California's Chronic Labor Shortage Is Reason Behind Sluggish Job Recovery: Beacon Employment Report

California’s labor market expanded slowly in September, with total nonfarm employment in the state growing by just 6,500 positions over the month, according an analysis released jointly with the UCR School of Business Center for Economic Forecasting and Development. August’s gains were revised up to 36,000 in the latest numbers, a 16,100 increase from the preliminary estimate of 19,900.

While California added jobs at a healthy pace in 2021 and 2022, as of September 2022, the state’s economy had not yet recovered all the jobs that were lost during the onset of the pandemic. There are still 24,700 fewer people employed in California compared to pre-pandemic February 2020. Overall, total nonfarm employment in the state has contracted 0.1% since that time compared to a 0.3% increase nationally. California’s payrolls increased by 4.2% from September 2021 to September 2022, outpacing the 3.0% increase nationally over the same period.

The driving factor behind California’s slower recovery is the state’s chronic labor market shortage. California’s labor supply fell by 57,700 in September, and since February 2020, the state’s labor force has fallen by 246,000 workers, a 1.3% decline.

“This is a weaker month than we’ve come to expect this year, with a surprising drop in the state’s labor force,” said Taner Osman, Research Manager at Beacon Economics and the UCR Center for Economic Forecasting. “This suggests that employers will continue to struggle to find workers this year.”

California’s unemployment rate dropped to 3.9% in September, a 0.2 percentage-point decrease from the previous month, which matches the lowest level for the series on record, which dates back to 1976. However, California’s unemployment rate remains elevated relative to the 3.5% rate in the United States overall. 

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