The economy was a major issue at the ballot box last November, and as new federal and state leaders take office, economic concerns remain top of mind. On top of the tragic loss of life and community devastation, the Los Angeles fires will have a widespread economic toll – most immediately on families forced to evacuate or move, businesses demolished and jobs lost, and government expenses for emergency management and cleanup. The potential for new tariffs could also affect California trade, which grew in 2024. And in PPIC’s December survey, 52% of California adults say that “getting costs and inflation under control” should be a very high economic priority for the next president. As policymakers navigate the evolving economic landscape, what are the key economic issues and opportunities for growth to keep in mind for 2025 and beyond?

California has long been a powerhouse of innovation and wealth-building. California’s economy is the largest among all 50 states and ranks fifth internationally, but its pace of growth has slowed in recent years. In 2022, California’s labor market started to lag behind the US, with slower job growth and higher unemployment. California made up 9% of jobs added nationally in the past year (209,000 out of 2.3 million), compared to 14% in 2019. And over 1 million state residents report they are unemployed and looking for work, a higher share of the workforce (5.4%) than nationally (4.2%). However, the national labor market has cooled as well, and by November, national job growth (1.4% over the year) was similar to the state’s (1.2%). Today, both California and the US are in a period of slower job growth and slightly higher unemployment than before the pandemic. These recent trends have amplified concerns about the state’s long-term economic trajectory.

The high cost of living continues to threaten many Californians’ economic well-being. Housing costs have long been higher in California, with housing values today more than twice as high as the national median and rents about 50% higher. In addition, severe inflation over the past three years has spiked prices of everyday goods and services. Wage increases provided a partial buffer, but for most households, income did not keep pace with inflation. Between 2021 and 2023, the median household saw income rise 13%, from about $85,000 to over $95,000. Meanwhile, prices increased 17% over that same period (prices have risen a full 22% from 2021 to today). With inflation having cooled substantially (2.7% as of November), future gains in wages and income have a higher chance of translating into greater purchasing power for Californians. Still, it will take substantial gains for households to feel like they can get ahead—about one in four Californians worry every day or almost every day about saving for retirement (28%), the cost of housing (26%), and the amount of debt they have (24%).

Over the last few years, changing migration patterns, cost-of-living pressures, macro trends, and the persistence of remote work have led to major shifts in jobs—affecting California’s diverse communities, regions, and sectors in varying ways. Some noteworthy trends:

• Across households, Latino, white, young, and less educated workers have seen the largest increases in unemployment Although women had lower unemployment rates than men for most of 2022 and 2023, today that difference has dissipated and unemployment rates for men and women are nearly identical.
• Inland regions of California have typically had lower incomes and less business activity than coastal areas, but this dynamic could be shifting. In recent years, inland regions have boasted stronger job gains, driven by changing consumer patterns since the pandemic and growth in the transportation and warehousing sector. However, new jobs in these sectors tend to pay lower wages.
• Though statewide job growth has slowed, some sectors have helped buoy the California job market. The health sector in California has grown by almost 16% since the pandemic, more than in the US (9%); the education services sector has also grown more here than nationwide. Those sectors’ strengths contrast with difficulties in the movie industry and in tech, both of which are shrinking after burgeoning during the pandemic.

California’s current economic realities reflect the volatile macroeconomic conditions we’ve weathered since the pandemic as well as long-term challenges that have been brewing for decades. However, policy actions can prepare California’s economy to succeed—and ensure that Californians can thrive—even amidst uncertain times.

Priority areas and action items include:

• Improving workforce participation and opportunity. In the last two decades, the share of the population participating in the labor force has fallen 5 percentage points (from 67% to 62% today) due to the aging of California’s population. As the population continues to age and the state faces a shrinking workforce, preparing Californians who can and want to work will become more essential. For example, older adults are working longer and young adults face challenges to entering careers—understanding how to better support both age groups is crucial for the state’s long-term economic success. Addressing barriers to participation among Californians who have traditionally been underrepresented in the workforce—barriers like stable housing, low educational attainment, disability, immigration status, and criminal history—is another part of the puzzle.
• Keeping and growing jobs. To sustain a vibrant economy and support economic well-being, opportunities for entrepreneurs and employers to start and grow businesses need to be robust. Businesses face high costs and regulatory requirements in California, which may or may not be outweighed by access to the state’s large markets, resources, and skilled workers. Policymakers need more information on how these factors balance out for California’s diverse businesses to improve the state’s future economy and employment opportunities. Helping businesses meet labor needs amidst an aging workforce will be a significant challenge for those seeking to grow. Tax credits and direct support for hiring benefit some businesses, as do policies focused on improving education, training, and career pipelines.

• Preparing for climate and technological change. As climate adaptation and AI technology—and related policies—develop, opportunities will emerge for some firms, workers, and communities while shifting or shrinking for others. Tracking emerging workforce needs and designing targeted policy interventions can help more Californians succeed through these transitions, especially given the likelihood of regional, educational, and sector variation. Connecting employers and educational institutions will be critical to adapt to new skill requirements, to achieve greater equity in training and employment, and to ultimately meet workforce and worker needs.

Addressing these long-term challenges will help improve the resilience of California’s economy in the face of acute crises like the one we’re facing in Los Angeles and foreseeable transitions, while also supporting greater economic prosperity for Californians. At the PPIC Economic Policy Center, we will continue to provide impartial research on key economic issues so that policymakers and others can make well-informed decisions to improve the prospects of workers, families, and businesses statewide.