ECONOMY BUOYANT BUT POOR SINKING MANY LACK NECESSARY EDUCATION.

Byline: Rick Orlov Staff Writer

Los Angeles has been able to reshape its economy after a series of devastating blows, but the city still faces significant challenges in bridging income and educational gaps, a study released today says.

After weathering a recession, defense-spending cuts, a loss of manufacturing firms and consolidation in the banking industry, the city has begun to favor small businesses and entrepreneurs, the wide-ranging Milken Institute report noted.

``Los Angeles is a city of tremendous resilience, best described as an economy with a core in large business and a future in small business,'' Milken researchers wrote in the report, ``Los Angeles Economy Project.''

But even as Los Angeles grows, it remains a city on the brink of further polarization in income and educational levels. And the report noted a growing north-south prosperity divide - with the San Fernando Valley and West Los Angeles luring most higher-paying private-sector jobs.

The study noted that 25 percent of workers earn less than a living wage and hundreds of thousands of people are considered part of an underground economy in which neither they nor their employers pay taxes.

``We are never going to go back to the old manufacturing base,'' said Kevin Klowden, a research economist who was part of the study team. ``What we are seeing is the jobs that require more training and pay well - biotech and other jobs that require a high degree of skill. At the same time, we see a work force that is not as well-trained for those jobs.

``We see a huge gap between what the good jobs require and what the work force is able to do.''

Also hampering the city's economic growth are high land costs, difficulty securing financing, a shortage of affordable housing, a lack of large open parcels to develop and an aging manufacturing base.

The report says government remained the largest employer, with nearly 600,000 jobs, followed by professional and business services with 569,000, manufacturing with 500,000, and retail with 400,000.

The report is being submitted to the City Council's Housing, Community and Economic Development Committee.

``While Los Angeles has ... rebounded and reinvented itself, we still have challenges,'' said Councilman Eric Garcetti, who chairs the council's economic development panel.

``There are very hopeful signs for the future, but there are pitfalls if we don't recognize the challenges and do more to deal with issues such as geographic equity,'' he said.

``We need to see what we can do to promote job growth in areas like South Los Angeles and make sure we are capitalizing on the jobs that are developing in other areas of the city.''

Mayor Antonio Villaraigosa has been briefed on the study and has used some of its findings in recent speeches, including his call to reform the Los Angeles Unified School District. Among other changes, he has said the district needs to revive some of its vocational education programs.

Rick Orlov, [phone]

rick.orlov(at)dailynews.com

SHAPING THE FUTURE

The Milken Institute report on the Los Angeles economy includes the following recommendations:

--Create new business by reviewing tax policy and offering incentives for firms to locate in the region.

--Make broader use of USC and UCLA to develop new industries.

--Develop policies and incentives to attract technology startups and high- end manufacturing firms.

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SHAPING THE FUTURE (see text)