California’s labor market is, at best, in a hold-steady pattern this year. After shedding jobs early in the year, employers added jobs this spring—and now, at the year’s midpoint, California has about as many jobs as it did in January. Similarly, the unemployment rate today is identical to what it was in January: 5.4%. A hold-steady pattern is a welcome change from a year ago, when unemployment increased steadily and employers dropped 100,000 jobs. However, unemployment is high, and job growth is needed to expand opportunities. Are there any bright spots in today’s labor market?

Over one million Californians are unemployed, a number we’ve seen since the beginning of 2024 and a higher share than anywhere else in the US except Washington DC (5.9%) and Nevada (5.4%). However, California has also had by far more new entrants to the labor market than all other states.

Since January, California’s labor force has grown by 137,000 (or 0.7%)—one-third more than the next fastest growing labor market, Texas. In just the last month California added 33,000 potential workers, three times that of Texas. A growing labor force is good news for supporting economic expansion and the state’s workforce needs, especially in this era of a shrinking, aging workforce.

Labor force entrants include recent college or high school graduates, seasonal workers, and discouraged workers coming back to look for work. They may take time to find a job (even in a stronger economy), which can temporarily increase the unemployment rate. That is one factor in California’s higher unemployment rate today compared to other states.

At the same time, some states have grown their labor force while also shrinking the ranks of unemployed (Texas and New York are the largest states to have done so). Job growth will be key for California to do the same. So far this year, that hasn’t happened: nonfarm payrolls fell a bit in June, and since January have logged no growth.

Sectors driving job losses in California are accommodation and food service, manufacturing, and professional and technical services. The latter dropped 100,000 jobs last year and has continued to decline this year, shrinking by 47,000 jobs since January.

On the positive side, health care and social assistance, government, and transportation and warehousing sectors added over 200,000 jobs in 2024; these were the only sectors with job growth last year. So far in 2025, only the first two continue to grow—along with a slight increase in construction jobs.

Transportation and warehousing jobs have declined in California since January, shrinking by about 19,000. While the sector is affected by US and international trade policy, it is not yet clear if the job decline in 2025 can be attributed to current vacillations over tariffs. Sector performance between January and June is similar to what it was one year ago (shrinking 3.8% in both periods).

Previously, the transportation and warehousing sector had been a source of substantial growth, surging during the pandemic and contributing substantially to job growth in the Inland Empire and Central Valley. So far this year, declines in the sector have impacted six major regions. The smallest decline: 3% in Los Angeles. The largest: 6% in the Inland Empire. Though worrisome, this pattern looked similar a year ago.

Statewide increases in the health care and government sectors are also broadly shared across regions. Health care jobs grew 2–3% in all regions, and at a slightly faster pace in Los Angeles, Orange, and San Diego Counties than a year ago. Growth in government jobs has been driven by increased hiring in local government (state employment has been relatively flat and federal government jobs have declined by 3,000 this year). One exception: government employment growth has been slightly lower in the Central Valley (1% since January) than in the rest of the state.

While job growth across regions is good news, not many sectors are growing. Moreover, two key growth areas—health care and government—are highly dependent on policy and government funding. For instance, health insurance cuts in the One Big Beautiful Bill Act could affect workforce needs in the health care sector.

Uncertainty in the broader economic outlook means that most businesses are not expanding employment. In this environment, it is critically important to examine barriers businesses face to sustaining and growing their work, to connect new labor market entrants to available jobs, and to address long-term barriers for those who are unemployed.