By Jack Chang
jchang@sacbee.com The Sacramento Bee
Published: Monday, Feb. 1, 2010 – 12:00 am | Page 1A
Last Modified: Monday, Feb. 1, 2010 – 6:21 am

As tens of thousands of Californians lose their jobs every month, the high-stakes race for governor is becoming a referendum on how to stem the unemployment tide and get people back into the labor market.

Republican candidates Meg Whitman and Steve Poizner are both proposing cutting taxes and streamlining regulations to stop what they say is the flood of California businesses moving out of the state. Whitman also is proposing investing in infrastructure, while Poizner backs allowing more flexibility in setting work hours.

Democrat Jerry Brown, who’s expected to declare his candidacy this month, argues that state investments in green technologies and higher education will create jobs.

The hard reality, however, according to economists, is that state government is limited in what it can do to generate jobs, at least in the short term.

That’s because much of the job loss is being driven by the nationwide collapse in the credit and real estate markets, as consumer spending and construction industry hiring shrivels, said Jed Kolko, an associate director at the nonprofit Public Policy Institute of California.

Reviving job growth depends in large part on fixing the housing and credit markets first, Kolko said.

“The causes of this recession were for the most part on the national and global level, and California’s economic growth has looked fairly similar to the U.S.’ even through this recession,” Kolko said. “The forces behind this recession are bigger than California.”

In particular, jump-starting the ailing construction industry, which lost about 116,000 jobs from December 2008 to December 2009, will prove especially difficult as more foreclosures work their way through the market, Kolko said.

The state’s unemployment rate remained stuck at 12.4 percent in December, just one-tenth of a percentage point lower than the October number, which was the highest rate at least since 1940.

“There’s nothing a governor can immediately do to turn around this economy and create jobs,” said Michael Bernick, a former director of the state Employment Development Department. “We have 2.5 million Californians unemployed and a large number of others working less than full time.”

Poizner said in an interview that he believed the state government could make an impact by reducing the tax and regulatory burden for California businesses, which he said would jump-start the housing market.

The candidate, who is the state’s insurance commissioner, has proposed cutting the personal income tax, state sales tax and corporation tax by 10 percent, and halving the capital gains tax. He also proposes relaxing restrictions on daily and weekly work hours, among other changes to labor laws.

“It’s the manufacturing and high-tech and all of that where we’re beginning to lose the race there,” Poizner said. “We’ve got to turn that around, and that will ripple into the construction sector.”

Bernick said, however, that the decline in the manufacturing sector began long before the current recession and reflected larger trends of workplace mechanization and the transfer of such jobs to developing countries.

Whitman, who declined to be interviewed for this story, also argues that the state could create jobs before fixing the housing market, said press secretary Sarah Pompei.

According to Whitman’s Web site, the state should “cut taxes for job-creating businesses of every size,” reduce capital gains taxes and “eliminate laws that put California at a competitive disadvantage.” Whitman also proposes building “a world-class infrastructure to meet the water, energy and transportation demands of a 21st century California.”

“Jobs is her No. 1 priority,” Pompei said of Whitman. “And she believes that if people have jobs and the income they need to keep their homes, that will help stabilize the housing market.”

In contrast to Whitman and Gov. Arnold Schwarzenegger, who has touted the jobs created by state infrastructure-building programs, Poizner has proposed freezing the issuance of all state debt until the budget deficits ease.

“My solution is not to look for Washington, D.C., or for Sacramento to spend us out of the problem,” Poizner said. “I think we’ve seen that doesn’t work. That creates problems. My solution is we need to make this state more attractive for job creation, for innovators and for entrepreneurs.”

Brown, who was governor from 1975 to 1983, has said the least among the candidates about the jobs picture and has generally declined to take stands on major issues before he declares his candidacy.

Brown spokesman Sterling Clifford pointed out that “California created nearly 2 million new jobs” during the Democrat’s first tenure as governor. Employment Development Department figures show the state’s job totals grew from 8,581,000 in January 1975 to 10,916,300 in January 1983.

“(Brown) believes we can do it again if we focus on innovation, higher education, infrastructure and job training and use state government to promote renewable energy and new technologies,” Clifford said.

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