Virginia's Employment Recovery: Now And Then

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In the United States, the pace of job growth has slowed over the last several months and compared to earlier in the post-pandemic recovery. Job growth in Virginia has slowed, too, but not as much. In fact, Virginia has outpaced the nation consistently since February, and this has not been the case for much of the last several years.

Over the course of the post-pandemic jobs recovery, Virginia's month over month job gains were more often smaller than the national average. From January 2021 to December 2023, for example, the monthly percentage increase in Virginia either matched or was lower than the national percentage increase about two-thirds of the time.

The chart below shows the fuller picture of Virginia's post-pandemic recovery by indexing the level of employment to just before the pandemic for both Virginia and the United States. The initial job losses in Virginia were not as large compared to the United States: In 2020, Virginia shed about 11.6 percent of employment from February to April, whereas the United States shed about 14.4 percent. Beginning in January 2021, the gap had closed between Virginia and the United States, and by November 2021, the U.S. recovery had exceeded and remained above Virginia. As of mid-2024, Virginia stands virtually even with the United States in its post-pandemic jobs recovery.

Similarities With the Past

During the pandemic, Virginia didn't lose jobs at the same rate as the nation, which is consistent with what happened during and after the Great Recession. Employment in Virginia didn't fall as far then either, declining about 5.0 percent in total at the start of the recession compared to 6.3 percent nationally.

The path of the employment recovery also looks very similar to the first chart. Nationally, employment grew at a faster pace, which closed the gap between the United States and Virginia. Eventually, the United States recovered all the jobs lost in the recession just ahead of Virginia and then continued to grow at a faster rate. The structure of Virginia's economy and the characteristics of the workforce offer potential reasons for why the state doesn't tend to fall as far during downturns and why it doesn't grow as quickly coming out of them.

Strong Ties to Government

In terms of industry mix, Virginia has an outsized share of employment in professional and business services and the government sector. This is relevant because government employment (federal, state, and local) tends to be more recession-proof, as employment tends to remain stable or even increase during recessions while the private sector contracts.

Moreover, Virginia's private sector has strong ties to the government, as the commonwealth is the top recipient of federal contract spending in the country. While many different Virginia companies receive federal contracts, some of the state's largest companies, such as General Dynamics and Northrop Grumman (parent company of HII in Virginia Beach), receive very large, multiyear contracts from the Defense Department for aerospace and ship building. Additionally, another one of the state's largest employers is Freddie Mac, which is a government-sponsored entity.

Having employers such as these (and many more) that rely on federal spending is relevant because spending tends to increase during economic downturns, which provides Virginia with some insulation from recessions.

An Educated Workforce

Another structural factor that typically helps insulate Virginia from recessions is that the working-age population (ages 25-64) tends to be more highly educated than in the United States as a whole. According to the Census Bureau's American Community Survey, Virginia's share of the working-age population with at least a bachelor's degree was 42.2 percent in 2022, compared to 35.7 percent nationally.

As our educational attainment snapshot for Virginia shows, people with higher levels of education are more likely to have lower unemployment rates and higher rates of labor force participation (not to mention higher median earnings). Moreover, people with higher levels of education are also less likely to bear the brunt of a recession, as their unemployment rates don't tend to rise as much in absolute terms.

What Is Different This Time?

As the charts above show, Virginia's path coming out of the pandemic-era downturn looked very similar to the path after the Great Recession: Virginia did not lose as great a share of jobs, but also grew more slowly coming out of the recession. Virginia also looked to be following a trajectory similar to the last downturn. However, this story took a new turn in 2024, with Virginia's monthly job gains surpassing the United States in relative terms. So, what is different this time around?

For one, unlike during the Great Recession, the pandemic-induced employment decline impacted state and local government employment in Virginia. State government employment, in particular, not only declined initially but the sector continued to contract from the start of the pandemic until January 2023. Since then, state government employment has been on a steep incline, which more recently has helped contribute to overall employment growth.

The pandemic also caused Virginia's labor force participation rate to fall sharply, as it did nationally, but Virginia's rate remained near the rate that it fell to for a longer amount of time. As participation slowly and steadily improved nationally, Virginia's rate was largely unchanged throughout 2020 and 2021, and it wasn't until the start of 2022 when the participation rate began to increase. Since then, the rate increased quite rapidly and sharply.

The state's initial employment recovery might have been slower because it took people longer to come back to the labor market in Virginia, and therefore, the state had more to catch up to later on. This might also be evidenced by the fact that the job openings rate in Virginia remained elevated for longer. While the openings rate has been on a downward trend in recent years, it has remained above the national rate for most of the recovery. So, while employment has slowed both nationally and in Virginia, growth in Virginia has not slowed as much in 2024. In fact, it seems to be keeping some momentum from having a slower decline in demand and improvements in labor supply.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.