California is home to nearly 40 million people, providing the state with one of the most diverse populations in the world, often comprising the single largest concentration of nationals outside their native country. In 2019, this diverse group of business owners and workers produced $3.1 trillion in goods and services; $174 billion of which were exported to over 220 countries around the world.
California’s economy ranked fifth largest in the world in 2018 – only the national economies of the United States, China, Japan, and Germany being larger. Historically, a number of factors have contributed to California's significant position within the global marketplace, including its strategic west coast location, the size of its consumer base, the strength of its dominant industry sectors, its economically diverse regional economies, its skilled workforce, and its culture of innovation and entrepreneurship, particularly in the area of technology.
Many policy makers and economists describe California as having not a single economy, but having a highly integrated network of a dozen or so regional economies. While biotech has a comparative advantage in some regions, information technology drives growth in others. This economic diversity is one of the reasons California was able to move out of the Great Recession so aggressively. California ranked number two by Business Insider for fastest growing economies in the nation in August 2014, as well as having the fourth best overall economy in March 2015. The following year, Bloomberg, a financial news service, reported that without California, the US. economic growth rate would have been flat in 2016.
One of the unique qualities of California's economy is its multiple dominant industry sectors. The state's three largest industry sectors in terms of GDP – finance and insurance; trade, transportation, and utilities; and professional and business services – also provide a foundation to other industry sectors, including manufacturing and information. Each of these top performing industry sectors are also distinguished as being a tradable industry sector, meaning that it is a sector whose output in terms of goods and services is traded internationally or could be traded internationally given a plausible variation in relative prices.
In 2019 (most recent data), California's largest industry sectors were: Finance, Insurance, Real Estate, Rental, and Leasing (22.1% of state GDP); Trade, Transportation, and Utilities (14.5%); Professional and Business Services (13.4%); Manufacturing (10.4%); Information (9.6%); Tourism and Arts (4.5%); and Construction (3.8%). Return to the main hearing webpage
Chart 1 – GDP of California Industry Sectors 2019 (millions)
Due to its economic impact exceeding its proportional share of the US population, California’s economy has been described as “hitting above its weight.” As an example, while California’s population comprises 12% of the US. population, the state contributed 16% of total job growth between 2012 and 2017.
California's largest industry sector, based on employment, is the trade, transportation, and utilities sector, employing 3.0 million people and representing 16.5% of all California jobs. Jobs in this sector also support employment in other industry sectors including manufacturing (7.1% down from 8.1% of state employment in 2017), professional services (14.7%), and financial activities (4.8%).
Chart 2 – California Employment by Industry Sector 2019
Trade, Transportation, and Utilities
3,074,144
16.53%
Educational and Health Services
2,871,763
15.44%
Government
2,837,610
15.25%
Art, Entertainment, Accommodation & Food Services
2,047,593
11.01%
Professional, Scientific, Technology, & Business Services
2,740,672
14.73%
Manufacturing
1,323,833
7.12%
Other Services
909,889
4.89%
Construction
906,056
4.87%
Finance, Insurance & Real Estate
897,226
4.83%
Information
551,184
2.96%
Ag, Foresting, & Fishing
418,418
2.25%
Mining & Oil and Gas Extraction
20,261
0.11%
Source: US Bureau of Economic Analysis
Manufacturing is considered the "gold standard" for jobs because of the higher wages paid to workers, the inclusion of small businesses within its extended supply chains, and the high multiplier effect on their local communities and across the state. The Milken Institute estimates that for every job created in manufacturing, 2.5 jobs are created in other sectors. In some industry subsectors, such as electronic computer manufacturing, the multiplier effect is 16 to 1. The hearing background report includes a section, "Investing in Manufacturing for an Inclusive Recovery", additional information on the important role of manufacturing in the California economy.
