Workforce Productivity: A Virginia Success Story

While a recent report by the Commonwealth Institute, “The Growing Divide: The State of Working Virginia,” issued stark warnings about growing income disparities in Virginia, it did offer one morcel of good news. Even as United States workforce productivity has soared over the past two decades or so, productivity gains in Virginia grew even faster. In inflation-adjusted numbers, Virginia productivity in 1998 stood only marginally ahead of the U.S average, with worker economic output measuring between $56,000 and $57,000 per year. By 2005, Virginia per-worker output surpassed $65,000 — surging $2,000 ahead ahead of the U.S. average, as shown in Figure 4, reproduced from the report.

In Bacon’s Rebellion’s “Economy 4.0” schema, productivity and innovation are the wellsprings of economic progress and material prosperity. It is a basic tenet of economic theory that, in the long run, wages and salaries can rise no faster than the growth rate in productivity. Rising productivity is very, very good news. Without rising productivity, there would be no growing income to distribute, either equitably or inequitably.

Write the authors: “Virginia has one of the most productive labor forces in the country. … As a result, Virginia workers continue to be competitive and have performed well in recent years. This has led some to classify Virginia’s labor forces has one of the state’s “greatest assets.”

The authors continue:

Worker productivity has grown consistently since 1991, although throughout most of the 1990s this growth was relatively small. Beginning around 1998, however, a different pattern begins to emerge. Since 1998, annual growth in worker productivity in Virginia has accelerated substantially, averaging around 3 percent per year through 2005. Additionally, during this same period Virginia’s labor productivity has generally outperformed not only the national average, but has even rivaled the highest performing state in several individual years.

Given the rising productivity, the report suggests, one would expect rising workers’ incomes as well. But, alas, growth in median household income has been erratic, declining in 2004 and 2005, as shown in Figure 6, reproduced from the report.

The question that “A Growing Divide” asks — are poorer Virginians failing to share in the general prosperity — is a legitimate one. One would like to think that all segments of society (save, perhaps, the criminal class) benefit from increasing prosperity and rising general wage/salary levels. But I would append a number of observations:

  1. As noted in a previous post, there are two Virginias — Northern Virginia and the Rest of Virginia — with significantly different wage levels and cost of living differentials. To what extent do the changes in statewide averages reflect shifts in regional dynamics? I don’t know, but I fear that any generalizations are of limited value until we do know.
  2. Real adjusted median incomes have been rising in Virginia over the long run – indeed, until 2003, it appears that they were rising faster than the national average. The last two years in the chart may be an anomaly. Let’s see what the next year’s data reveals before drawing hard-and-fast conclusions.
  3. It is entirely possible that the disparity in income gains reflects a disparity in productivity growth. It the fact that certain sectors of the economy are soaring in productivity, leaving other sectors as dust on the factory floor, a sign of unfairness or injustice? Can we realistically expect all sectors of the economy to advance at equal rates? Would we prefer to hold back the dyanamic sectors of the economy out of some twisted sense of social equity?

I would suggest that there are three reasons for the apparent inability of less affluent Virginians to keep pace with the more affluent. One is the impact of globalization, which provides greater rewards for those who compete successfully on a global scale. A second is the structural problem of reinventing mill-town economies, based on cheap, semi-skilled labor, for the Knowledge Economy — a process that can take years, if not decades. A third reason is illegal immigration, in which hundreds of thousands of illegals compete for lower-wage work, depressing general wage levels for those at the bottom of the economic pyramid. If we want to redress the inequality in incomes, let us first make sure we identify the underlying causes.

Share this article


(comments below)


(comments below)


  1. Larry Gross Avatar
    Larry Gross

    “Write the authors: “Virginia has one of the most productive labor forces in the country. … As a result, Virginia workers continue to be competitive and have performed well in recent years. This has led some to classify Virginia’s labor forces has one of the state’s “greatest assets.”

    call me a skeptic.. but I’d like to see a more granular regional breakout of data.

    It is .. vitally important.. for us to understand the contrasting realities of NoVa and RoVa if we are to accurately target our investments for human capital.

    I usually ask myself two questions when I come to a settlement/town outside/remote from urban areas.

    1. why is this place HERE (is the original reason still here?)

    2. what is here that would attract a company engaged in global commerce

    so make a list of Virginia’s incorporated places and do a productivity chart for each – and then we’ll have a more accurate representation of our State’s productivity.

    is this report one of those “from 10,000 feet, it looks like this?”

  2. Anonymous Avatar

    Todays New York times has an editorial :

    “All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?

    Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?”

    I suppose that we should be happy that we are enjoying so much properity because our jobs are being outsourced.


  3. Anonymous Avatar


    “Hundreds of thousands of illegal immigrants?

    Is that closer to 150,000 or 950,000?

    Are you exaggerating things because you are part of the Vast Right Wing Conspiracy?

    The Truth Squad

  4. Jim Bacon Avatar

    Truth Squad, mea culpa. I should have been more cautious in my choice of words and said, “tens of thousands of illegal immigrants,” or “illegal immigrants in excess of 100,000.”

  5. Anonymous Avatar

    How much of Virginia’s economy is dependent on federal appropriations? I’m not arguing against working for the feds — either directly or indirectly. I do the latter myself from time to time.

    But what would happen to the economy in the event that federal spending on Homeland Security and defense were slowed substantially? The telecom and industries headed south. If the next president of the U.S. vetoed legislation that increased HS and DoD spending beyond inflation, what happens to Virginia?

    Illegal immigration does not cause every problem in Virginia, but it certainly adds to them in many areas. FCPS, for example, has spent an average of $80 M each year for the last 4 years on NCLB compliance. Candidly, school officials state (off the record) that the bulk of those added costs are related to illegal immigration. With the likely decline in real estate values, $80 M is probably worth around four cents on the real estate tax rate. If one were to assume the total cost to Fairfax County for illegal immigration-related services and activities was $80 M (recognizing that some additional education costs are not related to illegal immigration, but other county costs are), the cost would be almost 4.5% of all real estate taxes paid in Fairfax County.

    Then consider the impact of the lower wages on less skilled citizens. The problem needs to be addressed.

    I’ve never argued against a fair guest worker program. It may well be in everyone’s interests. But such a program must include: 1) sign-up only outside the U.S.; 2) full protection of all labor laws for guest workers; 3) imposition of a payroll tax on employers of guest workers in an amount sufficient to pay the full added costs of services provided, and activities engaged in, by state and local governments because of the presence of guest workers and their families; and 4) Arizona-like penalties on any employer violating the rules — perhaps, even with private enforcement with the losing employer paying attorneys fees.

    A guest worker program without strong enforcement will fail. If employers can continue to hire illegal immigrants, the protections for guest workers will quickly become worthless. Similarly, without enforcement, lower-skilled Americans will continue to fall behind economically and taxpayers will remain holding their ankles indefinitely.

    When government lets some people cheat, many others lose. So far, both Bush and Kaine are largely facilitating cheating in the area of illegal immigration. It’s time to stop that and develop rules that treat workers and taxpayers fairly.


  6. Anonymous Avatar

    “I’ve never argued against a fair guest worker program. It may well be in everyone’s interests. But such a program ……. without strong enforcement will fail. If employers can continue to hire illegal immigrants, the protections for guest workers will quickly become worthless.” TMT

    Exactly, TMT. I have no problem with a well thought-out guest worker program. We have a program now for mainly Ag Workers (H-2A). It sets forth employment standards, including wages, length of work offered, housing, transportation, some health care AND provision for seeking out US workers first. And how many can you bring in? UNLIMITED.

    So why do you see so many Ag Biz folks crying about not having workers? They don’t want to use this guest worker plan. They’d rather skip trying to hire US workers, hire immigrant workers for as short or as long a period as they want, push housing, health care, and other expenses onto the community at large and, in general, behave like lousy citizens. Remember this next time you see Ag Biz on the TV wailing about “crops rotting in the field”.

    It is true that, like most bureaucracies, the paperwork is onerous; but then so is the paperwork for the IRS. The big difference is that the IRS will come down on your head like a ton of bricks if they catch you skirting the law and ICE, generally speaking, hasn’t.

    Let’s not miss the fact that having a surplus of low-skill LEGAL workers will cause the same types of problems that the illegal workers cause. Many, possibly most, of the tenants that caused so many problems in my old neighborhood were almost certainly legal. That didn’t halt the over-crowded housing etc. Labor or human capital responds to the law of supply and demand just the same as any other commodity. And face it: depressed wages and day laborers hanging out at 7-11 don’t indicate a shortage of such workers but instead a surplus.

    A part of all of this inequality biz comes down to what kind of country you want to live in. I don’t think that most working class stiffs resent that doctors, lawyers, bankers, etc live “better” than they do as long as (1) they can live a decent life if they work hard, obey the law, etc and (2) their children can hope by hard work, education, and intelligence to become doctors, lawyers, bankers, etc. It’s when they see themselves manipulated, lied to, called names, and undercut and see their – and their children’s – future marginalized that they become resentful. And we are heading in this direction at warp speed, as Mr. Spock would say.

    And as for FCPS, if the “amnesty fairy” waved a magic wand over FC and changed all of the illegal aliens into LPR’s, the problems of the FCPS & FC in general would not only be the same but possibly even worse. The new LPR’s on course for eventual citizenship would still have the same skill sets, lack of English, poor education, and low prospects as now, but would be entitled to more social services.

    And remember, the single largest category of LEGAL immigration is family reunification, including siblings and aged parents. Many of these illegal aliens have immediate family as well as siblings and aged parents in their original country. It’s unlikely that they are more skilled or better educated than the current group. Once legalized and they start bringing them in, it’s hard to see a good stopping place.

    Nothing is easy in this question.

    Deena Flinchum

Leave a Reply