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Study: California Economy Unhurt by Progressive Policies

A new report shows that California, with its higher minimum wage, Medicaid expansion and ambitious climate policy, has done better than 19 Republican-led states with lower taxes and fewer regulations.

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A California worker installing solar panels. (Photo: Danita Delimont/Alamy)

Reducing carbon emissions, raising low-wage workers’ incomes and increasing access to health insurance have not, as critics warned, led to job stagnation and lower GDP.


 

In a direct rebuke to anyone using the term “job-killing regulations,” a recent study shows that a group of progressive policies enacted since 2011 have had no negative impact on the California economy. If anything, the report, “California is Working: The Effects of California’s Public Policy on Jobs and the Economy since 2011,” shows that California has done better than several states that have lower taxes and fewer regulations.

The report’s author, University of California, Berkeley Labor Center researcher Ian Perry, examined 51 progressive policy measures – including environment, safety net, taxation, infrastructure and housing – that Perry coins the “California Policy Model,” or CPM. These policies include laws that provide a path to a higher minimum wage, expand Medicaid as part of the Affordable Care Act, raise taxes on corporations and promote California’s comprehensive and ambitious climate policy.

Perry chose 2011 as a starting point because that’s when Democrats captured majorities in the legislature as well as the governor’s office. Also that year, Proposition 25, which let Democrats approve a state budget with a simple majority vote rather than a two-thirds requirement, went into effect. That opened the floodgates to a wave of progressive policies that have been scorned by conservative politicians, pundits and think tanks.

Perry told Capital & Main that he set out to see whether critics of California’s progressive policies were correct — that, for example, California’s higher minimum wage would increase unemployment, or whether the state’s strict regulations on carbon would send businesses to other states in droves.

To do so, Perry compared wage growth and employment growth in California with statistics from 19 Republican-controlled states. But he also had to create a legitimate control group to weight factors like California’s tech boom, which might have skewed economic results, or a Republican-controlled state’s downturn, which may not have been due to conservative policies. To combat an apples-to-avocados comparison, Perry used a “synthetic control” method to weight data from Republican states to create an alternate California (or alt-California) in which CPM had not been enacted.

Perry found that California – the real California with its CPM – enjoyed higher total employment, private sector employment and GDP than the 19 Republican states and alt-California.

The study, by design, looked at the cumulative impact of policies instead of evaluating specific policies. “Still, one policy stood out to me,” Perry said. “My study found that the expansion of Medicaid through the ACA was one of the more pro-growth policies because it led to a greater demand in health care services and a growth in health industry jobs.”

The biggest takeaway from the study, Perry said, was that policies that make up the CPM – reducing carbon emissions, improving income for low-wage workers and helping more people access health insurance – have not, as critics warned, led to negative economic effects like job stagnation and lower GDP.

“There are warnings from conservatives that [progressive policies] will slow down economic growth, but California is a big piece of evidence that the fears are unwarranted,” Perry said.

Kansas, which went all in on supply side economics under Governor Sam Brownback, showed that the converse is true, that cutting taxes can sometimes kill growth, Perry said.

In a Washington Post op-ed, Jared Bernstein, chief economist to former Vice President Joe Biden, praised the study. He said that, while it didn’t convince him that there’s a direct line between progressive laws and job growth (a relationship Perry did not set out to prove), the study did, “in tandem with tons of other research, convince me that these progressive interventions do not hurt growth.”

The Berkeley study was released as Republicans on Capitol Hill pushed a tax bill heavily weighted to tax cuts for corporations and wealthy individuals, legislation that a majority of Americans are firmly against.

Despite the report’s generally rosy economic picture, Perry points out that some issues threaten California’s prosperity. First, progressive labor standards need to be enforced to combat rampant wage theft in California’s low-wage industries. Second, the effect of very high housing prices in much of the state could undermine some economic gains.

“High housing prices and lack of supply could force more people to live farther away from their jobs, which would increase carbon emissions and make it harder for [businesses] to attract workers,” he said.

And the possible repeal, or undermining of, the Affordable Care Act, could undo some of the economic benefits of the past seven years, Perry said. Another study from the UC Berkeley Labor Center earlier this year showed that California would have lost more than half a million jobs if the Graham-Cassidy repeal-and-replace legislation had passed.


Copyright Capital & Main

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