200,000 California-based jobs are missing because of remote work, study says
California could be home to 200,000 more jobs if the COVID-19 pandemic had not ushered in a phase of remote work, according to an analysis of labor market data by the nonpartisan Legislative Analysts Office.
Prior to the pandemic, California’s job growth in several sectors in which employees often work remotely outpaced job growth in the rest of the country, the report authors said. But when the spread of COVID-19 pushed public and private employees to work from home, that trend reversed.
Since 2019, employment in jobs that have high rates of remote work, such as those in the technology and finance sectors, grew by 16% in the rest of the U.S., while employment in those sectors only grew by 7% in California.
“From 2019 to 2024, if California’s employment in heavily remote job groups had grown at the nationwide rate, the state would have had 200,000 more jobs in 2024 than it actually had,” the LAO report stated.
LAO analyst Seth Kerstein, who is one of the authors of the report, emphasized that the missing jobs number is an estimate, not a certainty. In order for California to have maintained the same level of job growth compared to the rest of the country, “there’s a lot that would need to happen economically,” he said.
But the “job gap” estimate provides a window into just how significant remote work’s impact has been on California’s labor market, said his coauthor, LAO analyst Chas Alamo.
Alamo and Kerstein said in an interview that a number of economic forces could be responsible for this trend. Wages are higher in California, but so is the cost of living.
The increased prevalence of remote work since the pandemic means some California workers can move to cheaper places to live without losing their jobs. Also, residents of other states now have more options to work remotely for Golden State employers without having to pay California prices on housing and other expenses.
The findings “weigh heavily on this ongoing discussion about affordability,” Alamo said. “It adds urgency to those conversations.”
The report addressed several other issues related to remote work, including to what extent workers have returned to offices since the pandemic and how telework has influenced migration of employees to and from California. Wednesday’s report did not delve into the contentious debate between California state employees and Gov. Gavin Newsom over his administration’s return-to-office directive set to go into effect in less than two months.
Return-to-office not widespread
Less than 5% of employees across the U.S. worked primarily from home prior to the COVID-19 pandemic, which subsequently caused a major uptick in remote work.
After 2021, the share of employees working from home began to decline as some employers began calling workers back to offices. In the two years after 2021, California’s share of workers who mainly worked from home dropped from 21% to 13%.
While there have been reports in recent years that large employers are ending workers’ ability to work from home, the LAO’s review of federal census and labor data suggests that there has not been a widespread return-to-office movement in the last three years. Since 2023, the level of employees who work from home full-time — roughly one in 10 employees — has stayed relatively consistent.
To further support the claim that the return-to-office push has not been widespread, Alamo and Kerstein also looked at the percentage of hours employees in California worked in-person compared to remotely since late 2022. Based on federal census data, the percentage of employee hours worked remotely has held steady around 15% since 2023.
Migration shifts
Prior to the pandemic, more employees who worked in “heavily remote jobs” were moving to California than leaving the state. The analysts defined “heavily remote jobs” as positions in four sectors: sales and marketing; finance and accounting; technology, and business and government operations.
Around 2019, the migration trend reversed and since then more remote workers have been leaving California, rather than moving to the state.
For example, 43,000 workers in sectors that have high rates of remote work moved to California from other states in 2021, but 80,000 left. The net outflow of 37,000 employees in that year is higher compared to more recent years, but it has remained substantial, the report said.
Migration accounts for a significant portion of the missing jobs the report estimated.
“If workers in heavily remote job groups had continued to move out of the state at the same rate as before the pandemic, the state would have lost fewer people and had around 100,000 more of these workers in 2024,” the analysts wrote.
Should California change how remote work is taxed?
Alamo and Kerstein raised several questions for policymakers in light of the report’s findings, one of which is whether California should change how the state taxes remote workers’ income.
The analysts note that California’s state income taxes are based on where employees are physically located. That means the state is missing out on revenue from workers who live outside the state but work for California companies.
Other states, such as New York, have alternative policies that collect taxes on wages paid by employers based in New York, regardless of where employees live.
California could consider adopting similar tax policies to increase the state’s income tax base, the report said, but it could come with consequences such as companies opting to leave the state.
