Santa Cruz County’s employment growth lags far behind state, neighboring counties, as soaring housing costs drive population drop

Santa Cruz County’s employment rate is increasing at a far slower rate than the state average and that of neighboring Monterey County, likely due to a higher rate of population decline from housing affordability pressures, according to a report released Monday. 

The report, the 2025 State of the Workforce, lays out employment trends and challenges, demographic data and recommendations for improving the economic outlook. It was produced by the Santa Cruz County Workforce Development Board and research firm BW Research Partnership.

The State of the Workforce report found that between 2021 and 2024, employment in Santa Cruz County grew by 0.4%, behind 4.2% for the state average, 4.7% for Monterey County and 5.8% for the country. This lower employment growth, the report states, is likely due in part to Santa Cruz County’s 1.1% population drop in that same period. By comparison, Monterey County’s population grew by 0.2%, and the state recorded a decline of 0.5%. Nationally, the U.S. population grew by 2.3% during those three years.

One of the report’s contributors, Carmen Herrera-Mansir, executive director of El Pájaro Community Development Corporation (El Pájaro CDC), said improving housing affordability and supporting entrepreneurship are some of the best ways to have an impact on employment locally. El Pájaro CDC, located in Watsonville since 1979, provides business coaching, loan application assistance and a variety of programs to promote entrepreneurship. 

“I think the elephant in the room and in every conversation right now is the whole thing with housing,” she said. “It doesn’t matter what other solutions are offered or developed if we don’t also do something about the housing crisis.” 

The workforce report was released days after Santa Cruz County was named the most expensive rental market in the country for the third consecutive year. 

Still, the report also details some positive signs for the state of the county’s workforce, including that the health care sector has added 1,600 jobs since 2021, that 44% of residents hold a bachelor’s degree or higher (which is 8 percentage points above the state average) and that the number of residents who work locally rather than seeking working in neighboring counties is rising. 

Andy Stone, Santa Cruz County Workforce Development Board director, said while those are data points to celebrate, there’s still work to do to improve workforce conditions and to increase wages, particularly for people struggling in Santa Cruz County’s housing market. 

“Housing costs are squeezing families,” he said. “The median home prices have risen faster than income, so only about 1 in 5 households can afford a typical starter home today.”

Since 2020, median household income increased 21% in the county but home prices have gone up by 26%, the report states. In that time frame, the county’s housing affordability index score dropped 10 points, down to 21% compared to the state’s at 29%. A housing affordability index measures the percentage of households that can afford to purchase an entry-level home.

The report says that 57% of local jobs in the county are in the lowest wage tier, for an average of $23.41 per hour. Tier 3 is the lowest wage tier, representing low-skill and low-wage jobs, while Tier 2 and Tier 1 are the middle-skill and high-skill wage tiers, respectively. 

“The intersection between job quality and cost of living is a key factor driving the county’s population decline as residents relocate to more affordable regions,” according to the report. 

In Santa Cruz County as of 2024, there were 113,200 available jobs for a local workforce of about 124,900 people – which includes people 16 and older who are currently employed. That leaves an extra 11,700 residents to look outside the county for work. 

The industries employing the most Santa Cruz residents include health care with 17.6%, tourism, hospitality and recreation with 16.4%, education and knowledge creation with 15% and retail at 11.3%

Defense, aerospace and transportation manufacturing recorded the biggest increase in employment, adding 768 jobs between 2021 and 2024, with Joby Aviation contributing a large amount of that growth. The defense industry is also the highest-paying industry locally, with an average wage of $174,122, while tourism offers the lowest average of $31,794. 

The health care industry falls within the Tier 2 wage classification (middle-skill) offering average annual wages of $75,299. 

Four ZIP codes in Santa Cruz County, primarily in the Watsonville area, face the greatest barriers to entering the workforce and show economic distress, based on 2023 data. Economic distress is characterized by high unemployment, low median earnings and low educational attainment relative to county and statewide averages. 

According to the report, in the distressed zones in the Watsonville area, 21% of the population has less than a high school diploma and about 1 in 5 residents are 19 to 24. People with less than a high school diploma face greater barriers to well-paying jobs, and large populations of people under 25 typically means a higher number of people “in early-career, lower-wage jobs or not yet in the workforce, further driving economic instability,” according to the report. 

In comparison to Watsonville, the unemployment rates as of December 2024 for the cities of Capitola, Santa Cruz and Scotts Valley further highlight the challenges the South County area faces. North County cities had unemployment rates between 3.1% to 4.3% while Watsonville’s was about 13.6% – largely due to the seasonal jobs in the agricultural industry – leading to an average of 6.3% for the county in 2024. 

“Since 2021, the county’s unemployment rate has consistently remained above state and national averages and has increased each year since 2022,” the report states. 

The report says that to improve workforce conditions, the county must work to continue investing in entry-level training, matching training in educational programs with the needs of industries and supporting entrepreneurship. 

Stone and Herrera-Mansir both agree that the county’s agencies and organizations are focused on these efforts. 

“The thing that we can improve is to start having some of these conversations together, rather than in our silos,” said Stone. “To make sure that we’re helping people prepare for the jobs that are going to be there in the future, we need employers, we need education, we need community-based partners at the table to come up with the best solutions together.”

Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.