Southern California Pay Raises Hit 5-Year Low

Wage growth slows to 3.2% annually as labor demand shrinks and inflation outpaces pay hikes

Published on Feb. 21, 2026

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According to the latest Employment Cost Index data, wages in Southern California rose at a 3.2% annual rate at the end of 2025, the lowest increase since 2020's third quarter. This marks a sharp slowdown from the region's 4.8% average annual pay growth over the past six years, which had outpaced both national and Bay Area wage gains. Experts attribute the compressed compensation to shrinking labor demand, as Southern California employers trimmed 9,000 jobs last year compared to an average of 97,000 new jobs annually over the previous decade.

Why it matters

The slowdown in Southern California wage growth reflects broader economic trends, including declining consumer confidence and the end of the generous pay hikes seen in the years following the Great Recession. While local wage growth still outpaces inflation, the cooling labor market is squeezing household budgets and contributing to a grumpier financial outlook among residents.

The details

The Employment Cost Index for private-industry workers in the five-county Southern California region (Los Angeles, Orange, Riverside, San Bernardino, and Ventura) showed a 3.2% annual wage increase in Q4 2025, ranking 8th among the 15 major U.S. job markets tracked. This was below the national average of 3.3% and marked only the third time since 2000 that local raises have not exceeded those given to U.S. workers overall. The 3.2% increase was the smallest since a 3.1% hike in 2020's third quarter, and a sharp slowdown from the region's 4.8% average annual pay growth over the past six years - the highest among the 15 U.S. regions tracked.

  • The 3.2% annual wage growth was recorded in Q4 2025.
  • Southern California employers trimmed 9,000 jobs in 2025, compared to an average of 97,000 new jobs annually over the previous 10 years.
  • California consumer confidence dropped to a five-year low to start 2026.

The players

Jonathan Lansner

The business columnist for the Southern California News Group who authored the original article.

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What they’re saying

“Let's also not forget the days after the Great Recession, when bosses had the upper hand in paycheck growth.”

— Jonathan Lansner, Business Columnist (ocregister.com)

The takeaway

The slowdown in Southern California wage growth, from a robust 4.8% annual pace to just 3.2%, reflects broader economic headwinds including shrinking labor demand, declining consumer confidence, and inflation outpacing pay hikes. This cooling of the labor market is squeezing household budgets and contributing to a grumpier financial outlook among residents in the region.