California enters 2024 with strong economic fundamentals: low unemployment, rising wages, and falling inflation. At this time last year, many predicted a recession, but California—along with the rest of the nation—remained economically resilient. Even so, Californians are feeling pessimistic about the state’s economic future and unsettled about their personal finances. What does the data tell us about what’s ahead for Californians economically in 2024?

In the past year, California netted over 260,000 new jobs, a pace that matches pre-pandemic growth. After soaring in 2022, job openings came back to earth in 2023; still, the number of openings remains higher than before the pandemic, a sign of strong demand. Inflation was less than half of what it was a year ago (3% compared to 7%). The unemployment rate is slightly higher (4.9% vs 4.1% a year ago)—which means that an additional 156,000 Californians are looking for work. But the rate remains lower than it has been for most of the past decade.

On the whole, these are indicators of a resilient economy. However, two out of three Californians expect bad economic times ahead for the state, and only one in five expect their personal finances to be better in the next six months. Similarly, nationwide, small business owners are pessimistic about conditions going forward, citing concerns about inflation and the availability of workers.

This pessimism makes more sense when we look closely at wages and inflation. Most Californians are falling behind: since February 2020, wages have increased 15% on average, but prices have increased 19%. What looks like a $5/hour pay increase actually feels like a $1.25/hour pay cut. While workers in some sectors—such as accommodation/food services and transportation—have seen real gains even after inflation, many Californians are struggling to make ends meet: according to the California Poverty Measure, 31% are in or near poverty (up from 29% in 2021).

What might Californians expect this year? To get ahead in the short term, Californians need to see lower prices and/or higher earnings. Across-the-board price decreases may sound appealing, but steady prices are economically preferable because they don’t encourage Californians to delay purchases in hopes of further decreases. The Federal Reserve predicts that inflation will hit its 2% target for steady price growth by 2025.

Some workers will see wage increases this spring and summer due to minimum wage laws going into effect ($20/hour for fast food employees in April and $18+/hour for some health care workers). While this should help workers get ahead, it could increase labor costs and cut into earnings for business owners. However, business owners could be paying less for energy and raw materials as prices stabilize, and their borrowing costs could ease if the Federal Reserve lowers interest rates this year.

State investments in measures aimed at boosting earnings—such as tax credits for low-income workers or small business grants and loans—are likely to be constrained by budget shortfalls. But even in this budget-constrained environment, the state could take several steps to improve long-term economic prospects for Californians.

Action items include:

• Educating workers for the future. Californians need wide-ranging skills to power an evolving labor market. The state’s higher education institutions, workforce development agencies, and community-based training organizations are working to prepare Californians for good jobs, and some have made strides in improving equity in recent years; enhanced collaboration with employers would help align education and training with in-demand, well-paying jobs.
• Helping employers hire the workers they need and supporting potential workers. As California’s workforce ages and its population shrinks, meeting workforce needs will be a challenge for businesses seeking to grow. Direct support for hiring could benefit some businesses, and addressing barriers for potential workers (such as care responsibilities) could increase the hiring pool.
• Monitoring the workforce implications of climate and technological change. As climate adaptation and AI technology—and related policies—develop, tracking emerging workforce needs is a first step to helping more Californians benefit, especially given the likelihood of regional, educational, and sector variation.
• Addressing persistent economic constraints. To sustain a vibrant economy and support economic well-being, it is critical to evaluate and address business and worker constraints. Policymakers need a better understanding of the factors that lead businesses to leave the state—or encourage businesses to start, remain, or expand here. State investments in programs that supplement workers’ wages and benefits have been effective, but these programs do not reach all who could benefit. And, finally, there may be ways to support both those who provide and those who need costly essential services such as child care and elder care.

These approaches can support greater economic mobility for Californians over the long haul. At the same time, they can help Californians become less reliant on direct aid from government programs, whose funding may fluctuate depending on budget realities. In the near term, even as the state faces tough budget decisions, its labor market is in much better shape than many were expecting a year ago.