Mr. Levy is the Director of the Center for Continuing Study
of the California Economy, which prepared the projections for ABAG.
The intent of the meeting is to hear the report from Mr. Levy and to follow up with questions
and discussion as desired by the Committee. Attached to this staff report is “Bay Area Job
Growth to 2040 Projections and Analysis,” released by ABAG in February 2012. Also attached is
the memo Councilmember Schmid prepared in late 2011 evaluating the State and ABAG
projections.
Staff hopes to provide the Committee with copies of Mr. Levy’s presentation in advance of the
meeting as well.
Attachments:
Attachment A: "Bay Area Job Growth to 2040," prepared by Center for Continuing Study
of the California Economy, February 2012 (PDF)
City of Palo Alto Page 2
Attachment B: "Demographic Forecasting in California," November 3, 2011, prepared
by Greg Schmid (PDF)
CENTER FOR CONTINUING STUDY OF THE CALIFORNIA ECONOMY 132 HAMILTON AVENUE • PALO ALTO • CALIFORNIA • 94301
TELEPHONE: (650) 321-8550
FAX: (650) 321-5451
www.ccsce.com
February 2012
Bay Area Job Growth to 2040
Projections and Analysis
Prepared for:
Association of Bay Area Governments
Prepared by:
Stephen Levy
Introduction
In September 2011, the Association of Bay Area Governments (ABAG) asked the
Center for Continuing Study of the California Economy (CCSCE) to prepare
regional job projections to 2040 and to assist ABAG staff in preparing population
and household projections. This report is focused on the job projections prepared
by CCSCE and includes a summary of the methodology, a description of the
projections and an explanation of past, current and projected job growth in the
region.
The projections and this report were prepared by Stephen Levy, CCSCE’s
Director.
CCSCE acknowledges the assistance and support of Miriam Chion, Justin Fried,
Ken Kirkey and Ezra Rapport from the ABAG staff who provided guidance and
encouragement through the time we worked together. CCSCE also
acknowledges Jon Haveman and Sean Randolph of the Bay Area Council
Economic Institute. Jon provided assistance in interpreting the Council’s
December 2011 economic forecast and Sean allowed CCSCE to use quotes and
slides from the Institute’s upcoming Bay Area Economic Profile prepared with the
assistance of McKinsey & Company.
At the conclusion of the main report there is an appendix that describes the data,
sources and methodology that provide the foundation for the report’s findings.
1
Summary
The Bay Area is projected to add more than 1.2 million jobs between 2010 and
2040 and to grow slightly faster than the state and nation.
Total Jobs (Thousands)
2010 2040 % Growth
Bay Area 3,385.3 4,617.5 36.4%
United States 141,821.3 183,310.7 29.3%
Bay Area % of U.S. 2.39%2.52%
Source: 2010‐U.S. Bureau of Labor Statistics BLS), the California Employment
Development Department (EDD) and CCSCE; 2040‐CCSCE
The region is expected to slowly recover the jobs lost during the recent recession
and then experience moderate job growth to 2040. The Bay Area is projected to
slightly outpace the state and nation in future job growth driven by the region’s
large concentration and continuing competitive advantage in many areas of
technology and the region’s position as a Pacific Rim trade and finance center.
Still, in 2040 the region is expected to have a smaller share of U.S. jobs than in
1990 before the defense cutbacks or in 2000 before the dot.com bubble burst.
The remainder of this report explains these findings and why the Bay Area is
expected to reverse the lagging job growth of the past decade.
2
Bay Area Job Trends 1990-2010
Bay Area job levels experienced ups and downs during the two decades after
1990. Between 1990 and 1994 the Bay Area experienced a jobs recession that
lasted longer than the nation’s although job losses were relatively modest. During
this period the region was hit with defense related cutbacks lost more than
40,000 jobs associated with lower defense spending on aerospace and the
closure of military bases. These losses deepened in the following years and were
a permanent loss of part of the region’s economic base.
During these years the region’s share of national jobs fell from 2.64% in 1990 to
2.50% in 1995 as the nation recovered more quickly from the 1990-91 recession
and experienced a smaller impact from defense related job losses.
During the late 1990s the regional economy roared back as technology and the
dot.com boom took over. The Bay Area added more than 600,000 jobs between
1994 and 2000 while matching the previous record share of the nation’s total
jobs. Regional job gains were led by computer services, information services
related to the Internet and computer and electronics manufacturing.
However, many of the jobs created during the dot.com boom quickly disappeared
in the years after 2000 as the boom turned into the dot.com bubble bust. The
region lost more than 300,000 jobs between 2000 and 2004 and the region’s
share of U.S. jobs fell from 2.67% to 2.46%. The region lost 1/3 of the computer
and electronics manufacturing jobs after 2000 and a larger share of the Internet
related jobs while experiencing some job losses in professional, technical and
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scientific services and temporary help agencies, all sectors serving the region’s
technology firms.
Between 2004 and 2007 the Bay Area once again outpaced the nation in job
growth and was slowly recovering the job and share losses after 2000 when the
recession created by the housing and financial crises hit the nation, state and
region toward the end of 2007.
Once again the region lost nearly 300,000 jobs and by early 2010 saw the
region’s share of national jobs fall to the lowest since before 1990.
However, this time the job losses had a different structure and told a different
story. The largest job losses since 2007 were related to construction and finance
with nearly 100,000 jobs lost as a result of the housing and financial sector
crises. More than 50,000 jobs were lost in the retail trade and government
sectors. While technology and trade sectors experienced job losses after 2007,
these were modest and temporary with recovery starting in late 2010 and
extending into 2011.
While the recessions after 1990 and 2000 caused permanent job losses in the
region’s economic base, the recent recession did not. While many indicators of
this fact will be described below, venture capital trends show the region’s
continuing strength in a single picture.
Bay Area VC funding rebounded in 2010 and 2011 approaching pre-recession
levels. At the same time the region’s share of national VC funding has been on a
fairly steady uptrend since 2000 reaching record levels during recent years.
These gains plus a surge in technology hiring from existing firms has pushed Bay
Area job growth above the national average in 2011 with further gains expected
in 2012 and 2013.
4
The Short-Term Outlook: 2011-2013
In December 2011 the San Jose metro area tied with Houston for the highest
rate of job growth for all large metropolitan areas in the nation during the
preceding 12 months. During that period the metro area saw a gain of 25,700
jobs for a 3.0% increase compared to the nation’s 1.3% gain. The San Francisco
metro area also strongly outpaced the nation. Job growth in both metro areas
was driven by gains in technology sectors.
Job gains were recorded in Internet-related activities, computer and electronics
manufacturing and especially in professional, scientific and technical services.
Bay Area companies reported hiring gains driven by customer demand for their
goods and services. Bay Area companies including Google, Apple, Facebook,
LinkedIn and Zynga made business news headlines regularly reporting good
news. Rents and building prices surged in tech centers including San Francisco,
Palo Alto and San Jose as reported in the San Francisco and Silicon Valley
Business Journals.
In December 2011 the Bay Area Council Economic Institute released their
regional economic forecast prepared in partnership with the Anderson Forecast
Project at UCLA.
The UCLA forecast highlights include:
Between the first quarter of 2011 and the fourth quarter of 2013, the
region is expected to add more than 200,000 jobs for a gain of 7.5%. This
gain is compared with a 4.5% increase expected in California
During that period the unemployment rate is forecast to drop from 10.5%%
to 8.1%. By December 2011, the regional unemployment rate had
declined to 8.6%.
Gains in personal income and taxable sales are forecast to outpace
inflation.
New housing construction is forecast to start a recovery in 2013.
In February 2012 Facebook announced their upcoming IPO, which together with
the successful IPOs at LinkedIn, Zynga and other Bay Area companies
confirmed that it was, once again, possible for entrepreneurs and workers to see
a financial payoff from innovation and risk taking.
5
Job Growth and Trends to 2040
The Bay Area job projections were developed using three guiding principles:
1) The Bay Area projections were based on projections of job growth in the
nation and state. The national and state projections provide the pool of
job opportunities and the Bay Area projections reflect judgments about
the share of national and state job growth that will locate in the Bay Area.
2) The Bay Area share of national and state job growth is determined by the
industry composition of job growth and the projected share of job growth
locating in the Bay Area. If national and state job growth is concentrated in
sectors where the Bay Area has a competitive advantage, the region’s
projected job growth will be higher than if national and state job growth is
concentrated in sectors where the region has a below average share of
jobs and a relatively poor competitive position.
3) The analysis of competitive advantage is focused on sectors in the Bay
Area economic base. The region’s economic base consists of those
sectors that sell a high proportion of goods and services to customers
outside the region. They export goods and services to customers in world
and national markets and markets throughout California. Key examples of
economic base sectors in the Bay Area are manufacturing, information
services related to the Internet, professional, scientific and technical
services such as computer services and scientific R&D services, and
foreign trade and tourism sectors.
U.S. Job Growth to 2040
The U.S. job growth projections have three principal components:
1) A new, post-2010 Census set of population projections to 2040
2) Labor force participation rate projections that reflect longer working lives
for older workers
3) Industry sector projections developed by CCSCE based on a review of
existing national projections
The population and labor force projections determine the amount of job growth
projected between 2010 and 2040 and the industry projections identify the
structure of job growth as an input to state and Bay Area job projections.
6
The resulting national projections of job growth are shown below.
United States Total Jobs (Millions)
2010 2020 2040
141.8 163.2 183.3
2010‐2020 2020‐2040 2010‐2040
Change 21.3 20.1 41.5
% Change 15.1% 12.3% 29.3%
Source: 2010‐U.S. Bureau of Labor Statistics (BLS) ;
2020 and 2040‐CCSCE
The nation is expected to add 41.5 million jobs between 2010 and 2040 for an
increase of 29.3%. Slightly more than half of the projected increase is expected
to occur in the next ten years. The percentage increase in jobs (15.1%) between
2010 and 2020 is actually larger than the projected increase (12.3%) for the
following 20 years.
The concentration of job growth in the first ten years has two explanations, both
of which apply to the state and Bay Area job projections:
1) A significant part of the job growth projected to 2020 includes the recovery
of job losses incurred during the recession. The nation lost more than 8
million jobs during the recession. The national forecasts reviewed by
CCSCE all have the nation regaining full employment by 2015 or 2016. As
a result the 2020 projections include erasing the recession job losses plus
added gains in the latter half of this decade.
The job growth numbers look different when measured from the peak
before the recession. Job growth between 2007 and 2020 is projected to
be 13.1 million and the projected growth rate is 8.8% compared to the
21.3 million jobs and 15.1% growth rate measured from 2010.
2) After 2020 labor force and job growth slows as the tidal wave of baby
boomer retirements takes effect. U.S population is projected to increase
by 16.3% between 2020 and 2040, which is faster than the projected job
growth (12.3%) and the reason is the retirement of the baby boom
generation.
7
The Pattern of U.S. Industry Job Growth to 2040
Projecting industry growth 30 years into the future is a difficult task and although
the projections shown below reflect the industry patterns expected by major
national forecasting organizations, they come with a high degree of uncertainty in
the years after 2020. The projected growth rates shown on the table are for the
period from 2007 to 2040 and eliminate the fall and rise of job levels related to
the recession and recovery—thus they illustrate the long-term trends.
United States
Jobs by Major Industry (Millions)
2007 2010 2020 2040
2007‐
2040
Construction 7.6 5.5 7.4 8.4 10.6%
Manufacturing 13.9 11.5 11.7 10.7 ‐23.2%
Wholesale Trade 6.0 5.5 6.1 6.1 1.6%
Retail Trade 15.5 14.4 15.4 15.9 2.7%
Transp., Warehousing and Utilities 5.1 4.7 5.4 5.8 14.2%
Information 3.0 2.8 3.0 3.2 5.2%
Financial Activities 8.3 7.7 8.5 8.9 6.6%
Professional and Business Services 17.9 16.7 21.4 27.0 50.3%
Educational and Health Services 18.3 19.6 24.2 30.6 66.8%
Leisure and Hospitality 13.4 13.0 15.7 18.3 36.6%
Other Services 5.5 5.4 6.2 6.9 25.9%
Government 22.2 22.5 23.7 25.9 16.6%
Self Employed 11.3 10.6 12.5 14.0 23.6%
Total Jobs 150.0 141.8 163.2 183.3 22.2%
Source: 2007,2010‐U.S. Bureau of Labor Statistics (BLS)
2020 and 2040‐CCSCE
However, the projections do show substantial differences in the expected growth
rate among industries and these differences tell a story about where job growth is
expected and where job levels will remain flat or decline. These differences
directly influenced the Bay Area job projections described in a later section of this
report. Agriculture and mining were excluded from the table as they are less
important to the Bay Area economy, but jobs in these categories are in the totals.
These projections also help identify which job growth is primarily a reflection of
regaining jobs lost during the recession and which industries have long-term job
growth potential. Some of the major trends include:
8
Construction job growth between 2010 and 2020 recovers jobs lost during
the recession after which the industry will have modest growth.
Manufacturing job levels are expected to end the decade close to 2010
levels and decline thereafter, never reaching the pre-recession totals.
Manufacturing production is projected to increase substantially between
2010 and 2040 as in recent decades although job growth will lag. The
explanation is strong and continuing productivity growth in the sector.
Put simply, over time manufacturing firms can produce more with fewer
workers. The size of the U.S. market measured by population growth is
below 1% per year while manufacturing productivity has been is close to
5% per year over the long term. Even with expanding manufacturing
export markets and new advanced manufacturing opportunities, the sector
will see a decline in overall job levels between 2010 and 2040.
By far the largest percentage job growth is expected in Professional and
Business Services and Educational and Health Services. The Professional
and Business Service sector includes the fast-growing, high wage
professional, scientific and technical services industries and those sectors
are critical for projecting Bay Area job growth. The largest percentage
growth within these industries is in computer services, scientific research
and development services and architectural and engineering services, all
key components of the Bay Area economic base.
The largest and fastest-growing industries are within health and social
services and are driven by the aging of the population.
Retail trade and financial services are sectors undergoing restructuring
driven in different ways by technology. Retail trade growth is slowing as
more customers take advantage of online shopping and that trend is
expected to continue leading to below average job growth for retail trade.
In finance, technology such as online banking and mobile phone
technology for paying bills is reducing the demand for personnel in banks
and technology also makes it easier to process financial transactions so
job growth in this sector is also expected to be relatively small.
Leisure and Hospitality is the other fast-growing sector and includes
amusements and hotels as well as the large restaurant sector.
The information sector is important for the Bay Area and the relatively
slow job growth shown above is misleading because it consists of
continuing job losses in telecommunications offset by the smaller but fast-
growing software and Internet services sectors.
9
California Job Growth to 2040
The state is projected to experience job growth that is slightly faster than the
nation’s job growth to 2040. California is expected to recover the recession job
losses by 2015 or a year later and the unemployment rate will return to full
employment levels between 2015 and 2017 according to the forecasts reviewed
by CCSCE.
In addition the state has a favorable industry composition given the expected
U.S. job growth in technology, trade and tourism. California is outpacing the
nation in job growth in 2011 and is forecast to outpace the nation in job growth in
each year to 2020 in the latest long-term UCLA Anderson Forecast.
These results are confirmed by CCSCE’s industry jobs analysis.
California Total Jobs (Thousands)
2010 2020 2040
15701.4 18713.9 21155.5
2010‐2020 2020‐2040 2010‐2040
Change 3012.5 2441.6 5454.1
% Change 19.2% 13.0% 34.7%
Source: 2010‐California Employment Development Department (EDD)
and CCSCE; 2020 and 2040‐CCSCE
California is projected to add nearly 5.5 million jobs between 2010 and 2040 with
the largest absolute and percentage gains in the first decade as the recession job
losses are regained and before the heart of the baby boom retirement wave.
The state is projected to see a 34.7% increase in total jobs or slightly above the
projected national increase of 29.3%. As with the national projections, the picture
changes if job growth is measured from the pre-recession peak. The 2007-2020
gain is then 1.6 million jobs instead of 3.0 million and the percentage increase is
9.2% or slightly above the national job growth rate for this period.
The chart on the next page shows the long-term trend of the state’s share of
national jobs since 1990. While there are periods of share gain and periods of
share losses, the overall pattern is that California job growth roughly matches the
national growth rate and the state’s projected share of U.S. jobs in 2040 is
approximately the same as the share in 1990. The state regains the share losses
10
in the recession by 2020 and then grows slightly faster than the nation between
2020 and 2040.
Bay Area Job Growth to 2040
The Bay Area has a concentration and competitive advantage for most sectors in
which technology is applied in the development of goods and services sold to
customers around the state, nation and world. This strong position in technology,
where job and export growth is expected, is the primary reason that the region is
projected to experience job growth at a slightly faster pace than the nation.
The Bay Area concentration can be seen in venture capital flows as shown on
page 4 where the Bay Area is capturing 40% of the nation’s venture capital
funding in recent years, above the shares captured during the dot.com boom.
The Bay Area concentration can be seen in the technology sector job levels
shown on the next page. The region with 2.4% of the nation’s total jobs in 2010
had 12.0% of computer and electronic manufacturing jobs, 5.8% of
pharmaceutical jobs, 10.3% of software jobs, and 8.3% of Internet service jobs.
The Bay Area advantage stands out in key fast-growing, high wage professional,
scientific and technical services. In 2010 the region accounted for 3.3% of the
nation’s architectural and engineering jobs, 7.0% of computer service jobs, 4.3%
of management and technical consulting jobs and 8.1% of scientific R&D jobs—
all above the 2.4% share of U.S. total jobs in the Bay Area.
11
Bay Area Share Advantage in Key Technology Sectors (2010 data)
Jobs in Thousands
Bay Area Share
Bay Area U.S. of U.S.
Computer & Electronics
Manufacturing 132.5 1,100.1 12.0%
Pharmaceuticals 16.0 276.5 5.8%
Medical Equipment 11.1 359.0 3.1%
Software 26.7 259.8 10.3%
Internet-Related 31.8 383.5 8.3%
Architectural & Engr. Services 42.1 1,276.7 3.3%
Computer Services 100.9 1,441.5 7.0%
Management & Tech.Services 41.7 991.4 4.2%
Scientific R&D Services 50.0 620.3 8.1%
Total Jobs 3,401.8 141,821.3 2.4%
Source: BLS, EDD and CCSCE
The Bay Area Council Economic Institute (BACEI) 2012 profile of the regional
economy highlights the competitive advantage for innovation activities in the Bay
Area. BACEI has graciously allowed CCSCE and ABAG to cite some of the
material prepared for the profile by McKinsey & Company. Innovation highlights
include:
The Bay Area is the dominant region for new patents. In 2010 regional
organizations held 16,364 patents while the next largest center, New York,
trailed with 6,383 followed by Los Angeles, Boston and Seattle.
Innovation sectors in the Bay Area accounted for 18.4% of total
employment, highest in the nation, followed closely by Boston, Seattle and
the Raleigh Triangle with more than 16%. San Diego was next with 14.0%
followed by Austin with 12.2%.
Seven of the top ten social media companies are headquartered in the
Bay Area including Google, Facebook, Yahoo, Twitter, LinkedIn, Zynga
and Yelp.
12
Nearly half of the top 100 clean-tech firms are in the Bay Area.
The Bay Area innovation and technology advantage also comes from having the
highest percentage of college graduates in the workforce of all major regional
economies. The Bay Area’s 44% is followed by 43% in Boston and 37% in
Seattle compared to the 28% national average
Foreign trade and tourism are additional strengths in the region’s economic base,
in part because the Bay Area is a major center for trade, investment and tourism
with Pacific Rim countries. The top six export destinations—China, Japan,
Taiwan, South Korea, Hong Kong, and Singapore—all represent fast-growing
Asian markets. Bay Area exports are concentrated in high-value technology
exports shipped by air.
The Bay Area is the nation’s fourth-largest export center behind New York,
Houston and Los Angeles.
The BACEI-McKinsey regional profile has some other interesting findings relative
to the region’s strengths:
The Bay Area has the second-largest concentration of Fortune 500 firms
(30), trailing only New York (45) and ahead of the next highest
concentration in Houston (22) and Dallas and Atlanta (10).
The Bay Area is home to 10 of the Fortune 500 global firms, the most of
any U.S. region except New York—Chevron, H-P, McKesson, Wells
Fargo, Apple, Intel, Safeway, Cisco, Google, and Oracle.
The Bay Area is a major travel and tourism center with 57 million flights
annually, and 15.9 million tourists in 2010 who spent $8.3 billion.
Projection Methodology and Key Findings
Job projections to 2020 were developed based on detailed industry projections
for the nation and state. The focus was on projecting job growth in the region’s
economic base sectors and converting these projections to total jobs by
projecting the population-serving jobs that would accompany the basic industry
job growth and related population increase.
The projections from 2020 to 2040 were developed by concentrating on major
industry categories and projecting the Bay Area share of national and state
growth based on the analysis of trends in the period from 2007 to 2020.
The region is projected to experience job growth at a slightly faster rate than the
state and nation. The primary reasons for this above average job growth is the
13
region’s above-average concentration in fast-growing sectors that apply
technology to the development of goods and services that are sold to customers
around the world. Information and professional services are where the largest job
gains are projected for the region’s economic base. The Bay Area job growth is
also strengthened by the region’s position as a major financial and trade center
for Pacific Rim countries and as a region where Pacific Rim investors and
workers continue to come to live and work.
The Bay Area is projected to add more than 1.2 million jobs between 2010 and
2040 of which approximately 300,000 jobs represent a recovery of jobs lost since
the pre-recession peak and just under 1 million jobs represent gains between
2007 and 2040.
Between 2010 and 2020 the region is projected to add nearly700, 000 jobs of
which approximately 300,000 represent the recovery of jobs lost during the
recession. Job growth is expected to slow during the 20 years between 2020 and
2040 as baby boomer retirements slow labor force growth.
The Bay Area is projected to increase the region’s share of California jobs with a
gain from 21.6% in 2010 to 21.7% in 2020 and 21.8% in 2040. The Bay Area is
also expected to outpace the nation in job growth with the region’s share of
national jobs going from 2.39% in 2010 to 2.49% in 2020 and 2.52% in 2040.
Bay Area Total Jobs (Thousands)
2007 2010 2020 2040
Bay Area Jobs 3652.0 3385.3 4068.5 4617.5
% of CA Jobs 21.3% 21.6%21.7%21.8%
% of U.S. Jobs 2.43% 2.39%2.49%2.56%
Source: 2007, 2010‐BLS, EDD and CCSCE
2020 and 2040‐CCSCE
The region’s projected above average job growth is displayed graphically on the
following page.
14
Major Industry Job Trends
The major industry job trends in the Bay Area over the next 30 years mirror the
national trends described on page 9.
Construction job levels will almost regain pre-recession levels by 2020 and will
increase slightly to 2040. Although this is a substantial gain measured from 2010
job levels, it is primarily driven by a slow return to more normal construction
levels in the region.
Manufacturing job levels are projected to increase slightly between 2010 and
2020 and then continue the long-term decline driven by the disparity between
high productivity gains and slow increases in domestic demand as population
growth slows and the population continues to age. These projections do not
include major manufacturing job gains that might occur in the clean tech sector if
regional firms develop products that attract worldwide customers.
The largest job gains in absolute numbers and percentage increases are in
Professional and Business Services and Education and Health Services. Within
these larger categories the leading sectors are professional, scientific and
technical services such as computer services and sectors associated with health
care and social services for an aging population.
The national trends of slow growth in retail trade and finance are also expected in
the Bay Area.
Above-average job growth is expected in the Information sector led by Internet-
related services and in the number of self-employed residents as well as in the
15
Leisure and Hospitality sector, which includes amusements, hotels and
restaurants.
Bay Area Jobs by Major Industry (Thousands)
2007 2010 2020 2040
2007‐
2040
Farm 23.2 20.7 21.7 19.3 ‐16.8%
Natural Resources and Mining 2.4 1.9 2.3 2.0 ‐18.2%
Construction 193.9 130.5 184.3 211.2 8.9%
Manufacturing 348.0 308.3 319.1 291.3 ‐16.3%
Wholesale Trade 129.2 113.6 134.9 136.3 5.5%
Retail Trade 343.1 308.0 345.4 360.4 5.0%
Transp., Warehousing & Utilities 102.2 90.5 111.1 119.4 16.8%
Information 113.4 111.0 139.6 147.5 30.0%
Financial Activities 201.4 170.6 210.4 219.2 8.8%
Professional & Business Services 581.1 547.1 719.8 912.8 57.1%
Educational and Health Services 385.6 410.5 516.5 655.0 69.9%
Leisure and Hospitality 332.5 324.3 392.7 462.5 39.1%
Other Services 112.1 109.3 139.2 156.8 39.9%
Government 486.0 457.5 482.6 530.1 9.1%
Self Employed 317.5 298.0 368.7 416.4 31.1%
Total Jobs 3671.6 3401.8 4088.3 4640.1 26.4%
Source: 2007, 2010: EDD and American Community Survey for self employed: 2020, 2040:
CCSCE. Data includes San Benito County, which is part of the San Jose metro area. As a result the
totals are slightly higher than the ABAG region totals cited above in the report.
The Challenges to Achieving the Projected Job Growth
ABAG asked CCSCE to develop what they called an “unconstrained” set of Bay
Area job projections. CCSCE’s analysis assumes that over the next 30 years,
many of the challenges facing the nation, state and region will be addressed. In
addition this analysis assumes that at the regional level, the Bay Area will
address challenges of housing, transportation and quality of life as well or better
than other regions in the United States.
Providing investors and families a high quality of life is essential to maintaining
the Bay Area’s competitive advantage in the technology sectors that are
expected to drive the region’s job growth. Up until now the region has done well
in the competition for providing great places to live and work. A study of Silicon
Valley high tech employers completed in 2011 reported:
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‘‘Silicon Valley’s top competitive advantage is its highly skilled pool of talent. Executives
interviewed for the study say there is nowhere else in the world with such a concentration of
highly skilled tech professionals, which is essential for businesses that require a steady stream
of talent. The Valley’s high quality of life-----including beautiful weather, excellent schools,
and the ability to live and work in the suburbs-----was another major advantage, making CEOs
want to locate their companies there and attracting talented workers and their families.’’
On the other hand maintaining a high quality of life is increasingly difficult. A 2011
survey of Silicon Valley CEOs states the quality of life imperative succinctly. The
Silicon Valley Leadership Group 2011 CEO Survey reported “a deteriorating
state infrastructure in areas ranging from public education to public transportation
has added to the difficulties of recruiting the best workforce, finding them housing
and educating their children to be tomorrow’s world-class workforce”.
The 2012 Bay Area Council Economic Institute Bay Area economic profile
identifies a list of well-known Bay Area competitiveness challenges:
Housing affordability. Although median home prices have fallen and affordability is
higher than it has been in several years, Bay Area median home prices and rents are
still well above the national average.
K-12 and higher education. Both are facing continuing budget cuts throughout
California as well as rising tuition levels at the state’s public and private colleges.
Moreover, average test scores are at or below nationwide levels and high school
dropout rates remain high. While immigration can continue to supply a part of the
region’s workforce needs, most jobs will be filled by residents who are born, educated
and trained in California.
Transportation infrastructure. Despite the ongoing work by MTC and local transit
districts and the $billions planned for improving highway and public transit travel,
the region does not yet have sufficient funding for all needed transportation
infrastructure investments. Although transportation funding is a nationwide
problem, it is an especially important challenge in a region that needs to be able to
move people and goods efficiently to compete in the 21st century global economy
Governance challenges. California does not as yet have a plan to develop state and
local budgets that are balanced and able to provide high quality public services.
The unconstrained job growth analysis shows the competitive strength of the Bay Area
economy going forward if these challenges can be met.
17
Sources and Methodology Appendix
1990-2010 Job Estimates
The job estimates for the United States were published by the U.S. Bureau of
Labor Statistics (BLS) at www.bls.gov. The job estimates used in developing the
ABAG projections were those available in September 2011. BLS data and
methodology are available at http://www.bls.gov/ces/.
The wage and salary job estimates for California and the Bay Area were
published by the California Employment Development Department. These are
available at http://www.labormarketinfo.edd.ca.gov/Content.asp?pageid=166.
The job estimates used in developing the ABAG projections were those available
in September 2011.
The Bay Area jobs data base includes the following metro areas as used by
EDD: Oakland (Alameda and Contra Costa Counties); Napa (Napa County); San
Francisco (Marin, San Francisco and San Mateo counties); San Jose (Santa
Clara and San Benito counties); Santa Rosa (Sonoma County) and Vallejo
(Solano County). For the ABAG region total job estimates and projections, San
Benito County was excluded by the county is included in the table on page 16.
Estimates for self employed workers were developed from the 1990 and 2000
Census and for recent years annual estimates are available from the American
Community Survey at http://www.census.gov/acs/www/. The job estimates used
in developing the ABAG projections were those available in September 2011.
Methodology
The job projections to 2040 developed for the ABAG region were based on a
best-practice projection framework used by other regional planning agencies in
California and by national forecasting firms that do long-term regional projections
throughout the United States. A summary of the methodology is included in the
Power Point presentation at the February 7, 2012 Regional Advisory Working
Group Meeting and available at http://apps.mtc.ca.gov/events/agendaView.akt?p=1820.
A more detailed description of the projection framework is available in Review of
Best Practice State and Regional Projection Methodologies and Review of
Recent Economic and Demographic Trends prepared by CCSCE for ABAG,
SACOG and SCAG in April 2011. There are three major components common to
regional and state long-term projections and these are the basis for the current
ABAG methodology:
18
1) Population projections are developed based primarily on the projected rate
of job growth.
2) State and regional job projections are developed based on projected
national job growth and the share of national job growth expected to locate
in a particular state or region.
3) Household projections are developed from population projections using
varying combinations of demographic projections based on household
formation rates and analyses of housing market conditions.
The remainder of this section focuses on the job projection methodology.
Job Projections for 2020-2040
All of the projections described in this report were developed by CCSCE in the
fall of 2011.
The first step in developing job projections for the ABAG region is to develop
projections for national job growth in total and by major industry group (the
industries shown on page 16).
United States
The U.S. job projections for 2020 were adapted from the 2018 projections
published by BLS in November 2009 and described in the November 2009
Monthly Labor Review. The press release can be found at
http://www.bls.gov/schedule/archives/all_nr.htm#ECOPRO and the articles can
be found at http://www.bls.gov/opub/mlr/2009/11/home.htm.
CCSCE modified the BLS projections to reflect the impact of the recession and
changes in labor force participation trends that occurred after the 2009
projections were prepared. In February 2012 BLS produced a new set of
projections to 2020 that can be found at http://www.bls.gov/emp/.
The 2020 U.S. job projection used by CCSCE in developing the ABAG job was
within 0.8% of the newly published BLS projection of total jobs for 2020.
The projections for 2030 and 2040, as explained on page 6, were developed in
three steps:
1) Projecting national population growth
2) Translating the projected population into total labor force and total jobs
3) Projecting job growth by major industry group
19
CCSCE used a set of U.S. population projections developed by John Pitkin and
Dowell Myers that are based on 2010 Census estimates as a starting point and
immigration assumptions developed by a panel of experts. The projection report
and tables can be found at http://www.usc.edu/schools/price/futures/.
The existing Census Bureau long-term population projections were developed
before the 2010 Census results were released and are available at
http://www.census.gov/population/www/projections/. The population projections
developed by Pitkin and Myers and used by CCSCE have a lower U.S.
population in 2040 than either the Census Bureau baseline or low projections
series as a result of assumed lower immigration levels.
The labor force projections were developed based on BLS projected labor force
participation rates to 2050 that can be found at
http://www.bls.gov/opub/mlr/2006/11/contents.htm. CCSCE modified the
projections to increase the labor force participation of older workers after 2020.
A national unemployment rate of 6% was assumed for 2020 to 2040.
The population, labor force and unemployment projections combine to produce a
projection of total jobs in the U.S. that was used in developing the ABAG
projections.
Jobs by industry for 2020 were developed based on the BLS projections adapted
for trends emerging after they were published.
The major industry projections for 2030 and 2040 were developed by CCCCE
based on 1) the trends between 2010 and 2020 and a review by CCSCE of major
industry job trends projected by other major national forecasting firms.
California
The California job projections were developed by CCSCE using a proprietary
model that relates California job growth to U.S. job growth. Industries are
categorized into economic base industries (those that sell a majority of goods
and services outside the region, also known as export industries) and those that
serve the local population.
Growth in economic base industries, as explained on page 6 is related to the
pool of job opportunities reflected in the national projections and the share
locating in California based on analysis of historical trends and CCSCE
judgment. Job growth in California’s economic base industries depends on how
fast they are expected to grow nationwide and the state’s competitive position
represented by the share of national jobs expected to locate in California.
20
Once the economic base jobs are projected, population serving jobs are added
based on 1) the projected profile of these jobs in the nation and the extent to
which California’s profile of population serving jobs differs from that in the nation.
For the California projections developed as part of this project the principal
findings were:
1) California is expected to have job growth that is slightly faster than the
nation to 2040 based on the state’s industry structure, which has an
above-average share of economic base jobs with high projected national
growth.
2) In general the share of jobs in key industries is not expected to increase in
California. It is the industry structure that pushes the overall job growth
rate slightly above the national average.
3) The profile of population serving jobs in the state and nation are similar.
Bay Area
The Bay Area job projections were developed using the CCSCE model that is
described above for California and as explained on page 6.
As explained on pages 13 and 14 and supported elsewhere in text the pri8ncipal
finding is that the Bay Area is projected to experience job growth that is slightly
above the state average as a result of the region’s favorable economic base
industry structure with an above average share of the sectors expected to post
above-average job growth in the nation and state.
Other Sources
The venture capital funding graph on page 4 comes from data published by Price
Waterhouse Coopers Lybrand and can be found at
https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=notice&iden=B.
The ranking of San Jose cited on page 5 as tied with Houston as the leading
large metro area for job growth comes from a BLS press release that can be
found at http://www.bls.gov/news.release/pdf/metro.pdf.
The UCLA Bay Area forecast cited on page 5 can be found at
http://www.bayareaeconomy.org/economic-forecasts/.
The UCLA long-term forecast for California cited on page 10 was published in
The UCLA Anderson Forecast for the Nation and California 2011-2021 in June
2011. UCLA forecast a 22.5% increase in total nonfarm jobs in California
between 2010 and 2020 which is slightly higher than the CCSCE projection of
21
22
19.2% for total jobs during this period. UCLA forecast that California would
outpace the nation in percentage job growth in each year through 2021.
The McKinsey report cited on pages 12 and 13 and the Bay Area economic
profile cited on page 17 will be published by the Bay Area Council in the spring of
2012.
The Silicon Valley workforce report cited on page 16 can be found at
http://www.novaworks.org/LaborMarketInfo/Reports/InformationTechnologyStudy
.aspx.
The Silicon Valley Leadership Group CEO Survey cited on page 17 can be
found at http://svlg.org/press/library.
1
California Demographic Forecasts: Why are the numbers over
estimated?
Prepared by City of Palo Alto
November 15, 2011
Actual California Population growth
Over the last decade, the state of California added 3.4 million people, to reach a total of 37.3 million.
This was an increase of 10% over the decade. This growth rate follows the gradual slowing that started
after 1990, down dramatically from the very high rates of the post‐World War II era. Note that the
Department of Finance’s (DOF) 2007 projections reflect a very high growth perspective. The DOF
numbers are currently used as the population forecasts for all state and local projects—they are not
scheduled to be revised until 2013.
Table 1. California’s population growth over the last five decades
(average growth from census to census)
Census Dept of Finance Projections (2007)
1960s 29.2
1970s 18.5
1980s 25.7
1990s 13.8
2000s 10.0 14.8
2010s 12.8
2020s 11.6
2030s 10.2
Source: US Census Bureau actual Census numbers; California Department of Finance 2007 Projections.
2
Recent State forecasts have been consistently overestimated
Even after the sharp decline in growth during the 1990s, forecasters consistently tended to be overly
optimistic about population growth rates through the 2000s. In 2005, the Public Policy Institute of
California issued a report (“California 2025: Taking on the Future”) that included the population
projections of all the key demographic forecasters. The consensus forecast from this group was some
40% higher than the actual outcome for the state:
Table 2. California Population Forecasts for 2010 made before 2005
(Percentage growth expected from 2000‐2010)
California Dept of Finance 15.2
USC Population Dynamics 11.6
UC Berkeley (Lee, Miller) 13.9*
Public Policy Institute of CA 15.2*
CCSCE 17.2
UCLA Anderson Forecasting 16.6
Average of six 2005 forecasts 15.0
*=center point of band
Source: Public Policy Institute of California, “California 2025: Taking on the Future”, 2005, Page 29.
The consensus forecast was some 50% above the actual numbers. The only forecaster who produced a
number below the actual 10% growth was the UC Berkeley group who stated that there was a 5%
chance that the growth rate would be lower than 7.1%. The 2005 PPIC Report stated that “Recent trends
make population projections for California especially difficult…For these reasons, planners should
consider alternative population scenarios … as useful alternatives for planners.” (PPIC, 2005, pages 27‐
28)
Even as late as the end of 2009, on the eve of the decennial census, estimates by the California Dept. of
Finance (the organization responsible for the numbers that are used for all state allocation formulas)
remained strikingly high at 14.1% which was 1.5 million or 44.7% above the above the
contemporaneous and more accurate Census Bureau’s Current Population Estimates.
3
Critical Components of Change and the Future
The Census data provide a nice detailed perspective on the actual components of change during the
decade. While the 3.1 million people added through natural increase (births minus deaths) were the
largest single growth factor, the 2 million net gain from foreign immigration was important in
overcoming a net outflow of 1.6 million from native born emigration, primarily to other states.
Table 3. Components of Population Change in California, 20002010
(millions of people)
Births +5.45
Deaths ‐2.35
Net Domestic migration ‐1.63
Foreign immigration +2.58
Foreign emigration ‐0.59
Military, etc ‐0.07
TOTAL +3.38
Source: USC, Population Dynamics Research Group, “What the Census would show”, February 2011.
The challenge for projecting change in the future is the dramatic shifts in some of these base categories.
With the aging population, we know that, even with slight increases in longevity, the aging population in
California will raise the annual number of deaths in California from 271K in 2011 to 462K in 2039, while
the number of births will rise slightly from 532K in 2011 to 551 in 2039. The natural increase will fall
from some 260K today to 90K in 2040.
Thus, over time any increase in California’s population will increasingly rely on migration. Since net
domestic migration has averaged a net outflow of some 160K per year since the early 1990s, any growth
in population will be increasingly dependent on foreign migration. (Source: USC, Population Dynamics
Groups, April 2011).
There is little reason to see a major shift in domestic migration with California’s high cost and high
unemployment rate. That leaves foreign migration as the critical component source of long‐term
population growth. The most dynamic source for California’s growth has been immigration from Mexico,
both legal and illegal. All observers (The Dept of Homeland Security, the Pew Charitable Trust Hispanic
Center, and the Mexican Migration Project at Princeton) agree that net immigration from Mexico has
been down dramatically in recent years with the stricter enforcement of border crossing and the
prolonged recession in the US. Pew estimates that the illegal immigrant population in the US fell by
some 7% between 2007 and 2010. The important debate about the future is whether this is a business
cycle phenomenon or part of a longer term trend.
The group that has the best data source and takes the longer term look is the Mexican Migration Project
at Princeton. For decades they have been tracking migration patterns from Mexico and doing annual
surveys of thousands of families from migration centers in Mexico. They found that the percent of first
time immigrants from the Mexican communities of highest immigration fell from 1.2% of adults in 2000
to 0.6% in 2005 to zero in 2010. They identify that the changes are due to Mexican demographic and
4
economic factors as much as from U.S. conditions. They identified five internal factors of change in
Mexico:
• Fertility rates are falling dramatically from 6.8 births per women in 1970 to 2.8 in 1995 to 2 in
2010 (replacement level).
• The number of young people entering the labor market has fallen from one million a year in the
1990s to 700K today and demographic factors will bring that down to about 300K in 2030, not
enough to meet local job needs.
• The rate of college attendance and college completion has doubled over the last decade, raising
the career path of an increasing share of young workers.
• The wage disparity between Mexico and the U.S. is narrowing sharply with average wage gaps
falling from 10:1 in the 1960s to some 3.7:1 in the early 2000s.
• The cost of migration has risen dramatically for illegal entrants, further narrowing the earnings
gap.
All of these factors point to the need, at the least, of looking at alternative scenarios of population
growth in California that are more sensitive to possible underlying changes in migration patterns.
5
Sources of Demographic projections about California
US Bureau of the Census (responsible for the decennial census and does updated estimates each year of
state populations—has been much closer to actual numbers than the Cal Dept. of Finance)
California Department of Finance (responsible for state population estimates between the Census
years—forecasts used as key source for state government planning). Statewide estimates for 2010
(made in 2009) were 41% higher than the 2010 Census numbers for the state, 83% over for the nine Bay
Area counties and 137% higher for the three West Bay counties.
Ronald Lee, UC Berkeley, Center for Economics and Demographics of Aging, “Special Report: The
Growth & Aging of California’s Population”, 2003 (an important report that identified the detailed
assumptions that went into the Department of Finance’s long‐term projections).
Hans Johnson, Public Policy Institute of California, “California 2025: Taking on the Future”, Chapter 2
‘California’s Population in 2025’ (a report that gathered projections from eight academic and
government sources). Johnson concluded that “population projections for California are especially
difficult…In addition to overweighting contemporary trends, forecasters are notoriously bad at
predicting fundamental demographic shifts... For these reasons, planners should consider alternative
population scenarios.” Pages 27‐28.
John Pitkin & Dowell Myers, USC Population Dynamics Research Group, “The 2010 Census Benchmark
for California’s Growing and Changing Population”, February 2011; “Projections of the Population of
California by Nativity and Year of Entry to the U.S.”, April 2, 2011. (Pitkin and Myers had the lowest of
the forecasts in the 2005 study—though still overestimating growth by 16%. They are working with the
California Department of Finance on components for a new longer‐term forecast; they are still assuming
a net immigration number of 160,000 holding steady in the future.)
Steve Levy, Center for the Continuing Study of the California Economy
UCLA Anderson Forecasting Project
Greg Schmid
October 2011