High Costs, Economic Woes Keep California On Defense Experts Say Influx Of Migrants Unlikely To Return To Past Levels

For more than half a century, the California Dream, a vision of a sun-kissed land of opportunity, was a magnet attracting restless Americans, especially from older, more settled states like New York, Illinois and Ohio.

The large net migration into California from other states and other countries reversed in recent years. And a new study by three economists at the San Francisco Federal Reserve Bank suggests it may not change back.

Beginning before 1990, cutbacks in defense spending and by the aerospace industry hammered Southern California. Housing prices, among the highest in the country, slumped. Financial institutions failed. Taxes, business regulations and congestion increased. Crime rose. Earthquakes, fires, floods and droughts took a toll on property and enthusiasm for living here.

Altogether, these events added up to a sea change that dampened the state’s optimism, raised sharp questions about its economic future and left both state and local governments in a quandary over how to deal with the damage to their budgets. Naturally, the huge shift spawned a host of debates about its causes and whether it would persist.

The analysis by the San Francisco Fed economists, Stuart A. Gabriel, Joe P. Mattey and William L. Wascher, says that even under a set of very optimistic assumptions, the best the state can hope for in coming years is “slightly positive net domestic in-migration to California.”

According to their analysis, published in the bank’s “Economic Review,” the largest factor by far behind the decline in migration was a large increase in California’s unemployment rate relative to that of other western states such as Washington, Idaho, Nevada, Utah and Arizona, which are the destinations of the bulk of the outward bound.

California wages generally remain higher than in the other states, though that seems not to have deterred the recent out-migration. For one thing, the Fed economists found, pay in the other states has gone up faster than it has here in recent years.

And the higher pay may not be that much of a draw to stay because the cost of California housing, despite the recent slump, is still well above that in the other states.

In an interview, Mattey said population growth was an important part of California’s economic growth because “when population increases, lots of retail and service jobs are created. With out-migration there are fewer jobs.”

The most emotional part of the debate over the enormous shift is whether the state’s quality of life has deteriorated. For example, traffic congestion on California freeways is legendary, and many business executives who have chosen to relocate or to expand elsewhere often mention it as a reason for doing so. The out-migration hasn’t relieved such pressures: California’s total population has continued to grow because more babies are being born than people are dying.

A long string of natural disasters, such as the Los Angeles earthquake in 1994, have added to this debate.

The Fed economists included the quality-of-life factor in their equation and concluded that Californians do not regard living here to be as attractive as they once did. Their results, their article said, “are consistent with the deterioration hypothesis” but the effect appears to be on the order of inducing a drop of about 37,000 net in-migrants a year.

While the state finally seems to be pulling out of its economic malaise, it still is not doing nearly as well as its neighbors - which is not good news for in-migration.

What of the future? The economists used their equation to examine what likely would happen if the current moderate economic rebound continued but the quality-of-life factor neither improved nor worsened. In that case, they predicted, out-migration would still be substantial “but much less than the recent pace.”