bonacichdelaraeconomiccrisisandlogistics.pdf

Economic Crisis and the Logistics Industr y:
Financial Insecurity for Warehouse Workers in the Inland Empire

Edna Bonacich

Professor Emeritus in Sociology and Ethnic Studies

University of California, Riverside

and

Juan David De Lara

Ph.D. Candidate in Geography

University of California, Berkeley

February 18, 2009

Contents

………………………………………………………………………………………………..Summary and Findings
1

………………………………………………………………………………………………………………..Introduction
4

…………………………………………Economic Distress in Riverside and San Bernardino Counties
4

……………………………………..Is Goods Movement a Solution to the Region’s Economic Crisis?
7

…Current Employment Practices Contribute to Economic Insecurity For Working Families
10

……………………………………………Most Warehouse Workers Don’t Earn a Basic Family Wage
13

How the Goods Movement Industry Can Create Economic Security for Blue-Collar
…………………………………………………………………………………………………..Warehouse Workers
16

………………………………………………………………………………………………………………..Conclusion
19

………………………………………………………………………………………………………………..References
20

2/15/09

Summary and Findings

Inland Empire Families More
Vulnerable During Economic Crisis

Riverside and San Bernardino counties
once led the nation in population growth and
economic development; the two-county region1
is now a leader in financial hardship. Blue-collar
warehouse workers are symbols of how the
collapse of a once booming local economy has
placed thousands of families at risk. Working
families who bought homes and found jobs
during the region’s recent economic boom now
face some of the toughest challenges. A
combination of staggering foreclosure levels,
high unemployment rates, and the proliferation
of low-wage jobs has worsened the economic
downturn for the region’s blue-collar workforce.

• Riverside and San Bernardino counties
lead the nation’s largest metropolitan

areas in unemployment.
• Regional unemployment reached 10.1%

in December 2008.

• The Inland Empire has the third highest
percentage of housing units in foreclosure

among large metropolitan areas.

Is the Goods Movement Industry a
Solution to the Region’s Economic
Crisis?

The region’s key economic engines, logistics
and housing, have failed to protect working
families from economic insecurity. Local
business interests and policy makers have

embraced the logistics sector as a solution to the
region’s need for well-paid blue-collar jobs. Our
analysis shows that a majority of blue-collar
warehouse occupations fail to provide wages
that meet basic family needs. Workers, in the
bottom twenty-five percent of the three largest
blue-collar warehouse occupational categories,
earn an hourly wage of $8.74 or less.

Retailers, the core of the goods movement
industry, have adopted a flexible low-wage labor
model that places many blue-collar warehouse
workers in financial jeopardy. White-collar
logistics jobs provide some local workers with
economic advancement opportunities. Yet the
industry’s reliance on a low-wage blue-collar
labor pool fails to provide career ladder
opportunities for a large portion of the logistics
workforce. Low wages and limited advancement
opportunities create significant social and
economic disparities.

• The California Budget Project (CBP) has
estimated that Inland Empire workers

require an hourly wage of $17.48 to meet
basic family needs.

• Only three percent of workers in blue-
collar warehouse occupations earn a
basic family wage.

• Forty-one percent of blue-collar
warehouse occupations pay less than
$10.50 per hour.

Temporary Employment Increases
Economic Insecurity

An increasing number of Inland Empire
workers are living with the financial instability of
temporary employment. More than 53,000
people were hired by the region’s temporary
e m p l o y m e n t i n d u s t r y i n 2 0 0 7 . M a n y
warehouses use temp agencies as intermediaries
to funnel low-wage workers into the logistics
sector. The proliferation of temp agencies,
which cater to logistics companies, highlights a
systemic problem with the goods movement

Financial Insecurity for Warehouse Workers in the Inland Empire
1

1 The region is also referred to as the Inland Empire or the Inland Valley.

industry. Temporary warehouse workers
frequently work side by side with direct-hire
employees; they are often paid less, work less
hours, and suffer the additional economic
burden of job insecurity. The lack of full-time
permanent employment means that many of
these workers are left stranded on the bottom
rung of the middle-class career ladder.

• The region’s temporary employment
sector grew by 575% between 1990 and

2007.
• More than 53,000 people were employed

by the temporary employment industry in

2007.
• The Inland Empire has a higher

concentration of temporary employment
than the rest of Southern California.

Long-Term Regional Development
Strategies Need to Address
Warehouse Worker Wage Disparities

Inland Empire workers face difficult
employment prospects. Substandard education
levels lead many of them into low-wage jobs.
These workers need the types of employment
opportunities that the manufacturing industry
once offered to blue-collar workers. Imports
through the Southern California ports are
expected to continue to grow, requiring
increased warehousing. Fifty percent of the
needed warehouse space (1.5 billion square feet)
is likely to be built in the Inland Empire. More
than 1.3 million new jobs are projected for the
Southern California logistics sector by 2030;
many will be based in Inland Empire
warehouses. Will these jobs provide well-paid
opportunities for the region’s blue-collar
workers? Or will they continue to place working
families in precarious economic conditions? A
growing disparity between white-collar and
blue-collar wages will lead to greater social and
economic inequalities. Latinos, who represent a
majority of the region’s blue-collar workforce,

will be especially vulnerable to future
development models that rely on a low-wage
labor force.

• SCAG estimates that more than one
million logistics jobs will be created in

Southern California by 2030.
• Fifty percent (1.5 billion square feet) of the

warehouse space needed to meet future

port capacity will be built in the Inland
Empire.

• Future economic growth will have to
provide jobs for a workforce where more
than 51% of local adults have less than or

the equivalent of a high school education.

Recommendations
The Inland Empire’s rapid growth and

development was spurred by low unemployment
rates and easily accessible mortgages; this
seemingly widespread prosperity hid the
weaknesses of a regional economy whose
growth sectors largely depended on low-wage
labor. Warehouse jobs have the potential of
providing well-paid employment for the region’s
l a r g e b l u e – c o l l a r w o r k f o r c e . C u r r e n t
employment models that rely on low-wage labor
have prevented the industry from delivering on
the promise of good jobs for thousands of
warehouse workers in the Inland Empire.
Future expansion of the goods movement
industry should ensure that warehouse workers
earn wages and benefits that can move their
families into long-term economic security.

We are in a period when, faced with a dire
economic crisis, there has been a shift in the
national ethos. Instead of focusing on
transferring more wealth into the hands of the
already wealthy and powerful in the hopes that
they will engage in productive rather than
speculative investment, the new administration
in Washington, backed by the majority of the
nation, now recognizes the need to put more
money in the hands of the average wage and

2

Economic Crisis and the Logistics Industry

salary earner, so that they can become more
effective consumers, and help to restart the
economy.

• Build long-term economic security by
increasing wages and benefits for blue-

collar warehouse workers.
• Preliminary analysis reveals that unionized

warehouse workers earn higher wages

than their non-union counterparts; union
workers with 2 years on the job average

up to $9,568 more per year.
• Putting higher wages in the hands of

warehouse workers will create a multiplier

effect that will benefit the entire region.

Financial Insecurity for Warehouse Workers in the Inland Empire
3

Introduction

Riverside and San Bernardino counties once led the nation in population
growth and economic development; the two-county region is now a leader in
financial hardship. This paper will show how the Inland Empire’s current
development model has placed working families in economic peril. In particular,
data will show that the logistics sector’s2 reliance on low-wage warehouse labor
produces negative social and economic consequences.

Barack Obama’s presidency offers hope that a change in leadership and
strategy will reinvigorate the nation’s economy. How will the Inland Empire recover
from the current economic crisis? The region’s economic future is closely tied to
investment in the goods movement industry. Proposals to stimulate the economy, by
investing in transportation infrastructure, will further expand the region’s logistics
sector. Any investment should include a path to middle-class jobs for working men
and women.

Economic hardship and desperation can lead us to believe that any job is a
good job; however, long-term solutions require more than the temporary low-wage
jobs that drive much of the region’s economy. The goods movement industry has an
opportunity to fulfill the promise of middle-class jobs for the Inland Empire’s
working families. Workers, civic leaders, and the private sector can improve the
region’s long-term economic prospects by creating employment opportunities that
reduce inequality and job insecurity.

Economic Distress in Riverside and San Bernardino
Counties

Why The Inland Empire Is Ground Zero For The Current Crisis

New home construction and a growing goods movement industry made the
Inland Empire into one of the fastest growing metropolitan areas in the country.
Thousands of families moved into Riverside and San Bernardino counties in search
of new opportunities, but now the area is at the forefront of the current economic
meltdown. The combination of low median wages, climbing unemployment, and
high home foreclosures has placed the Inland Empire in an economic bind.

Families in the Inland Empire are faced with greater distress than those in the
state or the nation. Forbes.com (2008) has named Riverside the toughest place to live
during the current recession. High unemployment rates are one way to measure how
local hardship compares to other regions. Table 1 shows Inland Empire

4

Economic Crisis and the Logistics Industry

2 Goods movement, also referred to as the logistics industry, is controlled by the worlds
largest retailers (Bonacich and Wilson, 2008).

unemployment and foreclosure rates to be significantly higher than statewide
figures; local families also earn $4,500 less than the statewide median income. On a
national scale, the Inland Empire has a slightly higher median family income.
However, the region’s high unemployment rate and foreclosure figures tilt the
Inland Empire’s economic distress well above the national standard.

Table 1

Economic Distress Scale

IE CA National

Median Family Income $62,973 $67,484 $61,173

Unemployment 10.1% 9.1% 7.1%

Foreclosure Rate (as %
of total housing units)

8.02% 6.80% 1.84%

Source: Median Family Incomes are based on the 2007 American Community Survey. Unemployment
figures were compiled from the Bureau of Labor Statistics (When?) and the California Employment
Development Department. Foreclosure rates are for 2008 from RealtyTrac.com.

Highest Unemployment In The Country Creates Insecurity And Puts Families
At Risk

Riverside and San Bernardino counties lead the nation’s largest metropolitan
areas3 in unemployment with a jobless rate of 10.1% for December 2008; more than
186,300 Inland Empire residents were out of work during the last month of the year.
The Inland Empire’s unemployment rate has outpaced the state average (see Figure
1). Year-to-date unemployment figures indicate that the region’s economic outlook is
unlikely to improve in the immediate future.

Such historically high unemployment levels are sure to have a negative affect
on Inland Empire families. The region’s relatively high dependency ratio of 62.1%
indicates that local families may be more vulnerable to job losses; Los Angeles and
California have dependency ratios of 57.6% and 57.8%. Dependency ratios measure
the proportion of non-active to active members of the labor force4 . A higher
dependency ratio indicates that local workers support a larger share of dependent
children and seniors. The Inland Empire’s 62.1% dependency ratio means that there

Financial Insecurity for Warehouse Workers in the Inland Empire
5

3 The Riverside-San Bernardino metropolitan statistical area had the highest unemployment
rate for all MSAs with a population over one million. Based on Bureau of Labor Statistics data
for December 2008.

4 Dependency rates measure the ratio of the employed and non-employed population. Child
dependency rates indicate how much local children rely on the region’s labor force. The child
dependency rates are as follows: Riverside and San Bernardino counties = 46.4 , California =
40.5, Los Angeles = 41.2, U.S. = 38.9.

are approximately 1.2 children and seniors for every two employed adults. Rising
unemployment rates, when combined with a high dependency rate, may signal
greater economic jeopardy for Inland Empire families.

Figure 1.

Unemployment Rate Comparison – 2008

Source: CA Employment Development Department, Not Seasonally Adjusted

Foreclosures Create A Downward Spiral For The Region’s Economy

Foreclosures and the subprime real estate crisis have devastated families
throughout the region. Increased unemployment will only worsen an already
ruinous housing market. Many families, who have struggled to pay their mortgages,
must now confront rising payments and growing job insecurity. Mortgage lenders
report that many of the new loan default cases are products of increased
unemployment and underemployment. According to IndyMac Federal Bank, up to
80% of borrowers who now ask for payment relief list job loss or underemployment
as the main reason for default (Heisel, 2009). The relationship between rising
foreclosure rates and worsening employment insecurity points to the systemic and
widespread nature of the current crisis.

Riverside and San Bernardino counties have the third highest percentage of
housing units in foreclosure among large metropolitan areas (see Figure 2). Rising
foreclosure rates increase economic insecurity by driving down home prices.
Devalued homes prevent owners from lowering their mortgages through debt
refinancing. Many families now owe more than the value of their house. Four of the

3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%

10.00%
11.00%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Riverside-San Bernardino-Ontario MSA
Los Angeles-Long Beach-Glendale Metro
California
Santa Ana-Anaheim-Irvine Metro

6

Economic Crisis and the Logistics Industry

top 20 counties in the country with high rates of upside-down mortgages are located
in Riverside County (Gang, 2008). Homeowners with negative equity are at extreme
risk for economic catastrophe if their adjustable rate mortgage (ARM) loans trigger
higher monthly payments. High foreclosure rates, coupled with soaring
unemployment levels, have created a downward spiral in the region.

Figure 2.

Percentage of Housing Units in Foreclosure – Top 10 Metro Areas (Q3 2008)

Source: RealtyTrac.com

Is Goods Movement a Solution to the Region’s Economic
Crisis?

Recent Importance Of The Logistics Sector

Until the recent economic downturn, the Inland Empire has been a vital part
of Southern California’s regional economic strategy. As the major point of entry for
the importing of consumer goods from Asia, especially China, to the entire United
States, the twin ports of Los Angeles and Long Beach have served as the engine for a
booming logistics (or goods movement) industry throughout Southern California;
approximately 43% of all U.S. imports enter through the local ports. Because of its
proximity to the ports, the Inland Empire has become a prime location for

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Financial Insecurity for Warehouse Workers in the Inland Empire
7

warehouses and distribution centers, especially for the giant corporations that serve
national markets. The Inland Empire also offered available land, coupled with low-
wage labor, but its geographic location, perched on the eastern b of Los Angeles
County, with abundant rail and highway transportation up and down the coast and
inland to the rest of the country, makes it the inevitable warehousing capital of the
region. Hauling ocean containers anywhere else adds substantially to the cost of
imports.

Optimistic predictions of continued growth, for example, that freight volume
will triple by 2030, and that 50% (1.5 billion square feet) of the space needed to meet
future port capacity will be built in the Inland Empire (Multi-County Goods
Movement Action Plan), must be tempered in light of the current economic
downturn. The vacancy rate for warehouses has climbed from 6.2% in the fourth
quarter of 2007, to 12.4% by the end of 20085, and the eastern part of the two-county
region has been especially hard-hit, with a vacancy rate of over 22% (Vincent, 2009).
Many of today’s empty warehouses were built as part of a speculative development
trend that, when combined with lower imports, has led to a dramatic decline in real
estate absorption6 (see Figure 3).

Figure 3

Inland Empire Industrial Space Absorption

Source: Grubb & Ellis

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37.5

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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8

Economic Crisis and the Logistics Industry

5 These vacancy rates, from Cushman & Wakefield, differ from other real estate market
reports. According to Grubb & Ellis, the Inland Empire’s industrial real estate vacancy rate
was 9.9% for the fourth quarter of 2008.

6 Absorption refers to the rate at which space is filled.

Will Logistics Continue To Be A Key Economic Sector?

We see no feasible alternative to the continued growth of the Inland Empire
as a warehousing center. When the economy recovers, the warehouses and
distribution centers will once again fill up, and additional construction is likely to
follow. Trade patterns indicate that, while growth may be down, import volume
remains at historically high levels. A 9.9% decline in loaded import containers for
2008 did not completely wipe out the dramatic volume growth that occurred
between 1996 and 2007 (see Figure 4).

Figure 4

Growth of Imported (Loaded) Containers in TEUs7 – Los Angeles & Long Beach
Ports

Source: Data gathered from the Port or Los Angeles and the Port of Long Beach monthly volume
reports.

The reality is that there is no good alternative to the Inland Empire as a center
of distribution for imports. Indeed, even with a severe recession, the gigantic
warehouses of most of the country’s major corporations, including retailers, continue
to remain active. A vigorous effort by local city, county, state and federal agencies to
expand transportation infrastructure will likely strengthen the region’s warehousing
prospects. Recent announcements by the local port authorities signal that officials are
using the economic crisis as an opportunity to build long-term capacity. More than
$2.3 billion in funding has been approved for major new port expansion projects
scheduled to begin in 2009 (Hanson, 2009).

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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Financial Insecurity for Warehouse Workers in the Inland Empire
9

7 Twenty-foot equivalent is an industry measurement that is based on the volume of a twenty
foot shipping container.

Current Employment Practices Contribute to Economic
Insecurity For Working Families

Blue-collar warehouse workers, who scrape by on low-wage jobs, face greater
insecurity in today’s economic crisis. A large part of this insecurity is a product of the
goods movement industry’s flexible low-wage labor model. Retail and shipping
companies, with warehouses in the Inland Empire, rely on a low-wage, largely
Latino, labor force. Policy makers have used the Inland Empire’s low-wage blue
collar workforce as an enticement to lure employers into the region. Inland Empire
workers earn less than their Los Angeles and Orange County counterparts.

For example, local workers in logistics-related industries earn an average of
$8,000 less than their counterparts in the Los Angeles metropolitan area (see Table
2) 8. Regional cost-of-living differences do not fully account for these wage
differentials. Higher industry wages for Los Angeles logistics workers can, in part,
be explained by the ability of union workers to negotiate for higher wages. Workers
in the Inland Empire have been unable to build the kind of industrial and political
power needed to increase their wages.

Table 2

Annual Pay (Full-Time Workers) for Logistics Related Industries (2007)

Metropolitan Area Wholesale
Trade

Transportation
& Warehousing

Employment
Services

Average

Inland Empire

Los Angeles

$46,779 $39,886 $22,237 $36,301

$58,747 $47,539 $27,100 $44,462

Source: Bureau of Labor Statistics, QCEW

Industry wage figures, as presented in Table 2, can misrepresent what most
warehouse workers earn. The Southern California Association of Governments
(SCAG) claims that logistics workers earn an average of $45,314 per year. Various
policy-making organizations have used this figure to justify public support for the
logistics industry. In reality, most warehouse workers earn much less. SCAG’s broad
definition of the logistics industry includes a wide range of high-paying subsectors.
Pilots, logisticians, and other white-collar occupations skew the average industry
wage to well above what most warehouse workers earn (O’Connell, 2007). SCAG’s
industry-based average wage statistics for the logistics sector omit a central group of
warehouse workers, namely those who are employed by temporary employment
agencies. In fact, the Inland Empire warehousing industry employs temp workers

10

Economic Crisis and the Logistics Industry

8 We use the U.S. Office of Management and Budget’s definition of metropolitan statistical
areas (MSA). The Los Angeles MSA includes Los Angeles and Orange counties.

extensively, and the use of temp workers is a critical part of the industry’s business
model.

The Use Of Temporary Warehouse Employment Creates Bad Jobs

An increasing number of Inland Empire workers are living with the financial
instability of temporary employment. More than 53,000 people were hired by the
temporary employment industry during 2007. Many warehouses use temp agencies
to hire a pool of flexible low-wage workers. Temporary warehouse workers
frequently work side by side with direct-hire employees; they are often paid less and
must suffer the additional economic burden of job insecurity. The use of temp
workers exploded during the region’s rapid growth; temporary employment
increased by 575% between 1990 and 2007 (see Figure 6). There were approximately
424 temporary employment establishments during the second quarter of 2008; this
was up from 119 in 19909. Not all temp workers are employed by warehouses and
available data does not adequately allow us to measure temporary employment by
sector. Nevertheless, we suspect that a significant amount of the growth in
temporary employment is connected to the goods movement industry.

Figure 6

Logistics and Temporary Employment Growth in the Inland Empire, 1990-2007

Source: CA Employment Development Department

The employment of temp workers fulfills at least two purposes for the
warehousing industry and the corporations that it serves. On the one hand, it can be

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

8 9 11 12
13 14 15

21
25 29

32 33 33
38

44 47
50 53

44 47 49
52 55

59 63
66

71 75
80 82 84

89
96

105
112

117

Jo
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Logistics Temporary Employment

Financial Insecurity for Warehouse Workers in the Inland Empire
11

9 Based on authors’ analysis of data from the Quarterly Census of Employment and Wages.

a perfectly legitimate way of dealing with seasonal variations in the flow of goods.
But it can also be used as a way of cutting labor costs and avoiding or denying
responsibility for the pay and working conditions of one’s work force.

The practice of contracting out labor to cut labor costs, and avoid
responsibility for one’s employees, is certainly not limited to the warehousing
industry. The garment industry was one of the first to develop this practice, and as a
result is notorious for the resulting sweatshops, both here and abroad. Many other
industries have learned from this example, and the warehousing industry has
learned the lesson well. Not only does the use of temp workers help warehouse
operators avoid paying a living wage and providing basic benefits (such as paid sick
leave, vacation pay, healthcare coverage, and a retirement plan), but it is also a way
to externalize responsibility for Workers’ Compensation coverage in a dangerous
and injury-prone industry (Bonacich and Wilson, 2008).

One might add that the use of temp workers is also a “union avoidance”
strategy on the part of warehouse operators. Employing temp workers alongside
direct-hire workers creates a two-tier, divided workforce, who may have trouble
finding common cause, and can easily be pitted against each other. Moreover, if
temp workers should try to organize or join a union, they can easily be fired. Having
a substantial temporary labor force provides the warehouse with “anti-union
insurance.”

In sum, the primary purpose of the employment of temp workers appears to
be to exploit labor more thoroughly. This is shown in wage statistics. A generous
reading of the data suggests that temp workers earned an average of $22,237 per
year in 2007; more realistic analysis reveals that most temp workers earned less. The
U.S. Bureau of Labor Statistics (BLS) uses a forty hour work week to calculate
average annual pay. This assumes that temporary workers have year-round full-time
employment. Most temporary workers are not fully employed on a year-round basis.
Such precarious employment results in even less income than the already low
average.

Retailers and shippers are responsible for adopting a business model that
capitalizes on a local low-wage labor market. Employment agencies have met this
demand by serving as labor market intermediaries that funnel workers into the
region’s warehouses. The proliferation of temp agencies, that cater to logistics
companies, highlights a systemic problem with the goods movement industry.
Logistics may offer a number of good paying white-collar jobs, but the industry also
relies on a large pool of low-wage workers. Corporate practices, that exploit the
region’s labor pool, create significant wage and quality of life disparities.

A heavy concentration of temporary employment can signal job insecurity
and low wages for a region’s workers (Theodore and Peck, 2002). We can measure
industry concentration by using location quotients to compare Inland Empire
temporary employment levels to other regions. Our data analysis indicates that the
temporary employment industry is disproportionately concentrated in the Inland

12

Economic Crisis and the Logistics Industry

Empire. The region’s temporary employment location quotient of 1.48 means that
temp workers are nearly 1.5 times more concentrated in the Inland Empire than they
are in the rest of the state. The region also has a higher relative concentration than
the Los …