This Is Where California's Jobs Are Moving | Jim Doti

There are major changes in the economy right now. It's confusing to a lot of people what's happening. Today we sit down with Dr. Jim Doty who has been using econometrics, using data, figuring out where the economy is headed, where the jobs are in California. He spent a lot of effort and research into finding out what's happening and he's going to share it with us today. There are really two industries that are doing well. One is theme parks and the other is healthcare. The one industry you would think we would be doing well is high-tech, Silicon Valley, and we're not. So in an industry where we've been fundamentally strong, that's been California's mainstay in terms of job creation, income generation. We've been lagging the nation. I'm Siamak Khorrami. Welcome to California Insider. Jim, it's great to have you on. Welcome back. Thank you. Great to be back. We want to talk to you about the state of California's economy. You just had your forecast at Chapman University. Tell us what's going on. Well, California, unlike other areas of the nation, is not doing well. If you look at probably the most reliable statistic at the state level that allows us to compare California with other states, I think the indicator is job growth. If you take the period between mid-22, post-COVID, to mid-25, and that's the most recent period where we have national data, job growth total, cumulatively, over those three years was 2%. Total? Total, 2% over those three years. How does that compare to other states? If you rank all 50 states, it turns out that that 2% would place California number 48. Only two states did worse. Interestingly, California also ranks 48th in state and local taxes. So there's a correlation between what's going on with taxes? I can't help but think there is a strong correlation. There's clear evidence of that. We've done studies where we've done correlation tests, regression tests, and it clearly shows that high rates of state and local taxation lead to slower economic growth. The fact that California now ranks 48th and its standing is 48th in taxes is more than a coincidence. It's a clear indication that in a globally competitive environment, taxes become very important because to succeed in a business or if you have personal finances and you're paying a high state income tax, and you can evade that by moving out of the state, people will do that. So as those people move out of the state, not only do you lose population, but many of them bring their companies with them, which means you lose jobs as well. We have discussed the trend of people leaving the state, but it seems like things have changed, right? Is the population still leaving the state? No, people are still leaving the state significantly. The number, the amount of loss dropped this last year. Let me give you the data. Since 2012, California has suffered a net loss in people moving out of the state versus those moving in. That's called net domestic migration. It's been negative, California, since 2012, and it's been increasing the net loss up to the point where we were losing 350,000 people in one year, and that was several years ago. The most recent reporting year, 2025, last year up through mid 2025, that dropped to a loss of 280,000. So instead of losing 350,000, it declined the net loss to 280. So we were still losing 280,000 people more than any other state, and that affected overall population because population is comprised of the natural increase in population, birth minus death. That's rather stable, although that's been declining because the aging of the baby boomers has led to a higher death rate, so that there's been a slight reduction in births minus deaths. The other is immigration, foreign immigration, and that increased sharply as a result of both authorized and unauthorized illegal immigration, and that has been very strong in California. So when you put those three components together, California basically showed very little population increase, under 50,000. And these next few years with foreign immigration declining as a result of tightening up on immigration in general, so you have three things going on now. Not only do you see foreign immigration declining, births minus deaths declining, we will continue to see a steady outflow of people leaving, more people leaving California to other parts of the United States rather than those moving in. Those people leaving the state have a median adjusted gross income, we can track that because of taxation. That's the AGI that you pay your state income tax. For those people moving out, it's around $140,000. For those moving in, it's $110,000. So not only are you losing people, you're losing income as well, because the people moving out of the state have higher incomes than those moving in. Obviously, they're moving out because they're more cognizant of high state taxes, in particular, the income tax. And by moving out of the state, they can evade the marginal tax of 15% in California, highest income tax in the nation. Essentially, what you're seeing is that the population is going to go down because of these factors. Do you think people are going to continue leaving the state or do you think it's going to stabilize it? They can definitely continue leaving the state. As to whether it's going to be more or less, I'm not sure at this point. Why are people leaving the state based on what you're seeing? Taxes for one. For example, higher people are leaving because they have to pay a 15% marginal tax. Let's say that their AGI is $1 million. That means they're paying $150,000 in state, just the state income tax, not other kinds of tax, just the personal income tax, $150,000 at a 15% marginal rate. They move to Las Vegas, they save $150,000. That's at a million dollars. What if they're making 10 or 20 million? They have an even greater incentive to leave the state, to go from 15% to zero by just moving to another state and living one day more than six months, six months and one day there. They save that tax. And many of them have businesses that they will bring with them because they have to compete. And if they have to pay high taxes and be subject to high levels of regulation, because California has so many areas where you regulate different aspects of business, it makes it much easier and more profitable to leave the state and not be subject to those expenses and those regulatory costs. So those are, I think, the major reasons. Other than that, I mean, we live in a beautiful environment. The climate is wonderful. As an immigrant from Chicago, I know the blessings of living in this idyllic environment. Nonetheless, when the costs of living here reach a certain point, there's an incentive to leave. If you take just national data, the median home in California, not Orange County, which is much worse, but median home value in California, that's the middle price, just as many homes are less than that in terms of price versus those higher, is roughly $850,000. In the nation, it's $400,000. So home price is double. New graduate from Chapman, let's say maybe five years after receiving a degree, has a job, years where you're in family formation, getting married, having children, and having that dream of owning a home, and with mortgage rates at 6% plus, and you have to pay double for that starter home, you begin to think about, hey, I can get a job in Texas, in Florida, in Arizona, Idaho, Nevada, and not pay income tax. That's a real allure and incentive to devote with your feet by moving out rather than continuing to live in California. And you'll give up the climate and the beautiful state we live in because you want to own that home. And it's just too expensive. Do you see changes in the housing market here going forward? Our forecast that we presented in December, Srimuk, is that there will be continued weakness. And these lofty goals of the governor will simply not be met. In 2018, the governor presented his goals, which he called stretch goals of building roughly three and a half million homes over a seven-year period, which amounted to roughly 500,000 new homes, condos, single family, and apartments, 500,000 each year over five years, during a time when we were building 100,000. So he called it, really, the first one was an audacious goal. Well, it was not audacious, it was preposterous. There was no way you can go from 100 to 500, and we didn't. And in 2022, he revised that goal down to 300,000. It was 325,000. That was roughly 300,000 a year when we're still producing 100,000. He called that a stretch goal, and I just called it an unrealistic goal. And we're still producing 100,000. So next year, our forecast calls for roughly the same number of units, about 100,000 units per year. And as a result, housing will continue to be unaffordable. So you think there is not major changes in the housing. It's going to stay unaffordable. Yeah, stay unaffordable. So I don't see major improvement. There's one thing that could lead to improvement, and it's leading marginally to some marginal improvement next year, not because of any successful policy in place, but simply because we see mortgage rates declining about 50 basis points from around 6.5 to 6% over the course of this next year. And what about industries in California? Are there some industries that are doing really well and thriving? There are really two industries that are doing well. One is theme parks, and the other is healthcare. We're doing well in healthcare, generating jobs in that area. The one industry you would think we would be doing well is high-tech, Silicon Valley, and we're not. We have at Chapman, we've partnered with UCI, it's called the Chapman UCI Advanced Industry Measure. What that measure allows us to do is to track jobs in what we call advanced industries. These go beyond tech jobs in the computer industry, software, even data centers. Over and above that, it includes defense, it includes aerospace, also medical products, pharmaceuticals, higher paying jobs that pay roughly double than the statewide average in jobs. We track those for 50, not states, 50 metropolitan statistical areas. These are areas like Orange County, Los Angeles, San Francisco, Sacramento, Inland Empire, all metropolitan statistical areas. So we track those 50. When you take all of the state's MSAs that include San Diego, Orange County, LA, Silicon Valley, which consists of Santa Clara, San Jose, and you put Sacramento, Inland Empire, put all those together, in advanced jobs in 2023, those MSAs in California comprise 17% of all the jobs in the nation. In just a two-year period, we dropped to 15%. So we lost 2%. We're still gaining jobs, they're growing at a much slower rate than the nation. If you put all 50 of those MSAs together over a three-year period, those 50 areas increased the number of jobs in those areas by 52% and California was 26%. So they're generating roughly double the rate of California. So in an industry where we've been fundamentally strong, intrinsically strong, and arguably that's been California's mainstay in terms of job creation, income generation, and so on, we've been lagging the nation. Here's a very interesting thing that I think your viewers may be interested in terms of property investment. This Chapman UCI index, which measures these 50 areas, we've identified the five fastest, let's say this, the 10 fastest growing MSAs in those areas. And we have found that property values, 10 years after we identify strength in those areas, generate significant appreciation, not only in residential housing, but in terms of warehousing, the value of land, retail, because of growth and the multiplier effect going on as a result of strong growth in these advanced industries. Not one MSA is in that top 10. Where should we be investing? Areas like Atlanta is number one, Salt Lake City is in the top 10, Charlotte, North Carolina, Raleigh, areas like that. Generally MSAs in Florida, Texas, Arizona, Idaho, and Nevada. If you take those five states over the last three years, just those five states over a three-year period, and you take the number of people from those states moving into California versus those in California moving out, the net loss to those five states is 500,000. The net difference we lost, on net balance, a half a million people. For all 50 states, over those same three years, we lost a million in net negative domestic migration. So you're mentioning, Jim, that these areas are getting the best jobs, the high-tech jobs that California used to get. Why? They're not only getting jobs, they're getting people. Half a million Californians, higher paid people than those coming in, and they're bringing their families with them. Well, they're following the jobs and lower taxes. So that's essentially the reason. It goes back to that statistic I mentioned early on in our show, and that is we're the 48th highest. Only two states have higher taxes, New Jersey and New York. We could see where they're going. So that's the major reason. High taxation. People in this environment, we're competitive. People want to raise their families, and they have high costs, high rates of inflation. So they're seeking out states where taxes are lower, and those are those five states. There is another proposal that's coming up this year with the wealth tax. Is that going to have an impact on this exodus? Well, sure. Another tax. It's a billionaire. This is a billionaire tax. So wealth has also been pejoratively called a billionaire's tax because it relates to billionaires. So the tax that affects many of the higher income people, it's not going to hit. You have to be a billionaire to pay that tax. And I'll explain what that's all about. It doesn't take a loss of a few of those billionaires, however, to make a big, big, big dent in the finances of California. But overall, the personal income tax, which is that 15% marginal tax when you make over, let's say, $200,000 a year. If you take the 1% highest earners in California, they pay an income tax. They have the highest AGI. They pay 40%. 1% pays 40% of all of the revenues generated in taxes. Well, they're paying a huge amount. Obviously, those are the people that are leaving and going to other states, which means that you're losing. That's why the people who are leaving the state have higher incomes than those that are staying. Now, the wealth tax is over and above that. Wealth tax relates to wealth, net asset value, not your income. Let's say you're a billionaire and you're not generating any income. You're just sitting back, you're retired and living off of your wealth, the interest on your wealth. Of course, you have to pay income tax on whatever interest payments, but you're sitting on potentially billions and billions of dollars of wealth. The tax relates to the wealth, not that person's income. The tax is, that's why it's called the wealth tax. The tax works like this. The first billion dollars of wealth, not income, this would be the value of your home, stocks, bonds, various equities, various investments, companies, that's your wealth, not your income. If that exceeds one billion dollars, the first billion dollars is wealth taxes, zero, no tax on the first billion. The first hundred million dollars after one billion dollars is taxed at a 55% rate. Let's say you have wealth of 1.1 billion, you have to pay a tax on that hundred million over and above a billion, a 55% or $55 million. Over and above that, over 1.1 billion, it's a half a percent over and above that. Let's return to that $1.1 billion individual and you now pay 55 million in wealth tax. You're sitting back, you're a billionaire, all of a sudden if this initiative passes next November, they're going to get a tax bill of $55 billion because a hundred billion, 55% is $55 million in tax. No one has $55 million laying around the house. Here's a logical source for paying that, would be to take your founder's stock and the company that you founded, zero basis, in other words, it's fully taxable. You would have to sell $88 million of stock to pay the 50 million, to pay the 55 million. You sell $88 million of your founder's stock at zero basis, you have to pay state income tax on that. That's why you have to take, so if you sell $88 million, you use, I think it's something like $30 million, $33 million, to pay the personal income tax, to pay the 55 million wealth tax. So the marginal tax is not 55%, it's more like 85% when you add the state income tax to that. There are 200 billionaires, it's estimated, in California. And all it will take is a couple of those billionaires leaving the state that will lead to a sharp loss in the overall taxable income status of California. This tax will not only affect the current 200 billionaires, but if you're a graduate of Chapman and you're forming your first company, you're working with a private equity company to finance the next new AI product or service out there, and you're waiting for that five, 10 year window, where at the end of that five, 10 years is when you go public and you sell, and you go public, you sell stock, and you get your founder's stock that I talked about before at zero basis, and you're thinking, I'm going to be potentially a billionaire. I better get out of here before it affects me. You have a greater incentive to leave the state and form that company outside of California so you won't be, in the future, subject to that tax. So it's not only now the 15% marginal state income tax, which is the second highest in the nation, or state and local taxes other than that that are very high, or all the regulation in the state, or the high housing costs. Now you have one more thing to be worried about, and that is if I'm really as successful as I'm dreaming about, that I'm striving for, I'll be subject to yet this other wealth tax. I'm out of here. Unfortunately, there's a lot of negativity and anxiety right now, even in a beautiful place like California. I'm constantly running to people that are facing depression. Even they have a lot of things materially. No matter what you and your family are going through right now, there is still hope. Imagine surrounding yourself for two hours with pure beauty, amazing music, colors that we don't see in this world anymore, and a message of hope and inspiration. Shen Yun is coming back to California. I've been going to the show for the last 14 years, and every time I go, I see smiles on the people's faces when they're leaving the theater, and the expressions are in a way that is hard to explain. But there is this joy coming from inside, and I want you guys to experience that. If you want to take a break from all the negativity and anxiety that's out there, make sure to give yourself this experience. It will really lift your soul. Shen Yun is currently performing in Northern California, and soon will come to LA area and Southern California. Make sure to get your tickets right now before they sell out. Jim, with all you're seeing, you have a lot of experience in California, and you love the state you're from. You're from Chicago, but you love it here. If you were to run tomorrow, or you were the governor, what would you do to solve the issues you're seeing? Very clear. My agenda would be straightforward. It wouldn't involve all different kinds of homelessness or that. It would be one thing. We need to bring the tax rate down in California, and I realize I'm an economist. I know that can't be done overnight, because government spending relies on taxation and the revenues generated from that taxation. But if we put our minds to it, and if we focus on that goal, I believe we can move California from being a rank of 48th in a year, maybe to 47, 46, and bring it down to 45. And as that's happening, and as other states that have been lower and may begin to tax more, the relative balance will change. And I have data to support that. The states where Californians are on net balance moving out, namely Florida, Texas, these are the big states, Utah, Nevada, Arizona, and Idaho, we're finding that their home prices are beginning to increase much faster than California. So that extra demand from all of those people exiting California is beginning to even up the disparity between these various states. So if we can be successful in bringing down taxes in areas where those taxes are particularly negative in terms of their overall economic impact, and other states begin to adopt these taxes, we can even the playing field out there. And all of a sudden, California will be booming again. This is a wonderful state. We have incredible educational institutions, health care, we have so much to offer. And we have one major negative that's holding us back. And that's what we have to free up and let the free market forces do their thing. Dr. Jim Dodi, economist and Chapman University President Emeritus. It was great to have you on California Insider. Thank you. It's always a pleasure being on your show, Simo. We are always glad to have you on. Thank you. Now, what do you think about what's going on with the economy in California? Do you agree with Dr. Dodi? Or do you have a different opinion? You can always email us at siamicacaliforniansider.com or comment. We read all of your emails and comments. I'm Siamak Karami. This is California Insider. We'll see you next time.