California’s once-vaunted economy is falling behind the rest of the country, with job growth since the COVID-19 recession less than half the national pace and private-sector employment shrinking when health care jobs are excluded, according to a new analysis released today by the Pacific Research Institute.
The 36-page report, “California at a Crossroads: How Bad Policy Cost California Its Economic Edge—and How to Win It Back,” concludes that decades of high taxes, heavy regulation, and soaring living expenses have eroded the state’s competitive advantages. Authors Wayne Winegarden and Kerry Jackson argue that the Golden State’s asset base—its universities, ports, tech infrastructure, and geography—remains strong, but policy choices are now costing jobs, residents, and economic output.
From February 2020 to December 2025, California added non-farm jobs at less than half the rate posted by the rest of the nation. Private-sector job growth was even weaker. Removing health care and social-assistance positions reveals that the state currently has fewer private jobs than it did before the pandemic. Nationally, those categories grew by 3.4 percent over the period.
California’s share of the national economy peaked at 14.5 percent in 2021. It has since fallen to 13.8 percent. The report calculates that simply holding steady at the 2021 level would have made the state’s economy 4.6 percent larger today, which is the equivalent of an extra $14,000 in annual income for every household.
Population trends also support this narrative. Los Angeles County lost 53,394 residents between July 2024 and July 2025, the largest outflow of any metro area in the country. Orange, San Diego, and Ventura counties also ranked among the top 10 for net domestic migration losses. The state has recorded net domestic out-migration for more than 15 straight years.
Businesses are following people out the door. California’s share of national information-sector jobs, which includes technology, has dropped from nearly 20 percent in 2020 to 16 percent in 2025. The state lost 2.1 percent of its information jobs last year, while the rest of the country was essentially flat. Technology employment fell 3.4 percent in California in 2024, the steepest decline of any state, while the national total was down just 0.1 percent.
Manufacturing tells a similar tale. After keeping pace with the nation through the 2000s, California’s factory job count has declined by 38,000 since February 2010, while the rest of the country added 1.2 million. The state’s share of U.S. manufacturing jobs has trended steadily downward. Per-capita manufacturing employment now stands at just 334 jobs per 10,000 residents, far below leading industrial states such as Wisconsin and Indiana.
Finance, once a California strength, has also weakened. Since the COVID recession, the state’s financial-sector output has grown 26.6 percent compared with 46 percent nationally. Employment in the sector is down 10.3 percent in California while rising 3.9 percent elsewhere. Major firms such as Charles Schwab have moved headquarters to lower-tax states.
The report ties these losses directly to affordability. After accounting for state and local taxes, median home costs, and energy bills, the typical California household has 35.2 percent less disposable income than the national average. Median household income in the state is $100,600—20 percent above the U.S. figure—but housing costs are more than twice as high, and electricity prices for businesses run two to three times the national average.
Small businesses are particularly affected by this situation. California ranked 34th out of 51 states and the District of Columbia for small-business growth since the pandemic. The state imposes more than 420,000 regulatory restrictions—triple the national average—on everything, from permits to labor rules. Combined with high minimum wages, strict workers’ compensation mandates, and the absence of right-to-work protections, the environment discourages hiring and expansion.
The authors point to specific policies as the root cause. The California Environmental Quality Act drives up housing and infrastructure costs. Cap-and-trade, strict fuel standards, and renewable-energy mandates have pushed electricity and gasoline prices far above those in Texas or Florida. High personal and corporate income taxes, coupled with continual threats of new levies such as a wealth tax on billionaires, reduce the return on work and investment.
Yet the report is not entirely pessimistic. California still leads in artificial intelligence, biotechnology, and venture capital. Its public universities rank among the nation’s best. The state’s ports remain vital trade gateways. Winegarden and Jackson argue that the same advantages that built the state’s past success can restore its future if policymakers act.
They call for targeted reforms: streamlining CEQA (California Environmental Quality Act) to speed housing and infrastructure projects, relaxing zoning and rent-control rules, repealing energy mandates that inflate costs, adopting right-to-work laws, lowering the minimum wage to more competitive levels, and reining in state spending to bring tax burdens closer to the national average.
“California’s asset base is intact,” the authors write. “The economic, scientific, financial, educational infrastructure, and geographical advantages remain. What’s been lacking is the political will to make the needed, and obvious, changes in public policy.”
As Californians prepare to choose a new governor in 2026, the report frames the election as a policy crossroads. One path continues the current mix of high taxes and regulation. The other embraces fiscal and regulatory reforms that the authors say would lower costs, spur job creation, and revive the California Dream, such as reducing income tax rates and streamlining business regulations.
The full study is available on the website of the Pacific Research Institute.
