California's Jobs Market Is in Trouble

California's jobs market has been struggling, despite the U.S. economy booming, with the state trailing behind the rest of the country for job growth and reporting a higher unemployment rate than the national average.

In December 2023, the latest data made available by the U.S. Bureau of Labor Statistics (BLS), California had 830,000 job openings. While higher month-over-month—with 751,000 openings the month before—the number was much lower than a year prior, when it stood at 1,244,000 in December 2022.

Compared with the national level, California has been trailing behind the curve. In December 2023, the Golden State had a job openings rate of 4.4 percent against the U.S. average 5.4 percent. A year earlier, the state's rate was 6.5 percent—much closer to the nationwide average of 6.8 at the time.

As of January 2024, the U.S. had about the same number of openings as the previous month, according to BLS—around 8.9 million—and the unemployment rate was 3.7 percent seasonally adjusted for the third month in a row. At the start of this year, California's unemployment rate was much higher, at 5.2 percent.

John Blevins, a guest lecturer at Cornell University's SC Johnson College of Business, told Newsweek that there are several reasons why California's job growth is trailing the rest of the country. Some have to do with the lingering effects of the pandemic shutdown, which severely affected small businesses.

"Some have not fully recovered and some went out of business and have been lost," Blevins said. "Higher business operation hurdles make it harder for small businesses to weather this storm more than other states."

Blevins also cited factors "including higher labor costs, regulatory requirements and employment rules that make it harder to do business in California." While some firms might have moved out of the state to seek lower operational costs and reduced regulations, former employees who were happy living in California may have chosen to stay—leading to the higher unemployment rate.

The high cost of living in the Golden State has also played a role, prompting some lower-wage workers to leave for parts of the country where they can live more affordably and comfortably, according to the expert.

"This lack of low-wage workers hurts California businesses' efforts to fill these positions and therefore reduces business productivity," Blevins said—something which in turn leads to less activity, more closures, layoffs and unemployment, in a negative domino effect.

The state's tech sector being forced to resize during the pandemic year has also negatively affected the job market. Blevins referred to a "workforce reduction in the technology sector after readjusting downward from the overhiring during the pandemic as the industry re-orients itself towards artificial intelligence [AI] development and operations."

"Existing team members may not [have] the new AI skillset the large California tech firms are seeking as they adjust their business models to be AI-forward organizations," he added.

Meanwhile, the increased shift toward more independent contractor work in the entertainment sector—focused in the Greater Los Angeles area—has caused a slowdown of the industry during its recovery from the pandemic, due to union strikes.

"The proliferation of independent content creators, empowered by simple, easy-to-use professional digital tools, has created more consumer options along with more independent creative work," Blevins said.

"Large studio employers now compete against this expanded content choice and must do so more competitively, with higher scrutiny on headcount costs. This creates less stability and consistent income streams for entertainment industry workers, resulting in on/off employment status—and sometimes drives them towards independence."

Blevins believes that for California to recharge its growth, "the state should work diligently to reduce the cost of doing business, including reducing red tape, streamlining required procedures for business, offer incentives for new business creations, operations, and expansions, work diligently to reduce housing costs by increasing housing supply from revised policies that remove restrictive development rules, and adjust the government revenue source imbalance that rose from 1978's Proposition 13 property tax legislation."