The California Economy

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 is recovering so quickly from the economic downturn and loss of jobs related to the COVID-19 pandemic.  As an example, California has regained 2.2 million, or nearly 83.6%, of the 2.7 million jobs that were lost in March and April 2020 (based on January 2022 employment numbers).

The California recovery has, however, been very unequal with many areas of the state and industry sectors still in distress.  In many cases, COVID-19 served to increase income disparities with lower-wage workers and small businesses being most impacted by business closures, including workers and businesses owned by people of color, as well as women.  There is one estimate that over 19,000 businesses in California permanently closed their doors during the pandemic.

Fast Facts on the California Economy          

California Industry Sectors

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 2020 (most recent annual data), California's largest industry sectors were:  Finance, Insurance, Real Estate, Rental, and Leasing (19.0%% of state GDP); Trade, Transportation, and Utilities (14.5%); Professional and Business Services (14.2%); Manufacturing (11.8%); Information (10.5%); Education and Health Services (7.5%); and Construction (4.0%).  Tourism and Arts, which were heavily impacted by the COVID-19 pandemic, dropped from contributing 4.5% of GDP in 2019 to 3.3%.  Chart 1 provides additional data on 2020 GDP by industry sector.

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.

This is also one of the reasons that economic downturns typically impact California more significantly than the nation as a whole.  It is estimated that 2.7 million jobs were eliminated between March and April 2020, which resulted in a 1.6 million drop in jobs between the first and second quarters of 2020.  Lower-wage workers and small businesses were most impacted by business closures, including workers and businesses owned by people of color, as well as women.

Based on January 2022 data, California has regained 2.2 million, or nearly 83.6%, of the 2.7 million jobs that were lost in March and April 2020 due to the COVID-19 pandemic.

Chart 2 provides 2020 employment data for a comparison to the ranking of GDP by sector in Chart 1.  In 2020, 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%).  

The chart also includes the most current annualized employment data for 2021.  The 2021 GDP data will not be available until March 31, 2022.

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.  A March 2021 hearing background report includes a section "Investing in Manufacturing for an Inclusive Recovery," which provides additional information on the important role of manufacturing in the California economy.