California’s Job Market Is in Trouble and Facing an Uphill Battle

By: Sam Watanuki | Last updated: Apr 08, 2024

There are fewer jobs in the market in California. The job openings rate for the Golden State in December 2023 was 4.4 percent. This is a low number compared to the nationwide average of 5.4 percent.

It is lower still than the previous year. In 2022, California’s job openings rate was 6.5 percent, which was much closer to the nation’s average of 6.8 percent.

The Impact of Job Market Trends on Different Sectors

California’s job market landscape shows stark contrasts across sectors. The tech and entertainment industries, once booming, now face significant job cuts due to post-pandemic adjustments and strikes, respectively (via the NY Times).

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Meanwhile, the healthcare sector emerges as a beacon of growth, adding jobs at a record pace (via Chartis). These sector-specific trends show the diverse challenges and opportunities within California’s economy, highlighting the need for tailored recovery strategies.

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The Unemployment Rate Is Up

But not only that — the unemployment rate in California has also gone up. It’s now 5.2 percent, as of January this year.

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Meanwhile, in the rest of the country, those without a job occupy figures below four percent. This figure remained consistent for 25 months. California is evidently trailing behind.

Historical Context of Unemployment Rates

A look back reveals that California’s unemployment rate has not always been this high. Before the pandemic, joblessness was at historic lows, mirroring national trends.

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The current increase to 5.2% marks a significant departure from these pre-pandemic levels, illustrating the deep economic scars left by COVID-19 and the long road ahead for recovery.

More Unemployment Than the Rest of the US

Another red mark in the job scorecard for California is how the state accounts for one-fifth of unemployment claims nationally.

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This is a pretty big number: a 16.6 percent share of the unemployed in the US comes from California.

California's Economic Influence

As a powerhouse of the national economy, California’s job market dynamics have far-reaching implications. The state’s struggle with higher unemployment rates not only affects its own residents but also signals potential challenges for the broader U.S. economy (via the Public Policy Institute of California (PPIC)).

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Understanding California’s economic trends is crucial for forecasting national economic shifts, given the state’s significant contribution to GDP.

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Not Enough Jobs

The decrease in numbers of people being hired happens across the state equally, from Sacramento to Los Angeles.

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Since the pandemic started and until 2023, California has added around 640,000 jobs. But there are not enough jobs for the 1.38 million workers who were present in the four years before the pandemic, from 2015 to 2019.

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The Role of Small Businesses in Job Creation

Small businesses are the backbone of California’s economy, traditionally driving job creation and innovation. However, these entities face unique challenges in the state, from higher operational costs to regulatory hurdles.

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Supporting small businesses through these challenges is essential for revitalizing job growth across the state, showing the importance of targeted assistance and policy reforms (via PPIC).

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Still Blaming It on the Pandemic

Analysts have examined various causes for the lack of job growth in the state. Residual effects of the pandemic takes some part of the blame.

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John Blevins of Cornell University’s SC Johnson College of Business detailed, “Some [businesses] have not fully recovered and some went out of business and have been lost. Higher business operation hurdles make it harder for small businesses to weather this storm more than other states.”

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Sector-Specific Pandemic Recovery

The pandemic’s aftermath has been uneven across California’s economy, with sectors like technology and entertainment experiencing slow recovery due to over-hiring and labor strikes (via the Associated Press).

A table of workers in an office with laptops in front of them.

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In contrast, healthcare shows robust growth, benefiting from increased demand. This divergence highlights the need for sector-specific recovery plans that address the unique challenges and opportunities of each industry.

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Higher Labor Costs

Other factors may also include higher labor costs (healthcare and fast food employees were to receive a raise in the state) and other requirements that make it harder for a business to operate in California.

A standalone Panda Express restaurant in Oakland, California with cars surrounding it

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This has caused several businesses to move to other states for lower operational costs and easier rules. Meanwhile, their former employees stay behind without securing a job, thus adding to the higher rate of joblessness.

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Comparing California's Labor Costs

California’s labor costs stand out nationally, driven higher by state-specific regulations and living costs. These elevated costs contribute to the challenges businesses face in the state, impacting their competitiveness and hiring capabilities.

Workers in a fast-food restaurant kitchen, dressed in red uniforms, are busily assembling burgers. One worker in the foreground is focused on adding condiments to the burger buns, while others in the background continue with the preparation process

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Addressing the balance between fair wages and business sustainability is crucial for California to remain an attractive place for companies and workers alike.

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Strikes in Entertainment Bring Down the Economy

One sector that recorded the biggest employment drop is the entertainment industry. The union strikes by Writers Guild of America and SAG-AFTRA affected the employment of entertainment workers profoundly.

Protest signs for SAG-AFTRA Strike in Hollywood

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Although production took place in different parts of the country, the industry itself is centered in Los Angeles, California. 38,000 jobs were reportedly lost in film and sound recording sectors between January 2023 and January 2024.

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Future of the Entertainment Industry

Post-strike and pandemic, the entertainment industry in California stands at a crossroads. With 38,000 jobs lost, there’s an urgent need for innovation and adaptation.

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Emerging digital platforms and changing consumer preferences offer new opportunities for growth. Embracing these changes can revitalize the industry and reclaim lost jobs, setting a new direction for Hollywood’s future.

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Other Industries Also Down

Other sectors are riddled with job losses and cuts, too. Jobs in tech and info, business, transportation, and trade sectors have diminished.

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Computer programmers and engineers, for example, were down by more than 105,000 jobs in January compared to the year before.

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Green Energy and Sustainability Jobs

California’s commitment to sustainability and green energy presents a fertile ground for job creation (via the California Governor’s Office). As the state leads in environmental initiatives, the sector offers opportunities for economic diversification and employment.

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Investing in green technology and renewable energy projects can drive the next wave of job growth, aligning economic recovery with environmental goals.

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Low Wage Workers Are Gone

And the disappearing low wage workers might have also hurt California’s employment rate.

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Because of California’s high living cost, these lower wage workers might have moved to greener pastures in other states. Blevins said that their lack of presence has left a gap that Californian businesses struggle to fill. “Therefore, [it] reduces business productivity,” he added.

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Addressing the Workforce Migration

The exodus of low-wage workers seeking affordability elsewhere leaves gaps in California’s labor market. Addressing this migration requires improving living conditions and providing incentives for workers to stay or return.

Young people gather at a career fair held in Sacramento, California

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Enhancing housing affordability and creating targeted support programs can help bridge this gap, ensuring a stable and diverse workforce for the state.

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Housing and Taxes May Be Too High

Once again, the high cost for housing and taxes in California are driving people away from the state.

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An economist from LA’s Loyola Marymount University, Sung Won Sohn, compared the situation between other states. “The reason why Texas and Florida are doing well and California isn’t, it’s the cost of housing and high taxes. We have a lot of small businesses.”

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Policy Solutions for Housing and Taxes

High housing costs and taxes in California drive both people and businesses away, challenging the state’s economic stability (via CNBC).

A group of houses in close proximity.

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Implementing policy solutions to make housing more affordable and revising tax structures could reverse these trends. Strategic reforms are necessary to retain talent and attract new residents, thereby strengthening the state’s economic foundations.

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Cut the Red Tape

Blevins believed that reducing “the cost of doing business” is one of the ways to recharge the state’s employment rate.

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The state should reduce red tape and streamline procedures for doing business. He also recommended offering incentives for new business creations, operations, and expansions.

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Innovation and Technology as Growth Levers

Fostering innovation and supporting technology sectors could be key to overcoming California’s employment challenges. Beyond the startup ecosystem, expanding into emerging tech fields offers new job opportunities.

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Encouraging investments in AI, biotech, and green tech can help statewide economic growth, positioning California at the forefront of the next technological revolution.

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A Nationwide Challenge

California has to work hard to catch up, not just in terms of employment, but also in overall economy.

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With a large deficit in the state budget, there’s an uphill battle. Californians might find it hard to stay optimistic, but it’s a battle that the entire country will likely share. After all, as goes California, so goes the nation.

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A Call to Action for Californians

Addressing California’s economic and job market challenges requires a unified effort from policymakers, businesses, and communities.

Aerial view of the neighborhood of Sherman Oaks, California, outside of Los Angeles

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By collaborating on strategic initiatives and embracing innovative solutions, Californians can turn current adversities into opportunities for growth. The path to recovery is complex but achievable, laying the groundwork for a resilient and prosperous future for the state.

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