California emerged as the primary engine of U.S. productivity growth in 2025, according to new data from the U.S. Bureau of Labor Statistics.
The agency's "Productivity by State – 2025" report revealed that productivity among California workers in privately owned, nonfarm businesses increased by 4.2% last year. While this placed the state third nationally—behind the District of Columbia (5.2%) and Arizona (4.4%)—California's sheer economic size gave it the most substantial impact on national productivity.
Why California's Gains Matter Most
Accounting for approximately 14% of national output, California's influence on the broader U.S. economy is disproportionate to its share of national output. The state's 4.2% productivity increase contributed nearly one-third of the nation's overall 1.8% productivity gain in 2025.
Notably, these productivity gains occurred despite the departure of several major corporations from California in recent years, including Charles Schwab, Chevron, Oracle, SpaceX, and Tesla.
California's Workforce Profile
According to the California Employment Development Department, the state employed approximately 18 million nonfarm workers at the end of 2025. Of these, roughly 16 million worked in service sectors—including retail, health care, transportation, food services, and leisure and hospitality—while just over 2 million were employed in construction or manufacturing.
Working Smarter, Not Harder
The productivity metrics are calculated based on each state's share of total national output rather than hours worked. California workers appear to be increasing efficiency while reducing their hours. In 2025, total hours worked in the state fell to 27,884 million—the lowest level since the pandemic.
Long-Term Trends
The May 28 report also analyzed long-term productivity trends from 2007 to 2025 and from 2019 to 2025. California ranked third for labor productivity growth from 2007-2025, trailing only Washington and North Dakota.
However, due to its massive population and economic output, California's contribution to national labor productivity was double that of Texas or New York, the next most influential states.
How Productivity Is Measured
The Bureau of Labor Statistics' Office of Productivity and Technology tracks productivity across six major U.S. economic sectors: business, nonfarm business, nonfinancial corporate business, total manufacturing, durable goods manufacturing, and nondurable goods manufacturing.
By comparing productivity statistics to hours worked, the bureau determines how efficiently each state and sector converts labor into goods and services.