The Center for Jobs and the Economy has released our full analysis of the March Employment Report from the California Employment Development Department. For additional information and data about the California economy visit www.centerforjobs.org/ca. 

As we indicated in a special report last week, the latest data from International Monetary Fund (IMF) shows that California if it was treated as a separate economy became the 4th largest in 2024. While this is the highest rank California has ever held, the results should be considered in relation to a number of factors:

• California reached this position not so much because of its own efforts, but primarily because the previous 4th place economy, Japan, went through a contraction. California’s nominal GDP grew by 6.0%. Japan’s fell by 4.4%. Since its last growth in 2019, Japan has fallen 21%, and is off 36% from its all-time high in 2012. We didn’t get into 4th by doing better. We’re there because someone did worse. The reasons why we passed Japan should be a cautionary tale, not a cause of celebration.
• In order to stay ahead of Japan, California needs to grow more than an average of only 3.2% annually in 2025 and 2026 based on the current IMF projections. India, however, is moving up faster, and California would instead have to grow above an average of 5.9% to escape slipping back into 5th. This rate is within the possible as it is close to the state’s average over the past 3 years, but lower growth is more likely due to the economic headwinds California is currently facing including many of its own making. India likely is still on track to surpass the state by 2026. 
• Even though the state has a globally high nominal GDP, the state’s policies sap much of the effective buying power through high costs of living and high costs of doing business. Ranked instead by the IMF’s purchasing power parity GDP series—and adjusting California’s numbers by US Bureau of Economic Analysis’ most recent Regional Price Parities to come up with an equivalent comparison—California instead ranks 11th largest, just barely ahead of Italy.

• California’s GDP numbers—as well as the fiscal health of the state budget—is overly dependent on the High Tech industry. In 2024, the two primary High Tech component industries produced just under 30% of California’s nominal GDP growth, compared to the US average which was more balanced across industries and relied on just over half as much coming from tech. California’s global standing remains heavily dependent on having most of its economic eggs in one basket, and this position remains vulnerable to volatility within that single industry as well as the extent of its continuing diversification to other states. California is 4th largest because of High Tech. Without that industry, California would only be average because its regulatory and tax policies hit hardest on its other industries.

The over-dependence on a single industry is also reflected in the nonfarm job numbers, particularly due to the fact that while GDP contributions remain high, tech in general is shifting to a focus on the AI component marked by companies and units having significantly fewer employees than experienced by tech over the past decade. As noted in our preliminary report, California has seen nonfarm job losses 3 months in a row coming on top of the substantial 97,000 downgrade in the December numbers from the annual data revisions. In all, nonfarm jobs are down 54,800 since December. While this cumulative loss represents only 0.3% of total nonfarm jobs, at best it indicates an economy that is running in place rather than generating the growth required to cover the projected state deficits of $10 to $30 billion over the next 5 years let alone remain in 4th place globally.

The jobs that are being created also remain heavily dependent on government spending, and if that spending softens in the face of growing revenue concerns, the job numbers will soften even more. As indicated in our preliminary report, the state’s job trends now are heavily dependent on buying jobs in government and government-supported Healthcare & Social Assistance, especially as the result of the state expansion of Medi-Cal that is now fueling the projected deficits even more. The governor’s budget proposal to expand the film tax credit would extend this approach to another industry as well, attempting to buy back the film and TV jobs that have left the state rather than fundamental reforms to lower their operating costs and other industry operating costs to keep them from leaving in the first place. While individual components such as Trade have shown some growth as detailed in our preliminary report, other private sector jobs combined remain in decline as the costs of doing business in the state continue to rise.

The reliance on government spending to buy jobs also has implications to the quality of those jobs. Using the not seasonally adjusted series, Individual & Family Assistance comprised 58% of the 140,400 jobs increase shown for Healthcare & Social Assistance. These are predominantly minimum wage, part-time In-Home Supportive Services (IHSS) jobs provided as a Medi-Cal benefit and that have few if any training and upward mobility opportunities.

Drilling down on these jobs more using the IHSS data itself, the number of providers (jobs) increased by 73,561 between March 2024 and March 2025, or 52% of the total Healthcare & Social jobs increase shown above. Of these, all came from paying spouses, parents, and other relatives to provide the required care.

On average, the jobs provided the equivalent of 31 hours a week of pay. Using the current state minimum wage, this level translates into an average weekly wage of $505, or the equivalent of only $26,300 annually.

The weak jobs market has also seen unemployment remain above the 1 million mark for 15 months in a row, the highest since the pandemic recovery period in 2021.

In that period, California has produced an average of 15.6% of the nation’s unemployed, or a third higher than the state’s overall share of US population.

The official unemployment rate, however, only counts persons who are looking for work and remain active in the labor force. U-6 is a broader measure that also covers underemployed, and includes persons who are unemployed, working part time for economic reasons, and those who are only marginally attached to the labor force. At an average of 1.97 million in 2024, the number of underemployed similarly has been rising to levels previously seen in 2021. In 2024, California had 15.4% of the nation’s underemployed.

As a further indication that little has changed in the state’s economy to affect its high unemployment levels, the most recent initial unemployment insurance claims data (4-week moving average) continues to closely follow the 2024 trend.

Insured unemployment (a proxy for continuing claims) runs close to the previous trends in 2023 and 2024. GDP may be a bright spot, but the tech-driven results are not being reflected through broader job gains in the other industries.

And in fact, unemployment insurance continues to play a greater role in California to compensate for the absence of jobs. Compared to the state’s 11.6% share of population, the most recent data shows California workers relying on the unemployment insurance program at almost double this rate, with 20.5% of total initial claims and 21.5% of continuing claims.

As measured by unfilled job openings, employer hiring plans have remained relatively level over the prior 4 months, although at substantially reduced levels from previous years. The state’s job openings rate remains about 20% below the overall US average.

The current number of unfilled jobs moreover remains well below levels needed to make serious dents in the state’s unemployment problem. California had 1.5 unemployed persons for every job opening at the end of February, compared to the US average of 0.9 and other states that range to as little as 0.4.

Using the same employment tax data underlying the Quarterly Census of Employment & Wages and the Business Employment Dynamics (BED) series, the Census Bureau recently released a number of experimental data sets tracking innovative companies within the economy. Current data is available for 1978-2022.

In tracking changes within the High Tech industry, the Bureau’s definition is similar to the one previously used by the Center and other sources but with some notable exceptions such as not including motor vehicle manufacturing, pharmaceutical manufacturing, and telecommunications. Future analyses by the Center on this topic will conform to the Bureau’s definition in order to use a consistent comparison base.

Using this definition, the number of High Tech operations in California have experienced two recent surges, the first in the 1990s leading up to the Dot.com Bust and the more sustained rise beginning during the Great Recession recovery in 2012. As indicated in the chart, firms are separate companies while each firm may be composed of one or more separate establishments such as different company branches or subsidiaries operating at the same or different locations. Growth in both continued after 2012, but both also experienced a slight decline in the most recent data in 2022.

Largely beginning in California, High Tech has seen growth throughout the US as other tech centers have expanded especially in Massachusetts, New York, Washington, DC, and Texas. As shown in the chart below, California is notable not only for the size of its High Tech employment, but also the degree to which this industry dominates the affected regional economies to the exclusion of other industry jobs.

Growth in the other states, however, has had the effect of adding to the total industry, at least through 2022, rather than shifting California’s share. As measured by firms or employment, California’s overall share generally increased in recent years. Employment share grew beginning with the 2012 expansion and again somewhat during the pandemic-period expansion. The share of firms similarly grew through most of this period but began dipping in the most recent data.

Note that the 2022 data only begins to track the tech layoffs that began towards the end of that year. Although affected job numbers are not available in every case, the tech job layoffs tracked by Layoffs.fyi indicate that 55% of the jobs losses beginning in 2023 have been in California, a result that is likely to affect the data trends shown in the chart as more current data becomes available. Just applying the Layoffs.fyi raw data to the 2022 Census Bureau numbers, California’s High Tech share would slip from 18.7% to 16.6%.

The changes shown in the chart above have not been smooth, but are the result of the overall dynamics of contractions and expansions, company births and deaths. California has seen considerable churn in the number of High Tech firms operating in the state, with the net increase slowing substantially to only 69 in 2022. Note that firm deaths do not include those that have been consolidated or acquired, but may include firms moving elsewhere but no longer operating in the state. The year 2022, however, likely indicates a turning point for entrepreneurial expansion coming from this industry.

Employment losses from closing establishments in fact have outweighed job additions coming from new ones. Employment growth in recent years has instead come from expansions at existing establishments as the innovation economy and entrepreneurships have faced challenges from the state’s high costs of living. Like any other maturing industry, the source of future growth has shifted from the early entrepreneurial roots, to a dependence on the investment strategies and hiring plans of the remaining but much larger surviving firms.

The Census Bureau also released experimental BED data covering innovating firms recently granted patents, defined as patents issued in the current and prior two years. This measure provides an indicator of broader innovation within the states.

Looking at all patents (utility, design, and plant), California has been increasing its share of innovating companies, whether measured by employment or by number of firms. The state, however, is performing somewhat under its weight measured by firms—10.6% of patenting firms in 2022 compared to 12.5% of all firms—but somewhat better when measured by employment—12.5% of patenting firm employment compared to 11.6% of all employment.

While much of the focus remains on High Tech as the source of innovation in the economy, the distribution is much broader. The following chart shows the distribution of patenting firms for the top 5 industries and how this distribution has changed over the years. Firms in the primary two High Tech-containing industries—Information and Professional, Scientific & Technical Services—have become an increasing source of innovation, but manufacturing and the two trade-related industries also make major contributions to the state’s overall competitiveness.

Measured by type of patent, California’s share of innovating firms has generally been on the rise across the board, but with the strongest growth in the High Tech world of computers, instruments, communications, and other electronics. In all cases, however, the state relies on a relatively smaller pool, with the share of innovating firms below its overall share of 12.5% of firms nationally in all patent types.

Patenting firms in California continue to be younger, with about a quarter coming from the start-up phase where access to capital equates to survival. The share represented by the older, established companies, however, continues rising, although this trend in large part relies on how firm age is measured in the data.

Again reflecting the start-up factor, firms with only 0-4 employees have risen to just over a fifth of patenting firms, while the share represented by the largest companies has fallen sharply. Note, however, that the metric as in the previous charts is firms with at least one recent patent, not the total number of patents issued.

Innovation, however, does not always equal success. The smallest firms make up about 60% of the patenting firms that fold each year. The largest firms of 500 employees or more all survive in this period.

The governor’s current proposal to increase the film tax credit is a tacit acknowledge that if you tax something less, you will get more of it, in this case the film industry jobs that have left the state. The same attitude cannot be said for the innovation not only required to support current jobs, but also to increase the competitiveness essential to building a broader jobs base in the future, attack the state’s severe unemployment problems, and generate the broader revenue base to tackle the current string of projected budget deficits. Rather than foster this source of growth, the current budget and proposed budget contain restrictions on the critical R&D tax credit, presumably made necessary to help offset the unprecedented growth in expenditures in recent years.

The state’s focus of enacting policies that at worst do less harm to High Tech is understandable. That industry is the reason California GDP is now 4th globally. It is virtually the sole generator of the revenues that determine whether the budget is in surplus or in deep deficit. And without it, the state’s economy risks becoming not much different than New York with better weather. But as with Japan, these risks are largely self-inflicted. The recent moves by the legislature to address affordability in the state is a helpful sign that that cautionary tale may be taking hold.