California workers are third-most productive in US

California's productivity growth averaged 2.2% over 17 years. Nationally, just 1.3% since 2007.

”Survey says” looks at various rankings and scorecards judging geographic locations while noting these grades are best seen as a mix of artful interpretation and data.

Buzz: Just two states have more productive workers than California.

Source: My trusty spreadsheet looked at “labor productivity” – a measurement of state-level business efficiency – for a window into how this secret sauce works, dating to 2007. To create this metric, the US Bureau of Labor Statistics compares the value of goods and services produced by private businesses (outside of agriculture) to how much labor is involved.

Topline

Why do bosses put up with California’s challenging business climate?

Well, California workers averaged 2.2% productivity growth over 17 years compared to a 1.3% expansion rate nationally. Only Washington at 2.6% and North Dakota at 2.3% grew faster than California on this yardstick of what bosses get for the work they pay for.

Oh, California’s economic arch-rivals – Texas and Florida – tied for 19th best at 1.2%.

Even the pandemic economic gyrations didn’t slow California productivity, which averaged 2.4% growth during the past four years – No. 6 nationally. The state saw 2.1% annual gains in the previous 13 years, third-best among the states.

The catch

It’s hard to ignore California’s lofty wages.

This productivity study shows hourly compensation for workers statewide grew at the fifth-fastest pace among the states since 2007 – that’s 3.7% annually vs. 3.2% nationally.

Those kinds of fat raises demand that a successful California business must create something special. And between 2007 and 2023, at least, that goal was accomplished.

Note that California paychecks, when compared with the value of what’s produced, grew only 1.4% annually over 17 years. That’s the second-lowest “labor cost per unit” in the nation and well below the 2.1% national norm.

Bottom line

California bosses must execute with extreme efficiency to stay ahead of the state’s grandiose costs. It’s not simple.

As the Bureau of Labor Statistics notes, the productivity challenge reflects “the joint effects of many influences, including: changes in technology; capital investment; utilization of capacity, energy and materials; the use of purchased services inputs, including contract employment services; the organization of production; the characteristics and effort of the workforce; and managerial skill.”

California’s technology industry – constantly creating efficiencies for itself and the globe – is a perfect success story. Or there’s the many California businesses crafting high-end products and services, where the expensive price tags hopefully cover the costly production.

Yet, these productivity requirements mean California is not the perfect state for every business. And this executive juggling act translates to a slim margin for error for California bosses should productivity wane.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com