California's Government Job Growth: A Closer Look

Ultimately there is little to cheer for about the current state of the California labor market

Earlier this month, Los Angeles Times columnist Michael Hiltzik penned an article refuting a claim from a now retracted report by one of our colleagues, Hoover Institution Senior Fellow Lee Ohanian, on California’s recent job growth trends. Ohanian mistakenly claimed that 96.5 percent of all job growth in California emerged from the government sector. Kudos to Hiltzik, who rightly notes that Ohanian used two disanalogous datasets from the Bureau of Labor Statistics (BLS) in his calculations: the BLS “household survey” and the BLS “establishment survey.”

When correcting for this error by using only the BLS’s establishment data, Hiltzik finds that the share of job growth in California attributable to the government during this period was much lower, coming in at 22 percent of all new jobs. Ohanian has acknowledged the error. The BLS household survey samples approximately 60,000 households on how many people within each household are employed, while the establishment survey asks questions at around 630,000 worksites on how many people work at each worksite. Ohanian had mixed the two datasets, subtracting the number of government jobs reported in the establishment survey from the non-farm employment figure in the household survey. This figurative subtraction of apples from oranges inflated the proportion of new jobs coming from the government sector.

But using the right number, 22 percent of job growth coming from government doesn’t exactly sound like the hallmark of a resoundingly successful private sector labor market. To shed more light on this, we examine where the relative performance of California’s public and private sector labor markets sits relative to other states.

As a first step, we conduct apples-to-apples analysis using state-level employment data from the BLS’s Current Employment Statistics (CES) survey, the formal name for the establishment survey, across states. We collect seasonally adjusted “total non-farm” and “government” employment levels. The government employment variable captures the total number of workers located in the state who are employed by federal, state, and local governments. We then calculate the change in employment for both sectors between January 2022 and June 2024, and then divide the change in government jobs by change in total non-farm jobs to determine what share came from the public sector. The calculations yield the following results for each state (Figure 1).

Our findings show that California’s 22.2% actually reflects quite poor performance relative to other states, ranking 7th highest in the proportion of job growth coming from the public sector.¹ Maryland had the highest proportion of job growth coming from the public sector at a whopping 50.5%, and Pennsylvania had the lowest at a mere 5.02%.

The above calculations examine state-by-state differences in the proportion of job growth attributable to government jobs. But what about just the simple difference between the growth rates of the public and private sectors? States with larger existing government workforces but modest hiring might appear to perform badly on the proportion measure, whereas a simple difference in growth rates would credit them more for putting the brakes on government growth.

In 22 states, government job growth was faster than private sector job growth. We see that California again shows lackluster performance relative to other states, coming in 8th on this list, with the public sector growing by 2.4 percentage points more than the private sector (Table 1).

That said, the CES has its own data limitations, specifically that it relies on a survey sample of worksites covering only around 27% of the universe of jobs. The BLS also provides a more comprehensive picture with its Quarterly Census of Employment and Wages (QCEW) dataset. The QCEW dataset covers all jobs that qualify for unemployment insurance under state and federal laws. These jobs account for 98 percent of U.S. wage and salaried employees across the vast majority of industries.

On the downside, the QCEW data is reported quarterly not monthly, and the data is not seasonally adjusted. Thus, for the purposes of this analysis and to avoid issues related to seasonality, we looked at the change in government jobs and all jobs between the periods of 2022:Q1 through 2024:Q1 and then calculated the change in government jobs as a proportion of all new jobs. We ultimately found that when using this dataset, California fared much, much worse relative to all other states. In fact, government jobs accounted for 48.3 percent of all new jobs, ranking California the worst performing state in the nation (Figure 3).

Similar to the results from the CES data, job growth numbers between the private and public sectors in California looked relatively poor. California’s public sector grew more than 2 percentage points more than its private sector, placing the state 13th worst relative to all other states on that measure. Consequently, government jobs comprised a greater share of all people employed. As a share, government jobs comprised 0.72 percentage points more by Q1:2024, which was the second largest increase in the country falling just slightly below Maryland’s 0.76 percentage point increase by 2024:Q1 (Figure 4).

All of these results suggest that California has a great deal of work to do to get on a better economic track. In his December 2nd correction of his report, Ohanian rightfully notes that the nonpartisan Legislative Analysts’ Office (LAO) in California has also commented on California’s relatively weak performance during this timeframe.

The LAO in July of this year studied California’s economic performance between 2022 and April of 2024, finding “broad weakness” within the non-government and non-publicly supported industries of the California economy. Comparing California to national trends, the LAO found that the information, finance, real estate and leasing, and finally professional services sectors all did much worse relative to national trends (Figure 5).

These results make sense considering recent research by the National Association of Realtors covered in the LA Times on the departure of California professionals. This seems to reflect a continuation of trends through 2020 that one of us found by analyzing California income tax data. Net outflows of high-earning people and taxable income spiked around the large increases in the personal income tax rates in 2013, the federal Tax Cut and Jobs Act (TCJA) in 2017 which repealed the state and local tax deduction, and the state’s COVID policies in 2020.

While Hiltzik may have won the battle of the day by pointing out a calculation error on part of our colleague Lee Ohanian, it appears California is on its way to losing the war, absent serious policy change on part of the state government. There is little to cheer for about the current state of the California labor market, and hopefully adjustments will be made to the state’s economic policies to stem the downward spiral.

1. The substantial difference between this ranking and the ranking calculated using the QCEW dataset was not a result of the difference in time period studied when determining both measures. As a precaution, we measured and ranked the share of job growth attributable to the public sector over the time period January 2022 - January 2024 using the CES. We ultimately found California’s ranking for this period was 11th, and the job share fell slightly below 22.2% at 21.65%.