California’s Fake Comeback
Gavin Newsom recently took to X, proudly announcing that California's unemployment rate had dropped to 5.4 percent. He packaged it as progress. And on a technicality, he’s right, the same way a leaking roof technically keeps some of the rain off.
A new Pacific Research Institute report, California at a Crossroads, documents what’s happened to the state's economy since 2020, which was roughly when Newsom began governing without the training wheels of a predecessor's surplus. The findings aren’t subtle. From 2020 to 2025, California's job growth ran at less than half the national rate. Before that, the state reliably outperformed the rest of the country.
Private sector employment tells the uglier story. Set healthcare aside, a sector propped up by an aging population and federal dollars, and California has fewer private sector jobs today than it did before the pandemic. Newsom's falling unemployment rate reflects, in part, a workforce that has stopped growing rather than one that has started thriving. When enough people leave or give up looking, the denominator shrinks. The percentage improves. The economy doesn’t.
For years, California has been exporting its most economically productive residents. Working-age, educated, mobile people who could live anywhere looked at California's cost of living, regulatory climate, and housing market and decided to live elsewhere. Companies that once expanded across the state are expanding in Texas, Florida, and Tennessee instead. Newsom's administration didn’t create all of these pressures, but it accelerated them, defended them, and occasionally celebrated them.
High-earners aren’t immune. Finance, biotech, and technology jobs—the industries that once made California's economy the envy of the developed world—are contracting. The entry-level positions are disappearing too, which matters because entry-level jobs are how people who aren’t already wealthy get started. California’s removing the bottom rungs of the ladder one by one, which makes climbing harder for everyone below and completely invisible to anyone already at the top.
Meanwhile, the state's share of the national economy has fallen since 2021. If California had simply held its ground, households across the state would be meaningfully better off today. They aren’t, and the distance between where they are and where they should be is measurable, personally and painfully so. A separate analysis from InvestorsObserver calculated that Californians now work nearly 16 extra days per year just to cover basic expenses: rent, groceries, a used car. Some will argue that wages have risen, and they have. But the cost of living has outrun them so consistently, and by such a wide margin, that the raises function less like progress and more like a treadmill set slightly too fast. Every year since Newsom took full control of the state, the gap between what Californians earn and what California costs has grown. The paychecks are bigger. The purchasing power isn’t. Millions of people are earning more in dollars and affording less in life, which is a peculiar kind of prosperity to campaign on.
This is the particular cruelty of California's predicament. The workers are employed. They’re paid. They’re also, in many cases, getting poorer in real terms every year, ground down by housing costs that function as a relentless levy on their time. For a median-income family in Los Angeles, a 5.4 percent unemployment rate is less evidence of economic health than a statistic from a parallel universe, calibrated for press releases rather than for people paying $2800 a month for a two-bedroom in Glendale.
Newsom understands optics. He’s spent seven years governing with one eye on national ambitions, which means he needs California to look like proof that progressive governance works. Falling unemployment is clean, fits on a campaign graphic, and requires no explanation. Sixteen extra workdays, a decimated private sector, and net population loss are harder to package for a presidential run.
The Governor inherited a complicated state. Every governor does. But the period since 2020 represents an inflection point, a moment when California stopped outperforming the country and started underperforming it, and the policies that drove that shift were his choices. The regulations tightened. The costs rose. The businesses left. Many stayed, but staying has its own explanation. Leaving’s hard, inertia’s powerful, and California has a way of trapping people in lives they can no longer afford.