The Hedge | Brutal Honesty Over Hype Since 2008
After a month of detailed analysis — from the $800 franchise tax to PAGA, from AB5 to CEQA, from the housing crisis to the talent absorption problem — it’s worth stepping back to look at what the aggregate data says about California’s business environment. Individual policy analyses are important, but the composite picture — what actually happens to California businesses over time compared to their counterparts in other states — is the ultimate test of whether the analysis holds up.
The Employment Data
California’s private sector employment growth has consistently trailed Texas, Florida, and the national average over the past decade, despite California’s larger absolute economic base. Texas added approximately 1.2 million private sector jobs between 2020 and 2024. California added approximately 900,000 — a lower absolute number despite having a substantially larger population and economy. The gap is even larger when adjusted for population: Texas grew private employment by roughly 9% over this period, California by roughly 5%. This is not a recession effect — the differential persisted through both expansion and contraction periods.
The Business Formation Data
Business formation rates — the rate at which new businesses are established — have been higher in Texas, Florida, and Nevada than in California consistently. The Census Bureau’s Business Formation Statistics track monthly new business applications, and California’s formation rate per capita has trailed the Sun Belt states that have been its primary competition for business formation. This suggests that entrepreneurs who have a genuine choice about where to start a business are, in aggregate, choosing other states over California at increasing rates.
The Migration Data
California’s net domestic outmigration — the difference between people who move to California from other states and people who leave California for other states — has been negative since approximately 2018 and accelerated significantly during the pandemic. The people leaving California are disproportionately working-age adults with above-median incomes — the demographic most likely to start and grow businesses. The people arriving from other countries provide population stability but a different economic profile. The loss of entrepreneurially-oriented domestic migrants is a real cost to California’s future business formation pipeline.
The Resilience of California’s Economy
Despite all of this, California’s economy remains enormous, innovative, and productive. The venture capital ecosystem continues to fund world-changing companies. The technology industry continues to generate extraordinary wealth in the Bay Area and Los Angeles. The entertainment industry remains globally dominant in Hollywood. The agricultural sector remains the most productive in the United States. California’s GDP growth, while trailing Texas in rate, is still positive and substantial in absolute terms. The state is not failing. It is self-selecting — retaining and attracting the businesses and entrepreneurs for whom California’s specific advantages justify its costs, while losing the businesses and entrepreneurs for whom they don’t. The question for any specific entrepreneur is which group they’re in.
The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.
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