Virginia's Outstanding Economy

Following more than two decades of substantial expansion in the defense, high-tech, telecommunications, and service sectors, the Virginian economy has become increasingly diversified. The state's success in luring high-tech and other companies rests on its pro-business reputation. Virginia has low unemployment insurance and workers' compensation costs, plus a corporate income tax rate that has not changed since 1972. The state offers generous tax credits for creating jobs, recycling equipment, and using clean-fuel vehicles. Its low costs, right-to-work laws, skilled work force, and extensive transportation and telecommunications networks have proven attractive to many companies. The willingness of many localities to speed up their permit process has also encouraged firms to choose Virginia.

This low cost of doing business, combined with a high-quality workforce, has led to very strong productivity gains—a major impetus to economic growth. Indeed, Virginia ranks among the top 10 states in labor productivity, estimated at more than $100,000 for the state economy in 2006. Educational and training opportunities are central to the state's higher labor productivity. The American Community Survey (ACS) indicated that in 2005, 33.2% of Virginia's population aged 25 years and older had completed a bachelor's degree, a percentage significantly higher than the 27.2% for the United States as a whole. Migration of a highly skilled workforce into this state is another prime factor boosting the state economy. On average, more than 17,000 military personnel who retire from the armed services each year choose to live in Virginia and become part of its workforce.

There are several highly dynamic sectors in Virginia that have experienced an acceleration in their labor productivity growth over the past 10 years. At the same time, these sectors have raised their shares of total gross state product and total nonfarm employment. On a combined basis, these sectors contribute more than 39% to total nonfarm employment and more than 45% to the GSP in Virginia.

Dynamic Sectors in the Virginia Economy, 2006
(Percent)

*Measured as a sector's total value-added divided by total employees.
**Real estate productivity is overstated due to the inclusion of imputed rent in the sector's GSP.

Despite being the birthplace of the Internet and other cutting-edge technologies, the state's information sector has seen its dynamism cool dramatically over the last five years. This does not diminish its contribution, though, as the early growth of information technology gave an edge to Virginia, inducing technological change and leading the transformation to a knowledge-based economy. Average productivity growth in the information services sector is estimated at 6.7%, notwithstanding its decreasing shares of GSP and employment. Several other sectors not listed in the table have also experienced rising productivity growth along with declining shares of the state economy. In fact, only nondurable goods manufacturing, retail and wholesale trade, and the government sectors are seeing slowdowns in productivity growth.