Napa, CA – California’s economic trajectory, once marked by rapid growth and global influence, is facing increasing headwinds, according to a new report from the American Legislative Exchange Council (ALEC). While the state has consistently ranked in the top third of U.S. states for economic growth over the past decade, its future prospects are becoming less promising, the report suggests.
ALEC’s “Rich States, Poor States” Economic Competitiveness Index assesses both recent economic performance and the outlook for future growth. The latest findings highlight the challenges facing California despite its numerous advantages, such as its natural beauty, world-class institutions, and strong global economic presence.
Despite ranking 12th in GDP growth and 13th in employment growth between 2013 and 2023, California has experienced significant outmigration. The state ranked dead last for domestic outmigration, with approximately two million residents leaving in the past decade. This outflow of people suggests an unsettling trend, as the state’s high cost of living, housing shortages, and rising taxes seem to be pushing many away.
Recent employment data paints a troubling picture as well. The California Center for Jobs and the Economy reported a loss of 171,000 private-sector jobs, while the state saw an increase of 181,100 government and government-supported positions. A closer examination reveals that a substantial portion of the new government jobs were related to caregiving roles, where state funds were used to pay household members or others minimum wage for part-time care services. This shift towards government-funded positions raises concerns about the state’s reliance on public sector employment rather than private sector growth.
Looking ahead, ALEC’s report casts a shadow on the state’s future economic outlook, particularly in the areas of tax policies, labor laws, and government debt. The state ranks poorly across multiple categories, placing in the bottom 10 for tax issues. While California fares slightly better on sales and property tax burdens, its rankings for wage and labor laws are among the worst in the nation. The state’s business environment, increasingly influenced by stringent regulations and high taxes, is being criticized for stifling growth and innovation.
California’s ranking on ALEC’s economic outlook index has seen little improvement in recent years. From a rank of 47th in 2018, the state dropped slightly to 48th in 2022 before rising to 45th in 2023. The state’s economic policy choices, particularly regarding taxes and labor regulations, continue to contribute to its struggle to maintain its previous level of competitiveness.
Despite these challenges, California remains a significant player in the global economy, home to Silicon Valley, Hollywood, and a number of other high-profile industries. However, as the state grapples with its economic policies, its ability to retain and attract residents and businesses could be crucial in determining its long-term economic vitality. As ALEC’s report suggests, the Golden State may be facing a tough road ahead if current trends continue.