California’s economy got clobbered — but how long until the state recovers?

We’ve all seen slow-motion video clips of horrific damage from head-on automobile collisions staged in auto safety testing facilities.

Something like that is happening to California’s economy.

Until a few weeks ago, the globe’s fifth largest economy was humming along with recordhigh output and record-low unemployment. Employers were begging for workers and state and local governments were enjoying revenue surges.

“California’s unemployment rate remained at its record low of 3.9% in February as the state’s employers added 29,000 nonfarm payroll jobs,” the state Employment Development Department reported on March 27.

“The job gains in February contributed to a record job expansion in California of 120 months, surpassing the long expansion of the 1960s,” EDD added. “California has gained 3,425,700 jobs since the current expansion began in February 2010, accounting for 15% of the nation’s 22,846,000 job gain over the same timeframe.”

However, by March 27, the state’s economy had already slammed into a brick wall called coronavirus. Closures of “nonessential” businesses and stayat-home directives to slow the spread of the virus very quickly eliminated at least 2 million jobs and tripled unemployment among the state’s 19.5 million workers, with no end in sight. In a matter of days, those who lost their jobs filed 1.6 million new claims for unemployment insurance.

“We have taken a jump into unknown territory. Over the next few weeks, the number of workers laid off in California will reach unprecedented levels,” said Taner Osman, research manager at Beacon Economics and UC Riverside’s School of Business Center for Economic Forecasting and Development. “The hope is that stimulus measures will ease the short-term pain felt by workers, and that containment efforts will enable the economy to return to something like full capacity as the summer proceeds.”

Californians and their state and local governments are receiving billions of dollars from federal “stimulus measures,” but in what had been a $2.6 trillion economy, that will ease overall effects only slightly.

The economic jolt hits those on the lower rungs of the economic ladder most heavily, especially low-income workers in highly impacted service sectors such as restaurants, hotels and retail stores. And even those who still work in “essential” sectors feel the collateral effects.

“Grocery store cashiers, store clerks, farmworkers, and delivery and truck drivers make up sizeable shares of the essential workforce,” the Public Policy Institute of California says. “Given the low hourly wage rates for these workers, some may face hardships in caring for children or family members with schools and care facilities shuttered.”

No one knows, of course, how long California’s economy will be crippled. Gov. Gavin Newsom and most Californians clearly believe that the battle to save lives is worth the economic damage, a belief bolstered by complex calculations from Joe Nation, a former state assemblyman who now teaches at Stanford University.

“Stay-at-home provides minimum net benefits to the state of $77 billion under the most conservative assumptions,” Nation concluded in an op-ed for Calmatters. “… In short, … the ‘cure,’ a stay-at-home policy, results in an economic benefit. Under best-estimate assumptions, the net economic benefit climbs to $4.9 trillion, an amount equal to nearly 18 months of economic output for the entire state.”

“The sooner other elected officials recognize that the cure is not worse than the problem and follow the lead of California and 25 other states with stay-athome policies, the greater the economic benefit, the higher the number of lives saved and the faster the economy will return to normal,” he added.