California’s Economy Pinched by Unemployment

California’s Economy Pinched by Unemployment
California’s Economy Pinched by Unemployment

For decades, California’s behemoth economy has outpaced those of most nations, holding an outsize role in shaping global trends in tech, entertainment and agriculture.

While that reputation remains, the state has a less enviable distinction: one of the nation’s highest unemployment rates.

Nationwide, the rate is 3.7 percent, and in January, the country added 353,000 jobs. California’s job growth has been slower than the nationwide average over the last year, and the unemployment rate remains stubbornly high — 5.1 percent in the latest data, a percentage point higher than a year earlier and outpaced only by Nevada’s 5.4 percent.

With layoffs in the tech-centered Bay Area, a slow rebound in Southern California from prolonged strikes in the entertainment industry and varying demand for agricultural workers, California is facing economic headwinds in the new year. And residents feel it.

The state has historically had higher unemployment than the U.S. average because of a work force that is younger and fast growing, said Sarah Bohn, a senior fellow at the Public Policy Institute of California. Still, she noted, the labor force shrank in California in the past six months — a troubling trend.

“When looking at this shrinking, are there less opportunities and people have just stopped looking for work?” Ms. Bohn asked. “What will this mean for consumers and businesses?”

During the early part of the pandemic recovery, the unemployment rate in California was not an outlier — 4 percent in May 2022 versus 3.6 percent nationwide, according to the Bureau of Labor Statistics. But the situation deteriorated.

Roughly 36,000 Californians who work in the information industry, which includes tech, lost their jobs last year. Several powerhouse companies based in the state — Google, Meta and X, formerly known as Twitter — cut tens of thousands of positions to reduce costs as the industry increasingly pivoted its focus toward artificial intelligence.

In recent weeks, Snap, the Santa Monica-based parent of the Snapchat messaging app, announced it would cut about 500 employees, 10 percent of its global work force. And Northrop Grumman, the aerospace giant, signaled it planned to lay off 1,000 workers in the Los Angeles area.

Despite a bruising several months, the unemployment rate in San Francisco and Silicon Valley remained relatively low — 3.5 percent in the city and 3.2 percent in San Mateo County — indicating that many workers found new jobs relatively quickly.

The outlook is worse in Southern California, where the ripple effects from last year’s entertainment industry strikes are still having an impact.

Nearly 25,000 workers lost their jobs in Hollywood, according to a report released in December by the Otis College of Art and Design in Los Angeles. While the prolonged work stoppages by the Writers Guild of America and SAG-AFTRA ended last fall, some jobs dependent on the industry never returned, and many people have struggled to land full-time work.

The unemployment rate in Los Angeles County is around 5 percent, with jobs in the information industry, which includes motion picture and sound recording jobs, accounting for a large portion of the hole.

During the strikes, some restaurants and other small businesses that relied on Hollywood workers closed for good, and others that scaled back on staff haven’t built back to previous levels, said Kevin Klowden, an executive director at the Milken Institute, an economic think tank in Santa Monica.

A stall in streaming growth has put increased financial pressures on many studios, Mr. Klowden said, adding that “peak TV production is generally agreed to have already happened even before the strike.”

“There are a lot of stories about actors and crews having trouble finding consistent work because of the slow ramp-up of new productions,” he said.

After a Hollywood strike in 2007-8, it took a year for the industry to recover, and this time — with persistent losses — it will take even longer, Mr. Klowden said.

For parts of the state where agriculture is a key industry, the economic situation is yet more dire.

In Imperial County, a stretch along the Mexican border long known for agricultural production, the latest unemployment rate was about 18 percent, up 3.1 percentage points from a year earlier. And Tulare County, in the Central Valley, has an unemployment rate around 11 percent, up 2.7 percentage points. Automation has been a factor.

In a survey released in the fall by the Public Policy Institute of California, roughly one in four Californians said the availability of well-paying jobs was a big problem in the local area.

There are economic bright spots. The state has seen job growth in education and health care, along with the leisure and hospitality industries.

“California is the tent pole of the American economy in terms of American recovery — in terms of job creation, innovation, entrepreneurial spirit,” Gov. Gavin Newsom said in January as he unveiled his budget.

Mr. Newsom’s office released an analysis of the state’s economic outlook for the year ahead, noting that “while unemployment in California may be rising somewhat faster than the nation, it is increasing from an extraordinarily low level, reflective of a tight labor market that is adjusting to more sustainable growth after rebounding so swiftly in the wake of the pandemic-induced recession.”

Dee Dee Myers, director of the Governor’s Office of Business and Economic Development, said in a statement, “There is ample reason to believe that California’s economy will continue to grow more quickly than the nation’s.”

She noted a recent directive by Mr. Newsom to create a master plan for career education that connects students to job opportunities. One priority is to reduce barriers for people seeking state jobs — including college degree requirements unnecessary for some duties, according to an outline of the directive.

But elevated unemployment will have a ripple effect on the state for a while, said Robert Fairlie, a professor of economics and public policy at the University of California, Los Angeles. Joblessness reduces overall earnings, he said, which translates into lower consumer demand and investment.

“There is a negative multiplier effect on the state economy from the higher unemployment rates we are seeing,” Mr. Fairlie said.

Elyse Jackson is among those feeling the pinch.

Ms. Jackson, 27, has not had a steady job since December 2022. An art department coordinator on feature films in Los Angeles, she had hoped to find work soon after the strikes ended last fall.

“The rehiring and new productions have just been so slow,” said Ms. Jackson, a member of the International Alliance of Theatrical Stage Employees union. She has taken on $15,000 in debt in recent months and struggles to pay the rent on the apartment she shares with her partner in the Echo Park neighborhood.

Unable to keep waiting for jobs in her industry, she recently filled out dozens of applications for administrative work around the city. She has yet to hear back.

“In terms of skill sets, I am certainly qualified for these jobs,” Ms. Jackson said. “There just seems to be a lot of competition because of the market and unemployment.”