Sarah Bohn, PPIC vice president and director of the PPIC Economic Policy Center, testified before the Assembly Committee on Economic Development, Growth, and Household Impact on March 24, 2025. Here are her prepared remarks.

Californians are very concerned about the economy and their chances of getting ahead financially.  In the latest PPIC Statewide Survey, 69% of Californians said they expect bad times economically in the next twelve months. This concern has been persistent both here and nationally since the pandemic, even as the job market has shown signs of strength. New uncertainties about the economy stem from potential trade wars as well as federal actions on immigration, funding, and government employment. In this testimony, I’d like to share my assessment of the long-term issues behind Californians’ financial concerns—which can point us toward actions to support prosperity today and for the long run.

Inflation is the primary driver of Californians’ current financial concerns, in my view. For about thirty years, we had relatively stable prices in the US, even during the dot-com bust and the Great Recession. That means that most working-age adults had no previous experience with the instability and pain of prices rising across the economy until after the pandemic, when overall prices spiked as much as 9% year over year in summer 2022. Prior inflationary crises of this scale last occurred in 1975 and 1980 when inflation topped out at over 12–14%.

Economists agree that the severe inflation in recent years was caused by the pandemic, especially the slowdown in supply chains getting goods to consumers whose buying habits changed as they spent much more time at home. There is still debate in research circles over the extent to which pandemic relief from the federal government—which went directly to most households and to many businesses—was a secondary factor pushing up prices. I’ll note also that there is no evidence that wage growth drove up prices during this inflation crisis.

The most recent inflation data show prices are changing at a more stable pace today. Overall prices grew 2.8% between this February and last. Nevertheless, we now face substantially higher prices—23% higher than they were in January 2020. That is double the expected increase if inflation had remained relatively stable as it was in the 30-year period prior to the pandemic.

Prices are up across the board but have increased a lot in some areas that we feel every day. For instance, food and beverage prices are up 28% compared to before the pandemic, and energy prices are also up 28%. We feel these at the pump, in utility bills, and at the grocery store. Inflation in California has mostly followed the national trend. However, prices in our state are generally higher to begin with. As we all know, California home prices are high, about double the national median. California also has the second-highest electricity rates in the country (after Hawaii). So large price increases may have pushed many Californians beyond the point of affordability.

Affordability is determined not just by costs but also by the resources one can draw from. The good news is that wages have increased substantially. Overall, wages have risen 26% since January 2020. The bad news is that, after accounting for inflation, wages grew just 2.9% . To me, those are all the facts we need to understand why Californians are frustrated financially. Earning 26% higher wages but feeling like you’re treading water at the end of the day? That is very frustrating.

How are lower-income Californians faring? After the pandemic, lower-wage earners did see bigger wage gains (30%), driven by the intense competition to rehire workers coming out of the pandemic and surging demand for services and transportation. After inflation, however, these remarkable wage gains only amounted to a 6% raise. Also, lower-income families in California are spending a larger percentage of their resources on essentials than middle- or higher-income families are, with 80% of expenses for lower-income families going to basic necessities: food, housing, transportation, and health care. The single biggest expenditure for California households is housing. Across the income spectrum, 35–44% of household expenditures go to covering rent, mortgages, utilities, and home maintenance.

Overall price levels are unlikely to decline by much—and we don’t actually want them to, since declining prices across the board could trigger a recession. However, prices of specific items or categories could ease. Addressing housing costs would have a major impact on family budgets, though that is not easy to do and is already the focus of much legislative activity. Relief in any of the other basic areas of family budgets would certainly help more families meet their needs and get ahead. For instance, energy prices are hitting Californians in multiple places—including at the pump and in their home utility bills—and affect the cost of doing business, which can raise the prices that businesses charge consumers. A recent LAO report highlighted some challenging tradeoffs the legislature might need to confront regarding electricity rates.

However, the deeper issue is that, over the long term, low- and middle-income households haven’t gotten much of a “pay raise.” Since 1980, earnings for low-income families have increased only 10% after inflation. That’s a 10% raise over about 40 years. For the median-income family, earnings have only increased 28%. It’s not surprising, then, that 70% of California adults believe the state’s children will be worse off financially than their parents when they grow up. Meaningful change in people’s incomes that allows them to do more than tread water would matter a lot to Californians.

In the short term, tax credit and social assistance programs literally put resources into families’ hands that help them cope with the rising cost of living. PPIC has over a decade of research quantifying how food, cash, and housing assistance help millions of Californians make ends meet. Where possible, moderating cost pressures would improve the impact of those programs and make daily life more affordable for all Californians.

But a sustainable, long-term approach to affordability involves ensuring there are routes to getting that “raise” that come from hard work, skills, and entrepreneurship. Thriving businesses and the good job opportunities they create are fundamental pieces of the puzzle. The state has effective policy levers that support businesses in creating jobs. The state also has major investments in building job skills through work-based learning, workforce development, and educational programs. If accessible and effective, these programs can help more Californians tap into higher earning potential and power opportunity into the future.