Californians Voting with Their Feet – by Packing Up and Leaving!

With little notice, and even less concern, California has begun to resemble a Rust Belt state regarding its changing demographics.

An important and alarming report by the Manhattan Institute has documented the decades-long trend of domestic out-migration from California which, when coupled with a declining trend in natural population increase (births minus deaths), could result “in a situation similar to that of New York and the other states of the Midwestern Rust Belt in the last century, which have seen populations stagnate for decades, or even fall.”

The key take-away from the report is that California has lost 3.4 million more residents to other states than it has gained domestically. Our growth has been sustained only with robust (and now declining) foreign immigration, and a healthy (and now also declining) birth rate.

The turning point seemed to be the early 1990s, which was characterized by a recession in California far deeper than the rest of the nation, and an accelerated transformation of our economy from manufacturing to creative and services employment. Over the past two decades, increasing regulation of the economy and limits on growth and investment has reduced California’s attractiveness for job creation, compared with nearby states.

The lucky beneficiaries of the state’s exodus have been western and southwestern states, our near neighbors like Nevada, Arizona and Oregon, and somewhat more distant neighbors like Washington, Colorado – but especially Texas.

The authors dig below the top-line numbers to reveal some disturbing trends:

  • Not only are people migrating from California – so is wealth. According to IRS data, California lost a net aggregate income of more than $26 billion from residents moving out of state during this century’s first decade. The authors warned, “This is not only a measure of economic damage but also of political and fiscal consequences because the state government depends heavily on personal income tax for its revenues.”
  • Wealthier migrants tended to move to Nevada and Oregon, probably as retirement or second home destinations, while Texas was the destination of working Californians with lower annual incomes, obviously because of the availability of jobs. Arizona received a mix of the two types of migrants.

The key drivers for the net out-migration, according to the authors are (1) the economy – higher unemployment and higher housing costs in California relative to the rest of the nation, (2) population density – California now has the densest urbanized areas in the nation: Los Angeles/Orange County, San Francisco/Oakland and San Jose are all three denser than New York or any other metro area, and (3) fiscal distress – the persistent budget and fiscal instability in state and local finances presents a risk premium for residents, who anticipate lower services and higher taxes.

The causes and consequences of these trends are ominous. This data provides strong evidence that Texas and other western and southern states are providing hospitable climates for job creation and communities for raising families. If working Californians continue to emigrate to these business-friendly and job-rich states, our middle class will continue to shrink and our communities will continue to divide between affluent and not-so-much.

In the longer term, the Public Policy Institute has warned that California faces a shortfall of one million college graduates by 2025 to fill the jobs necessary to meet our economic growth. If Californians and their families continue to move out of state to seek better opportunities, then we will lose our ability to provide the human capital for economic growth. This will only accelerate the economic decline of the Golden State.

(Loren Kaye is the President of the California Foundation for Commerce and Education. Originally posted on Fox & Hounds.)