US Job Market Shows Stark Divide: Private Sector Struggles While Public Sector Expands


Interactive Graphic of Recent California Employment Trends

US Job Market Shows Stark Divide: Private Sector Struggles While Public Sector Expands

The US job market, particularly in California, is showing pronounced contrasts between private and public sector employment as we move through 2025, with significant policy changes at both federal and state levels affecting hiring trends.

Recent Employment Data Reveals Concerning Trends

Total nonfarm payroll employment rose by 151,000 in February 2025, similar to the average monthly gain of 168,000 over the prior 12 months, according to the latest Bureau of Labor Statistics report. The national unemployment rate remained relatively steady at 4.1 percent. Health care, financial activities, transportation and warehousing, and social assistance showed job growth, while federal government employment declined.

California's economic struggles appear to be intensifying, with the state's unemployment rate rising to 5.4% in February 2025, up from 5.1% a year earlier. This stands significantly higher than the national average and places California among states with unemployment rates "significantly different from that of the U.S."

California's Public vs. Private Sector Divide

The contrast between public and private sector employment in California has become increasingly stark. According to the Legislative Analyst's Office, "private-sector industries in California have lost a total of 340,000 jobs since reaching their peak a couple of years ago" with tech and finance industries leading those losses. This data suggests a reversal from the state government's previous claims that private sector jobs were the "backbone of California's job growth."

The most recent Business Employment Dynamics report from the BLS shows that from March 2024 to June 2024, gross job losses from closing and contracting private-sector establishments in California were 1,058,196, while gross job gains were only 947,453, yielding a net employment loss of 110,743 jobs in the private sector during the second quarter of 2024.

Meanwhile, government and government-supported sectors have shown growth. Recent data indicates that California experienced a loss of 173,000 private sector jobs since January 2023, which was offset by a gain of 181,100 government and government-supported roles. The health care and social services industries, which are tightly linked to government spending, have been major contributors to this public-sector growth.

Impact of Trump Administration Policies

President Trump's hiring freeze for federal workers, implemented on January 20, 2025, is already having ripple effects throughout the economy. The presidential memorandum states that "no Federal civilian position that is vacant at noon on January 20, 2025, may be filled, and no new position may be created except as otherwise provided for in this memorandum or other applicable law."

While there are exemptions for positions related to national security, immigration enforcement, and public safety, the Internal Revenue Service faces a particularly extended freeze. According to reports from Kiplinger, the administration is moving forward with layoffs "expected to primarily target up to 16,000 probationary employees" at the IRS.

The hiring freeze is set to last 90 days for most agencies, after which they must submit plans to reduce their workforce through "efficiency improvements and attrition." Government accountability experts have raised concerns about potential impacts, noting that previous hiring freezes "were not effective and exacerbate existing workforce problems" according to the Government Accountability Office.

California's Budget Crisis

California's budget situation is adding another layer of pressure to the employment landscape. The Legislative Analyst's Office reports that while the 2025-26 budget appears "roughly balanced" with only a small deficit of $2 billion, the state faces "double-digit operating deficits in the years to come."

This fiscal pressure could force California to follow the federal government's lead in cutting public sector positions, potentially reversing the current trend of public sector job growth. The LAO's assessment indicates that "spending growth in this year's outlook is high" at 5.8 percent compared to an average of 3.5 percent in other recent outlooks, while revenue growth is just above 4 percent.

Shifting Economic Landscape

The Pew Charitable Trusts reports that public sector wage growth has been outpacing that of the private sector since mid-2023—"the first time outside of a recession that this has happened in more than 30 years." This reversal comes despite ongoing fiscal challenges facing state governments.

Economic experts are highlighting concerns about these employment trends. The Public Policy Institute of California notes that while some sectors like healthcare have helped support the California job market, growing by almost 16% since the pandemic, other key industries like tech and entertainment are contracting after pandemic-era growth.

Looking Ahead

The divergence between private and public sector employment raises questions about the sustainability of current economic models, especially as both federal and state governments face increasing budget pressures. With California projecting significant deficits in coming years and the federal government actively reducing its workforce, the employment landscape is likely to undergo further significant changes through 2025 and beyond.

As these policies continue to unfold, businesses, workers, and government agencies will need to adapt to what appears to be a fundamental restructuring of the employment relationship between public and private sectors in both California and across the nation.

Sources and Citations

  1. Bureau of Labor Statistics. (2025, March 7). "The Employment Situation — February 2025." Retrieved from https://www.bls.gov/news.release/empsit.nr0.htm
  2. Bureau of Labor Statistics. (2025). "State Employment and Unemployment Summary - 2025 M02 Results." Retrieved from https://www.bls.gov/news.release/laus.nr0.htm
  3. CalMatters. (2024, July 9). "California's 'weak' job market propped up by public money as private sector sheds jobs." Retrieved from https://calmatters.org/economy/2024/07/california-labor-market-jobs/
  4. Office of the Governor of California. (2024, December 11). "ICYMI: Private sector jobs are backbone of California's job growth." Retrieved from https://www.gov.ca.gov/2024/12/11/icymi-private-sector-jobs-are-backbone-of-californias-job-growth/
  5. Bureau of Labor Statistics. (2025). "Business Employment Dynamics in California — Second Quarter 2024." Retrieved from https://www.bls.gov/regions/west/news-release/businessemploymentdynamics_california.htm
  6. The National Pulse. (2025, March 31). "CA Drops 173K Private Jobs, Adds 181,000 Govt Workers." Retrieved from https://thenationalpulse.com/2025/03/31/california-shed-173k-private-jobs-over-last-two-years/
  7. The White House. (2025, January 20). "Hiring Freeze." Retrieved from https://www.whitehouse.gov/presidential-actions/2025/01/hiring-freeze/
  8. Kiplinger. (2025, February 15). "What Trump's Hiring Freeze and Firings Mean for the IRS, Taxpayers in 2025." Retrieved from https://www.kiplinger.com/taxes/what-trump-federal-hiring-freeze-means-for-your-tax-return
  9. Government Executive. (2025, January 30). "Trump will require agency plans to slash workforce as he lays out hiring freeze details." Retrieved from https://www.govexec.com/workforce/2025/01/trump-will-require-agency-plans-slash-workforce-he-lays-out-hiring-freeze-details/402356/
  10. Government Executive. (2025, January 30). "Trump to again freeze federal hiring." Retrieved from https://www.govexec.com/workforce/2025/01/trump-again-freeze-federal-hiring/402335/
  11. Legislative Analyst's Office. (2025). "The 2025-26 Budget: California's Fiscal Outlook." Retrieved from https://lao.ca.gov/Publications/Report/4939
  12. The Pew Charitable Trusts. (2025, March 10). "Slowdown in Private Sector Jobs a Boon for State and Local Hiring." Retrieved from https://www.pewtrusts.org/en/research-and-analysis/articles/2025/03/10/slowdown-in-private-sector-jobs-a-boon-for-state-and-local-hiring
  13. Public Policy Institute of California. (2025, February 3). "Preparing California's Economy for 2025 and Beyond." Retrieved from https://www.ppic.org/blog/preparing-californias-economy-for-2025-and-beyond/
  14. San Diego Union-Tribune. (2025, April 3). "California job creation dropped 81% after pandemic." Retrieved from https://www.sandiegouniontribune.com

California job creation dropped 81% after pandemic – San Diego Union-Tribune


How California Funds Public Sector Growth Despite Private Sector Decline

While California's private sector has shed jobs since 2022, the state's public and publicly-supported workforce continues to expand. This seemingly contradictory trend raises questions about fiscal sustainability and how the state is funding this growth.

Three Key Funding Sources

1. Federal Healthcare Dollars

The largest driver of "public sector" job growth isn't traditional government employment but healthcare positions funded through federal programs. Between September 2022 and April 2024, while the private sector lost 154,000 jobs, the public and publicly-supported sector gained 361,000 jobs, with healthcare representing a substantial portion (The Center Square, 2025).

California's 2024-25 spending plan allocates $161 billion for Medi-Cal (California's Medicaid program), with federal funds covering more than half of this amount (LAO, 2024). This massive federal funding stream supports tens of thousands of healthcare jobs that, while technically in private organizations, are classified as "publicly supported" because their funding ultimately comes from government sources.

2. Tax Revenue Concentration

California's progressive tax structure heavily relies on high-income earners, particularly for capital gains revenue. The top 1% of California taxpayers contribute nearly half of all personal income taxes (CalMatters, 2024).

Just 8,235 households earning over $5 million annually pay approximately one-fifth of all income taxes in the state (Hoover Institution, 2023). This concentration creates both windfalls during stock market booms and severe shortfalls during downturns.

3. Reserve Drawdowns & Temporary Measures

To maintain spending levels during budget challenges, California has implemented several short-term solutions:

Sustainability Challenges

This funding approach faces significant long-term challenges:

Budget Volatility

California's reliance on capital gains taxes creates extreme revenue volatility. The Legislative Analyst's Office found that personal income tax has a volatility measure of 12.2 (compared to 2.3 for personal income), with capital gains being almost three times more volatile than the overall system (LAO, 2017).

This volatility means a 20% stock market decline could trigger a 14% decrease in income tax revenues (Hoover Institution, 2023).

Federal Funding Uncertainty

Federal funds make up over one-third of California's state budget ($170 billion), with most supporting Medi-Cal. Proposed federal cuts could reduce annual funding by $10-$20 billion and cost the state an estimated 122,000 healthcare jobs (California Budget & Policy Center, 2025).

Structural Budget Imbalance

Even with current revenue levels, California faces structural deficits because spending growth (5.8%) continues to outpace revenue growth (approximately 4%) (LAO, 2025).

The Bottom Line

California's ability to maintain public sector growth while private employment declines is primarily built on federal healthcare funding, concentrated tax revenue from high earners, and temporary budget measures. However, this approach faces significant sustainability challenges that may force difficult fiscal choices in coming years.

Sources

  1. The Center Square. (2025). "CA gained 76% fewer jobs in 2024 than estimated, grew just 0.3%." https://www.thecentersquare.com/california/article_202133ec-35bf-4bd3-8979-2af0250cb5c5.html
  2. Legislative Analyst's Office. (2024). "The 2024-25 California Spending Plan: Health." https://lao.ca.gov/Publications/Report/4930
  3. CalMatters. (2024). "2024 California budget whiplash caused by volatile taxes." https://calmatters.org/explainers/california-budget-whiplash/
  4. Hoover Institution. (2023). "The California State Budget And Revenue Volatility: Fiscal Health In A Deficit Context." https://www.hoover.org/research/california-state-budget-and-revenue-volatility-fiscal-health-deficit-context
  5. California Budget & Policy Center. (2025). "Understanding the Governor's 2025-26 State Budget Proposal." https://calbudgetcenter.org/resources/understanding-the-governors-2025-26-state-budget-proposal/
  6. California Budget & Policy Center. (2024). "First Look: Understanding the Governor's 2024-25 May Revision." https://calbudgetcenter.org/resources/first-look-understanding-the-governors-2024-25-may-revision/
  7. Legislative Analyst's Office. (2017). "Volatility of California's Personal Income Tax Structure." https://lao.ca.gov/publications/report/3703
  8. California Health Care Foundation. (2025). "Defending Medi-Cal in 2025." https://www.chcf.org/publication/defending-medi-cal-2025/
  9. Legislative Analyst's Office. (2025). "The 2025-26 Budget: California's Fiscal Outlook." https://lao.ca.gov/Publications/Report/4939

 

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