Many of us go for annual physicals and get the same advice year after year: Lose weight. Reduce stress. Eat healthier.
Old Dominion University just issued its annual checkup on the state of Virginia’s economy and its advice is familiar, although sounded with new alarms: Virginia has an unhealthy regional economic divide between the metro “haves” and the rural “have-nots.” Virginia continues to lose people to North Carolina. And it’s losing young adults in general.
I’ve written before about many of these demographic trends, but the 2023 State of the Commonwealth Report from the Dragas Center for Economic Analysis and Policy and the Strome College of Business at ODU packages them together in new ways — and adds some data I haven’t seen before. As a policy nerd, I’d highly encourage all our legislators to find time to read this report before they head to Richmond in early January because it seems a solid review of where Virginia stands economically.
Here’s my attempt to summarize some of the most pertinent findings in this 178-page report, which is chock full of charts and graphs.
‘The economic fate of the Commonwealth looks increasingly bifurcated’
Two years ago, this ODU report warned that “the Commonwealth is pulling apart, creating a challenge for current and future decision makers on how to spur development in those areas of the state that have been left behind.” This time the report says the same thing, just with different language. “For some areas of Virginia, the recovery from the economic shock associated with the COVID-19 pandemic has been robust, with evidence emerging of a new expansion in economic activity in 2023,” the report says. “For other areas of the Commonwealth, the recovery would be best characterized as anemic.” The report is generally optimistic about the economy, saying that inflation is ebbing. However, it says, “the open question remains: can we spur economic growth across the state?”
The economies in Southwest and Southside have shrunk
We’re familiar with the population losses in Southwest and Southside, and it stands to reason that the economies there have declined, too. However, I haven’t seen the figures compiled until now. The ODU report computes the gross domestic product for each of the nine regions of the GO Virginia economic development program. Only two of those regions — Region 1 in Southwest and Region 3 in Southside — have seen their GDP shrink from 2010 to 2021.
We often look at things in terms of population, such as election returns. However, this chart gives a sense of the economic weight that localities carry — or don’t. Notice that Northern Virginia now accounts for almost 43% of the state’s economy, while Southwest Virginia comprises just 2.4% and Southside only 2.2%. If you wonder why state officials might pay more attention to one of those more than the other, there’s your answer. The Roanoke Valley, New River Valley, Alleghany Highlands and Lynchburg area are all in Region 2, which has seen its GDP rise slightly — but its overall share of the state’s economy decline.
Here’s one way to think of things: Imagine you’re the governor. There are nine phones on your desk, each a hotline from one of the state’s GO Virginia regions. They all ring at once. Knowing the relative weight of the economy behind each one, which one would you answer first?
Southwest Virginia has the slowest job growth in the state. But it is growing, insead of shrinking
Again, this doesn’t come as a surprise, but it’s still useful, if disheartening, to see the numbers. On the other hand, there is job growth in Southwest Virginia from 2020-2022, unlike from 2010-2019 when the number of jobs was in the state’s western corner was shrinking. So that’s progress.
Richmond area has the fastest job growth but Hampton Roads is next to last
The fastest job growth in the state comes in GO Virginia Region 4, the Richmond area. Again, not surprising — that’s also where the fastest population growth has been, and job growth and population growth go hand in hand. What’s notable here is the slow job growth in Hampton Roads, the second-slowest in the state. Even Southside is seeing job growth at a slightly faster pace. It’s just one-tenth of a percent, but there it is. Sharp-eyed observers will notice something else in this chart: Virginia’s job growth is running slower than the nation. Our fastest-growing region, the Richmond area, matches the national average, but all the other parts of the state are running behind. We’ll come back to this.
Southside and Southwest have seen the state’s highest income growth
Here’s a pleasant surprise. From 2019 to 2021, the fastest income growth in Virginia has come in the two poorest parts of the state — Southside and Southwest, in that order. Both have posted double digit gains — 12.9% in Southside, 11.3% in Southwest.
Now, keep in mind how percentages work: It’s easier to get a big percentage increase when you start with a smaller base, so that’s part of what’s going on here. However, this also reflects how a tighter job market has driven up labor prices and the growth of relatively well-paying manufacturing jobs in those regions. You may recall that a Census Bureau report in September shows that the Martinsville-Henry County region had the fastest wage growth in the state. The ODU report helps put that in a more regional context. If this were a sports event, we’d say that the Martinsville-Henry County micropolitan area helped lead GO Virginia Region 3 to victory.
This represents an even bigger shift for Southwest Virginia. From 2010 to 2019, Southwest had the slowest income growth in the state. Now it’s in second place.
There are other ways to look at incomes, so let’s move on.
Among metros, Staunton posts highest income growth; Roanoke sees biggest decline
The stats above look at per capita income by GO Virginia regions, which cover the whole state. The ODU report also looked at median household income — and through the lens of the state’s 11 metro areas, which leaves out the Martinsville area I just cited, but does help zero in on regions more closely — allowing us, for instance, to distinguish between the Roanoke Valley, the New River Valley and Lynchburg, rather than lumping them all in together under GO Virginia Region 2.
This aspect of the report also factors in inflation. Nominal median household income counts the actual dollars. Real median household income takes inflation into account. Those stats paint two very different pictures. “From 2019 to 2022, nominal median household income in Virginia rose by approximately 12.3%, which might appear to be good news,” the report says. “However, over the same period, prices also rose, on average, by about 14.8%. From 2019 to 2022, real median household income in the Commonwealth fell by 2.2%.”
When we look at things regionally, we find that the Staunton metro area (Staunton, Waynesboro and Augusta County) saw the state’s biggest gains in real median household income from 2019 to 2022 — 11.3%. Only two other metro areas — Richmond and Blacksburg-Christiansburg — saw their real median household incomes rise. All the rest fell. The Roanoke metro fell the most — 7%. The effects of inflation have been unequally distributed. Why Staunton is so much better off than everyone else and the Roanoke metro, about an hour and a half south, is worse off is not addressed. As someone who drives that route rather frequently, I can’t explain it with my observations, either. For those not familiar with either region, the Staunton area certainly seems to be booming, with a lot of spillover growth from Charlottesville. However, as a resident of the Roanoke Valley, I don’t see the negative number that this report offers up.
Virginia lags behind North Carolina in economic growth
The report devotes multiple charts to pointing out all the ways that North Carolina is doing better economically than Virginia. All these measurements — population, size of the labor force, size of the economy — are connected and we could have a merry time arguing about which comes first, although the reality is they all move together.
North Carolina has seen faster population growth than Virginia:
North Carolina has also seen its labor pool grow faster than Virginia:
North Carolina has also seen its economy grow faster than Virginia:
Notice that North Carolina hasn’t always had a faster GDP growth rate than Virginia. We were leading until about 2014, when the Tar Heel state pulled ahead — and since then the economic gap has been widening. Why? I’ve not seen a definitive study, and this report doesn’t purport to be that, but Gov. Glenn Youngkin is fond of pointing out that the lines crossed when Virginia had a Democratic governor. He says the problem is that North Carolina has lower taxes than Virginia and has repeatedly cited that as a reason for Virginia to reduce its rates — he contends that would help Virginia attract more jobs. Expect another push for that when he presents his budget on Wednesday; also expect pushback from Democrats who see proposed cuts in the corporate tax rate as a giveaway to the rich.
We’ll have plenty of time later to debate that but here are some starting facts. Except for states that don’t have any corporate income tax, “North Carolina already has the lowest corporate income tax in the nation and that tax will be phased out entirely by 2030,” Forbes reports. The Tax Foundation says North Carolina’s top marginal corporate income tax rate is now 2.5%, while Virginia’s is 6%. Would a lower tax rate encourage more economic growth in Virginia? If lower taxes aren’t driving North Carolina’s superior economic growth, then what is? And what could Virginia do to drive stronger job growth?
Virginia is losing young adults
I wrote recently that a new batch of census stats shows that Virginia is losing parents with children. The ODU report chooses to look at the stats through a different lens — which isn’t wrong, just different, and just as enlightening. It focused on those ages 20-34 — young adults entering the workforce. It points to this worrisome trend: “Since the middle of the last decade, Virginia’s population of young adults has not kept pace with the United States.”
This chart shows that from 2010 to 2014 Virginia had a slightly higher share of its population in the 20-34 range than the nation did. Since 2014, though, Virginia has increasingly fallen behind — we now have fewer in the 20-34 range and the gap is growing. Why? This report doesn’t say but presumably they have found better economic opportunities somewhere else, which still begs the question: Why? And what can we do about it?
This report doesn’t answer that, either but it does pinpoint where these outflows of young adults are coming from. Are you ready?
Northern Virginia and Hampton Roads are the regions losing young adults, not rural areas
The previous observations deal with share of population, not actual raw counts of population. Overall, Virginia has more young adults now than it did previously; their share of the population is simply smaller. However, two parts of the state are seeing declines — and big declines — in the actual number of young adults, and they’re not the usual culprits of Southwest and Southside.
From 2010 to 2019, the only parts of the state losing young adults were Southwest and Southside. Over the past two years, there were still just two parts of the state that have seen decline in the raw number of people ages 20-34, they’re just different ones. They’re our two biggest metros: Hampton Roads and Northern Virginia. The former saw the biggest decline, an outflow of 3,560 young adults, while Northern Virginia saw a net loss of 1,478. If we go back one more year and look at 2019 to 2022, a computation not provided but one I did on my own, the losses are 8,304 from Hampton Roads and 2,930 from Northern Virginia — plus 198 from Southwest Virginia.
This data tracks with previous data we’ve seen on population outflows. That difference between the 2019-2022 data and the 2020-2022 data (Southwest Virginia is down in one, up in the other) also tracks with other data we’ve seen: Since the pandemic, we’ve seen an influx of people moving into rural areas (or perhaps staying there in the first place). See this map that we’ve run previously that shows which localities have been gaining or losing people through domestic migration. (This doesn’t necessarily mean those counties have gained or lost population overall — just through people moving. A county might see more people moving in than moving out but still lose population overall if deaths outnumber births and net in-migration).
We have more census data coming in a few weeks that may shed more light on this, but what this report tells us is that Virginia’s problem with losing young adults is primarily a metro problem, not a rural one. (Obviously, individual counties may have specific problems.) In any case, the report says, “Virginia’s population of adults ages 20 to 34 grew slower than the nation last decade and this decade, looming concern about the economic development in the Commonwealth.” As a result, the report makes this observation: “Virginia needs to ask why so many college students do not stay in the region or state.”
So what do we do about all this?
It would be useful to hear politicians talk about this in more than sound bites. The report makes several general suggestions. It urges “fiscal discipline” in Richmond. “If there are ‘surplus’ funds to be expended, we recommend investments to facilitate the creation of jobs and trades in Virginia.” It specifically urges investment in rural broadband and Port of Virginia, as well as “aligning higher education with the needs of employers.” (This gets at the debate over whether higher ed should be focused more on job training or more on the liberal arts.) The report also says that “improving East-West traffic corridors by widening existing roads and improving rail service would bind the Commonwealth together more strongly.” (Just recently a proposed east-west passenger route moved to a new round of planning.)
Are these moves enough? These words from the report sound like the sign-off for an old TV serial: “Can Virginia raise its job creation rate to match that of its neighbors in the south? What actions are needed to increase the attractiveness of the Commonwealth to reverse the outflow of Virginians to other states? Can the Commonwealth take action to improve the distribution of economic growth? Or is it fated to see increased economic gains concentrated along the I-95 corridor between Richmond and Northern Virginia? These are not trivial questions but matters for serious debate, consensus building and action.”
Stay tuned.