Monday, June 20, 2011

Another Reason For Companies to Leave California

Last week I posted about the record number of companies leaving California (5.4 per week this year), and here's an AP news story "Wave of Lawsuits Over Seats Hit Retail Stores," about a recent development that might give companies in the Golden State even more incentive to leave (or not move there in the first place, or not expand operations there):

"Enterprising trial attorneys by the dozen are using an obscure California labor law requiring retailers such as Wal-Mart, Home Depot and Target to have enough seats on hand for their workers. Superficially, the allegations appear to be little more than a nuisance.

But armed with two recent appellate decisions that allow workers and their lawyers to use California's novel "private attorney general" provision, the retailers are facing millions of dollars in damages. A first violation calls for as much as $100 per employee per pay period and double that for subsequent violations."

16 Comments:

At 6/20/2011 12:12 PM, Blogger juandos said...

Maybe its time and past time for a little tort reform...

Well maybe this Supreme Court decision will take a bit of the wind out the sails of those filing frivolous lawsuits...

 
At 6/20/2011 12:42 PM, Blogger Dr William J McKibbin said...

California's budget problems are very real -- moreover, the budget impasse in the legislature is very real -- at this point, I would say the budget problems in California (as in Greece) may indeed be hopeless -- in the likely event of a California default, the Federal government will be faced with its first "too big to fail" state -- Federalism itself could be at risk...

 
At 6/20/2011 1:29 PM, Blogger Walt G. said...

Taking chairs away from workers, or not providing them in the first place, is a common power play. You will often notice the people taking chairs away or not providing chairs where it is efficient to use them have their own chairs.

You solve the chair problem simply by taking theirs. It works almost every time. If they supply stools with one short leg to retaliate, you remove one of the wheels from their chair. In the end, almost everyone ends up with a chair or nothing gets done.

 
At 6/20/2011 1:50 PM, Blogger DL said...

I think one should look at this in competitive terms. If the lawyers are going after the large retailers that have a physical presence, that would accrue to the benefit of online retailers like Amazon.com, and to the bricks-and-mortar retailers who are too small for the lawyers to bother with.

 
At 6/20/2011 1:53 PM, Blogger DL said...

W.J. McKibbin,

God help us if the Congress permits Obama to bail out California.

The beginning of the end.

 
At 6/20/2011 2:48 PM, Blogger morganovich said...

actually, california does not have all that much debt relative to GDP.

it's about 19%.

far from being hopeless, that's a VERY manageable number IF (and that's a BIG if) the state can get it's spending under control and staunch the flight of businesses keeping the economy solid.

the real problem lies not in the debt, but in the unfunded liabilities. these can be managed or cut, but i doubt the political will is going to be there until it's already a disaster.

 
At 6/20/2011 7:17 PM, Blogger Methinks said...

actually, california does not have all that much debt relative to GDP.

it's about 19%.


Seems so benign, until you consider (as Don Boudreaux pointed out on his blog recently) that the state does not own all of that GDP and it is not at the state's disposal to pay off debt.

I actually don't know why the public debt to GDP ratio is ever used. Only the revenue collected by the state through taxation is available to pay off debt, not GDP. If the United States government can never collect more than about 20% of GDP in taxes, the state surely hasn't much hope to collect more.

 
At 6/21/2011 8:38 AM, Blogger morganovich said...

methinks-

it's a valid point.

here's another way to look at it:

california collects somewhere in the neighborhood of $110bn in taxes a year. (an astonishing 15% of all state taxes collected in the US)

they owe 27.6bn in debt, or 24% of revenues.

this would not be a worrying debt ration at a company investing in productive assets, but california is not doing so, which makes this more questionable.

let's assume the principal and the interest would be about 2X the debt over 10 years.

that's 54bn in outlays.

if receipts go up by 2% a year, that would yield about 1.15tn in revs over 10 years.

thus, paying down all the debt would cost 4.7% of state income over 10 years.

that's not insignificant, but not insurmountable either.

that is a whole that could be climbed out of with a little fiscal discipline.

but not if entitlements are not tackled. they will sink the golden state utterly. that is where the real battle needs to be fought.

i have some serious concerns that "governor moonbeam" may not be the man for the job.

glad to no longer live in their tax jurisdiction...

 
At 6/21/2011 9:21 AM, Blogger Methinks said...

Morganovich,

I agree with you. I would also reduce the deadweight loss of regulation imposed by the state. That would also increase taxable revenue.

Unfortunately, since politics is a futures market in stolen property, "fiscal discipline" is a concept completely alien to politicians.

And, finally, I was wondering if you still lived there. I guess I have my answer. I too recently moved away from the Soviet Socialist Republics of the Northeast to escape the dual prongs of regulation and taxation. Oh, how technology has freed us.

 
At 6/21/2011 3:41 PM, Blogger Benjamin said...

Here's another example of reality trumping rhetoric. Between 2007 and 2009, L.A. County added a total of 14,127 businesses, many of them small (medium and large businesses contracted during the period). This nugget was included in a generally encouraging forecast from Beacon Economics. From the report's section on L.A.:

Despite the doom and gloom we seem to hear from our media and politicians, the reality for Los Angeles County is . . . the economy is getting better. This is evident in a number of improving economic indicators for the county, including taxable sales, venture capital, hotel occupancy rates, and yes, even employment. But the growth in these indicators isn't happening fast enough to satisfy the public's need for a rapid recovery, so people begin to look for someone to blame for the slow pace. Some are so frustrated that they blatantly deny that there is a recovery, sure that the political system is bound to bring the nation, the state, and local economies to their ultimate demise. Contrary to the beliefs of many of these naysayers, we are clearly on the road to recovery.

I too would like a lot less regulation at the state and local levels. But the numbers of start-ups in LA dwarfs the number of weenie-loser businesses leaving.

 
At 6/21/2011 4:05 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

No one tracks the sole prop businesses leaving the state, but we seem to count the START UP sole props as productive enterprises.

And, of course, there is that failed business thingy. THEY don't move out of state. But the owner of such an enterprise might very well move to another state and try again -- and not be in the CA stats for businesses leaving.

 
At 6/21/2011 4:17 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

California has the 2nd highest state unemployment rate. (May, 2011) 11.7%. National unemployment rate is 9.1%. National unemployment rate not including CA is only 8.7%, making the CA unemployment rate 34.5% higher than the other 49 states.

Oddly enough, CA unemployment fell 0.2% last month while at the same time the state lost 29,200 net jobs. The CA unemployment percentage dropped because more and more unemployed Californians are giving up looking for work, and thus are no longer considered unemployed. http://www.bls.gov/lau/

California's hold on the 2nd worst unemployment rate is about to be challenged. Nevada, the worst state, has a faster dropping unemployment rate than CA. If the trend continues, Nevada will pass us in about 3 months, moving CA to the coveted rank of numero uno.

 
At 6/21/2011 4:23 PM, Blogger morganovich said...

"Oh, how technology has freed us."

indeed.

i didn't even have to change any of my phone numbers.

 
At 6/22/2011 8:06 AM, Blogger morganovich said...

benji-

you are cherry picking facts that are quite dated.

LA has higher unemployment that the California average, 11.9 vs 11.7.

Total nonfarm employment decreased by about 11,400 jobs in Los Angeles County between April and May to reach 3.78 million.

 
At 6/22/2011 8:07 AM, Blogger morganovich said...

keep in mind that getting fired and starting your own "consulting" group may count as business creation in the stats, but it creates no economic activity and generally results in big income drops.

it's just a way to keep "unemployed" off of your resume.

 
At 6/22/2011 7:01 PM, Blogger Craig said...

the numbers of start-ups in LA dwarfs the number of weenie-loser businesses leaving

You are required to file to start a business, but, for small businesses, there is no such requirement to end one or move it out of state. How do you possibly know how many have failed or left?

Are you quite sure that your optimism is justified?

 

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