Episode 18: Why is there so much economic inequality in Virginia?

In some ways, we have two different Virginias that live side-by-side. On one side, white-collar workers who have adjusted to the pandemic with Zoom meetings and social distancing; on the other, blue-collar workers who have faced losses of their jobs, healthcare, housing, and economic stability in the face of a global pandemic.

But COVID-19 has only exacerbated trends that have plagued Virginia for forty years, if not the state's entire history. This week, we spoke with journalist Peter Galuszka about the growing divide in Virginia's economy, and UVA Professor James Harrigan about the economic trends that have heightened income inequality nationwide for the last forty years.

Episode Transcript

Nathan Moore: This is Bold Dominion, an explainer for state politics in a changing Virginia. I’m Nathan Moore. 

If you’re a semi-regular listener to Bold Dominion, you may have noticed a throughline that connects the last several episodes… Sure, we’ve covered energy policy and the looming eviction crisis and police reform and campaign finance. The thing that connects them all is economic inequality.  Here in Virginia -- to say nothing of the country -- we’ve got haves and have-nots. Two different Virginias living side-by-side.  

In a lot of ways, the coronavirus pandemic has put these two Virginias into stark relief. White-collar workers have adjusted to Zoom meetings and social distancing, while working-class men and women have faced losses of their jobs, healthcare, housing, and economic stability as a whole. 

That’s not to say this is all a result of the Trump regime or the COVID pandemic. Virginia is the birthplace of American slavery, after all. And that legacy combined with nationwide trends since the 1980s have resulted in a constant hollowing out of the American middle class.

James Harrigan: Technology, globalization, and politics--some combination, some interaction of those explains a lot of what's happening.

NM: That's James Harrigan, a professor of economics at the University of Virginia, where he teaches a class called Economic Inequality. We'll hear more from him in the second half of this episode, when we dive into those broader economic trends that have been exacerbating inequality for decades.

This year, the pandemic has been accelerating economic trends that we saw before. Main Street industries are really flailing, even while the finance and tech sectors are doing just fine, even thriving. Peter Galuszka is a journalist based in the Richmond area and he describes how these two Virginia's are playing out during the pandemic.

Peter Galuszka: I think what you're seeing now is Northern Virginia, for example, especially is a worldwide leader in high tech, especially data transmission and data centers. I think something like 70 to 80% of the world's internet traffic goes through Northern Virginia and it's a key player in the global economy. And ditto finance. I mean, finance has really gathered steam in Virginia, the leading firm, you could say is probably Capital One. And they're one of the largest credit card companies in the country. And meanwhile, you are seeing the regular sectors like the service sector and the manufacturing sectors and retail, of course, is taking a huge hit, especially the big box and old-style department stores are really getting slammed, as are small businesses.

NM: And the other thing is that the industries you mentioned that are getting weaker and weaker and that are being pummeled during this pandemic...they tend to have a lot of already lower-paid workers, it would seem, you know retail and restaurant workers versus some of these other sectors where, you know, the salaries are pretty high.

PG: That's true. That's absolutely true. But don't forget that manufacturing is taking a hit. And those workers tend to be fairly highly-paid. They even highly paid blue collar workers. I know for other reasons than the pandemic, Rolls Royce had a big plant in Prince George's County that took shuttering. And they built it a few years ago to great fanfare, it was going to make parts for jet engines. But that, for example, is in trouble. Textiles are in trouble, all kinds of stuffs in trouble. And it kind of goes by area, of course, services are all over, including big cities and in the rural areas, but manufacturing tends to be, you know, in the south side, and maybe around Richmond and different places here and there.

But Northern Virginia, the data center thing is really amazing. I mean, what those are, of course, are gigantic, air conditioned warehouses where you have servers galore. You know these servers properly deal with data, and there's tons of data coming. Why? Because of 5G phones, then you have artificial intelligence. And also you're going to see more and more driverless cars. All that data has to be processed somewhere--and Northern Virginia and the data centers is where it's going to happen. And they're still growing at a pace of 6-7% a year despite the pandemic.

NM: There is a regional component to this, which you alluded to a little bit. I mean, Northern Virginia is just dominating these fields that that show the most growth potential over the next decades. Northern Virginia already is the economic driver of Virginia, by and large. What does this mean for the other broad swaths of the state?

PG: This has been going on for years. Of course, Northern Virginia and Tidewater are heavily government spending related, you know, from military and other services. And that's what actually helped draw in the high tech. That means Northern Virginia has already been leading the blue-ization of Virginia making it more Democratic and shifting its attitudes, bringing in more diverse people from other countries, other states. I've recently talked to some people involved with data centers who came here from other states. I said, Why'd you go to Northern Virginia? And one of the curious things they said--this has to do with Dominion--is that well, compared to other states, Virginia has fairly cheap electricity. And I said "Really?" "Oh, yeah. And there's there we don't really worried about the supply. That's one reason why you rather than go to New Jersey or California somewhere we decided to locate here because it's cheaper."

NM: You know, the the flip side of this is to talk about some of the urban regions where there's serious social problems and serious inequality as well. It's a different dynamic. It's not regional economy-based so much, you've got a place like Richmond with a very vibrant economy, but an awful lot of poor people who are struggling to meet their basic needs.

PG: I think that the number of Richmonders--city residents who are in the poverty level is around 25%, and of course the school system is in trouble. You know, demonstrations in Richmond have hurt some things; I know a lot of stores are still boarded up because of those. These are problems, though, that have been around Richmond for years, and they've been neglected forever. I mean, you know, redlining, drew whites out to the suburbs of Henrico, Chesterfield and Hanover. And then, of course, the government's put down, I-95, runs right through one of the most vibrant black neighborhoods in the country: Jackson Ward. Pretty much wrecking that neighborhood back in the 50s.

So these problems have, you know, been around for more than a half a century and they just have not been dealt with. And these problems are, you know, to some extent are going on in places like Norfolk and Portsmouth and in other cities as well. But, you know, unless these are really somehow dealt with, it's just gonna go on and on. And the 'burbs will get stronger and Northern Virginia will get stronger, and there'll be more clashes politically, but Northern Virginia will win.

NM: Income inequality in a lot of ways is the issue, it seems to me. Sort of looking at today: who in Virginia is being dealt out of the American dream?

PG: A lot of small business owners are. A lot of non-union manufacturing workers are. Retail people are. Of course, the service sector, which hopefully if there's ever a vaccine for COVID-19, then maybe they'll start coming back but it's also--you're also seeing another transition to the gig economy. Companies used to provide pensions, medical care, benefits that aren't being granted now. And that's just going to make things you know, as people age, it's gonna make things get worse and worse unless there's some kind of remedy.

NM: How can cities in Virginia, towns in Virginia, how can we have resilient communities without small businesses, without manufacturing, without that kind of Main Street economy that has driven our communities for so long?

PG: Well, I don't know. As I say, I think this is not new. I mean, you know, you had, for example, small towns that were dominated by a chemical plant or a pulp mill or something like that. And when that closes, everything dies. And Beth Macy, who's a well known author, successful one in Virginia, wrote Factory Man about a Southside Virginia furniture factory family that sort of beat back the Chinese on their own terms. And that's a pretty interesting book. It's a little dated now, it was written about 10 years ago, maybe, but that's what can happen. I mean, you got to remember, the Virginia economy is still pretty global, especially the high tech sector. And a lot depends on what goes on overseas.

NM: Who's running Virginia today? Who's in charge?

PG: Well, it used to be pretty clear. I mean, McGuire-Woods law firm in Richmond, Dominion, Altria, Philip Morris (tobacco maker), people like that. Very powerful interest groups. Of course, the health sector is big, they're among the biggest lobbyists and pay a lot of money. But now it's switching to people, you know, your Bezos and your Gates and others and Zuckerberg, because Facebook, Amazon, for example, have big huge investments like Northern Virginia is getting Amazon's second headquarters, which is a major, major step forward. Facebook's building data centers here and there.

NM: You know, Peter, I've noticed in my decade, give or take, of living in Virginia that the state has been changing and you and I have talked a lot about how it's changed socially. And so you do see a state that has been a little bit more out front on things like gay marriage and things like decriminalizing marijuana and stuff like that, but when it comes to economic inequality, we don't take very aggressive measures in the state. And in some ways, it remains a very anti-labor pro-business owner state. What policies would address inequality and inequity in Virginia?

PG: Well, I think you could do several things. First off, go to some kind of minimum wage changes. The Old Guard, they claim laissez-faire capitalism that's just going to drive people out of work. Well, I don't buy that. Didn't really happen in other states. I know that extending Medicaid to 400,000 Virginians was a positive step. Another thing you could do is, you know, labor unions. I mean, we've really, even though labor unions have shrunk dramatically in the past few years. I mean, they're still a bugaboo in Virginia, and they're always the boogeyman. It's the 21st century you know, people have a right to bargain collectively. That's one way they could do it.

A lot of these labor packs like NAFTA did hurt Virginia. You know, that's another thing. I don't know how exactly to do with it. But you know, you got to be careful that when you--I think global trade is always going to be here. But you'd have to make sure that you don't just give a corporation that's interested in its next quarters, profits and earnings, just the right to pull up and move to, you know, Guatemala or something. So there's got to be some kind of attention paid to these people. And those are some areas where you could do it. And of course, as I mentioned, you could upgrade education that's easily available such as, you know, community colleges, high schools, and another one is increasing broadband coverage. It's remarkable how little of the state still is served, how badly served by the internet companies. And you know, a big problem is with the pandemic, because a lot of students who have to work online don't have access. So all of those things together could could help, you know, put it together. These are not new ideas.

NM: So we just talked about the sort of powerful in Virginia now, you know, is centered in some lobbyist groups, historically: Dominion, health care groups, you know, a few others. That has expanded and shifted some to now include more tech and finance sector power players. What will it take to get them to address inequality and inequity in Virginia so that that sort of American Dream might be possible and reachable for more people?

PG: I don't think that they're going to do it on their own. If they were going to do that they would have done it some time ago. What's going to change them would be the ballot box. As more people become elected who are more progressive in their ideas, they'll have to change. I know a number of politicians in the last state election refused to take donations from Dominion, and Dominion has gone to change its approach to some extent. And that's just going to have to go in other industries as well. And I know there's a big scared reaction among the business community, especially the old-style mainstream business community of what the future will hold for them. They're kind of running scared.

NM: Peter Galuszka is a journalist based in the Richmond area and a regular here on Bold Dominion. We’re going to take a short break, but stay with us. In a moment, we’re back with UVA economics professor James Harrigan. 

[fade up midtro]

You’re listening to Bold Dominion, a state politics explainer for a changing Virginia. Visit us online at BoldDominion.org. Have a friend who’s trying to figure out Virginia state politics? Tell them about this show. And then subscribe in Spotify, Apple Podcasts, and wherever fine podcasts are served up.  Bold Dominion is a member of the Virginia Audio Collective, online at Virginia Audio.org. Check out all the podcasts from the collective, including one of our newest additions: Main Street Speaks. It’s a podcast that covers news, politics, and history from the perspective of three college students who grew up in the Northern Neck of Virginia. Main Street Speaks is available at Virginia Audio.org. 

[fade out midtro]

Well, so far in this episode, we’ve been looking at how the pandemic is playing out in Virginia’s economy specifically. But how exactly does an economy arrive at such a state?   Earlier this week, Bold Dominion producer Aaryan Balu spoke with James Harrigan. He’s a Professor of Economics at the University of Virginia and former economist at the Federal Reserve Bank of New York. Professor Harrigan now teaches a class called “Economic Inequality” that examines the broad trends that have accelerated income inequality for the last forty years.

JH: Inequality has been growing in the United States since about 1980. So I tell my students, it's not so much--the class really isn't about inequality per se, it's about the growth of inequality since 1980. And that growth in inequality has had a lot of dimensions. One dimension is the growing extra pay you get for going to college, what we sometimes call the "college premium," what the average college-educated worker earns over and above what the average high school-educated worker earns. That's gone up steadily since around 1980. Another dimension is the share of total income which goes to the very rich, the very top 1% of households, the top 0.1%, one out of 1000, that also has been rising very steadily since about 1980. Another aspect, not so much a growing inequality, but the black/white wage gap, the gap between black and white incomes, had been narrowing up until around 1980. Since then it's kind of plateaued. So there was kind of improvement after World War II and during and after the Civil Rights Movement. And that kind of stalled out in about 1980.

Aaryan Balu: What--what got us here?

JH: Some of it is technology. I think that the information technology revolution has really benefited people with more education in a couple different ways. One is it's made workers with more education more productive, and so that they can earn more in the labor market. The other way is that it's in many cases replaced jobs that used to be done by less-educated, by high school-educated or even high school dropout workers. I like to give the example of the automated teller machine. So when I was in college, if you wanted to get some money for the weekend, you had to make sure you went to the bank by five o'clock on Friday afternoon, and you stood in line. And when you stood in line, you were waiting for a kind of high school-educated bank teller, usually woman, to take your cheque and then cash it and hand you a $20 bill. By the end of my freshman year in college, that was over; we had automated teller machines. Huge improvement in standard of living for everybody. But all those jobs those kind of high school-educated people had cashing checks vanished. That's just one example of clear technological progress: things are better, but they benefit everybody at the expense of high school-educated jobs.

Another force that I think has led to increased inequality is international trade. So international trade has allowed consumers and businesses in the United States to get things cheaper and faster with greater quality and greater variety than we used to be able to. But many of those products which we now import were used to be produced by high school educated manufacturing workers, mainly men. And so you have many of these examples, both of the technology and globalization side that have tilted the labor market in favor of more educated workers.

There's another set of explanations, though, which is, I think, political. I don't think it's a coincidence that 1980 was the year that Ronald Reagan was elected president, and that the kind of conservative revolution in American politics really started. Since then, there's been many, many, many changes in legislation and administrative law and all sorts of things which have made it harder for working people to organize unions, to get changes in tax law. Technology, globalization and politics, some combination, some interaction of those explains a lot of what has happened.

AB: Yeah, it seems like in the last couple years, both the kind of globalization and automation questions have been coming to the forefront. You know, this past election cycle, Andrew Yang's kind of big thing was truckers and automation and that the fourth industrial revolution is coming. And, you know, in 2016, at least a theory of the case I've seen is that a lot of why Trump won might have been because he went to Michigan, he said," Listen: NAFTA and globalization is taking away whatever jobs you might have had here." That kind of does jumped us ahead. What does this say for the future right now? Where do you think things are going?

JH: One way to think about that is: Do I think that the trends--that the underlying forces which have led to increased inequality--do I think those are still there? And do I still think they're still strong or strengthening? And the answer is yes, I do. I'm not part of the Yang Gang. But the insight of Yang's campaign, that technology is making more and more of human labor easily replaceable by machines, that's obviously true. I actually don't think that globalization has a super big effect on inequality, but I do think it has effects at the margin. There has been a bit of a backlash to globalization with Trump and with--certainly the Coronavirus epidemic has put a huge stop sign on a lot of cross-border movements of people and goods. From the noise that Trump has made about more nationalistic economic policy, the actual change in policy has been virtually non-existent. Trump made a lot of noise about renegotiating NAFTA; really all he did was change the name. We're still a member of the united--of the World Trade Organization, we still have very, very free trade and goods and ideas and investments across borders. So despite what the political rhetoric is, it hasn't really been much change in policy.

AB: So you mentioned how COVID-19 has temporarily put a stop on a lot of supply lines, but we've got people facing housing instability and, you know, just trying to make rent or they've lost their jobs. Folks like--folks like you and I are fine. You know, I go to Zoom University. I assume you teach there. What has the pandemic shown us about economic inequality, generally?

JH: Even more obvious than the housing, which you mentioned, I think is healthcare, So, because the United States has this unique--unique in the world--system, where your health insurance is tied to your employment, if you lose your job, you lose your health care insurance.

AB: Especially if you lose your job due to health.

JH: Yes, like you lose your job because of health, you lose your health insurance, which is truly an insane system. Now, that's a little bit better since the Affordable Care Act. The Affordable Care Act financed a big expansion of Medicaid, which is the health insurance for low income people. Many states resisted that originally. Many Republican-led states refuse to extend Medicaid. Virginia when--under the current governor and the current legislature, extended Medicaid. So if you're in Virginia and you lost your job because of Coronavirus, and you lost your health insurance as a result, you're actually in luck because you can get Medicaid. But in many states, that's not the case. That's a clear, clear cleavage where people who need health insurance the most lose their health insurance because of the pandemic. Which is, as I said, there's no other country that has this system.

AB: One thing I've noticed throughout the pandemic is that up until maybe last week, the stock market was doing just fine. And you know, currently President Trump has kind of been touting that as "Things are getting better!" But is that the case? How tied is the stock market to general well-being in the country?

JH: The stock market is a reflection of corporate earnings, corporate profits. And the stock market works in mysterious ways. Anybody who has any education in economics knows not to predict the stock market. But the fact that the stock market has been growing faster than the economy for a long time, is a reflection that more and more of our total national income is going to corporate profits, and not to wages. And I think since the pandemic--you know, there was a huge crash in the stock market in March in April. And so why has the stock market recovered much more than employment and earnings, for example? I think it's because people who invest in the stock market think that corporate earnings are gonna be just fine. And you know, betting that major US corporations and international corporations are going to have very high profits over the next decade is not a bad bet.

It's also a bet that the economy as a whole is going to recover, which I think is still the most likely outcome, whether we get back to where we were in January or February, which was extremely good. I mean, unemployment in the first part of 2020, was as low as it's been since World War II. And that was unambiguously good news for low income workers, for middle income workers, high school educated workers, everybody, and that's obviously gone. How fast we'll get back to that is anybody's guess. But I'm cautiously optimistic that we'll get back to a healthy labor market over the next three or four or five years just as we did after the Great Recession.

AB: So what I'm curious about, you have these millions of jobs lost due to the pandemic. And these sort of longer term trends you're talking about in automation. Is there a chance that these two things go together? How many of those jobs do you think we'll get back, particularly if the automation trends continue?

JH: That's actually a very insightful question. And the reason I say that is because in past recessions, there's been kind of two types of jobs that get losses, jobs that eventually come back and jobs that don't. For whatever reason, businesses tend to use downturns, tend to use recessions as a time to kind of reorganize and kind of rethink the way they do business. And one way they do that is through investing in automation, investing in labor-saving technology, so that when demand recovers, and when they go back to making good sales they're doing it with fewer workers than before, You know, a fear that many of these jobs that have been lost during the pandemic will not simply bounce back but will actually be gone forever--that's that's a very reasonable forecast, given what's happened in, particularly the last two recessions.

AB: What are the markers of a healthy economy that we should be using to see if inequality grows or shrinks?

JH: Well, wages, wages at the median and in the bottom. You know those are the people, kind of median-educated, median-paid workers. And just reminder for those people who don't remember their high school math, median means half above and half below. So the median is like the worker who's right in the middle. See what happens to wages for him or her and what happens to wages in the bottom half the distribution, if wages for those people and employment for those people improves, then our economy is healthy, and that's an economy which is benefiting broadly the people who have been left behind in this era of rising inequality. If all the gains just go to the people at the top, top 25%, top 10% top 1%, which tends to be what's happened in the past 40 years, then that's not a healthy economy. That's an unsuccessful economic system.

AB: Just from a strictly economic point of view. Are there other tactics and policies that kind of work toward that end?

JH: Yes, absolutely. There's many, many economic policies which can ameliorate growing inequality. One is a higher minimum wage. Economic research has shown--in my view, very conclusively--that kind of modest increases in the minimum wage, really do raise incomes at the bottom without hurting employment. You can't raise it too high. But we're a long way from that. The national minimum wage is $7.25, and we can certainly raise it way above $7.25, probably at least a $10 or $11, maybe even $12 without expecting any noticeable drop in employment at all. So that's one. I think a more progressive tax code--much higher taxes on the rich, on the top 1%. Those people have seen their taxes drop dramatically since the Trump administration came in.

I think policies which reduce the importance of high wages, like Universal Health Care, have a health care system like every other country in the developed world, The Affordable Care Act was a step in that direction, but we have a long way to go. Things which make it easier to get education, greater funding for community colleges. One thing that tends to get lost in the debate on higher education is community colleges and two-year degrees, which are which are very, very important for reducing inequality. That's kind of the first step for many people: getting a really marketable skill that you can get taught at community college. And community colleges are underfunded, it's often the most important and most job-relevant courses that are oversubscribed and hard to get.

One thing I didn't mention is labor unions. So one thing has happened since 1980 has been a real deterioration of legal environment for labor organizing. It's much much harder to organize and sustainable labor union in the United States than it is in pretty much any other country-- any other developed country. And much harder than was in the ‘70s. There have been changes in law and administration which has made our economy very hostile to labor union organizing. You can change those laws. Those are not things that are kind of inexorable, you know, forces from technological progress and globalization. Those are legislative and legal choices which we've made, which have made it very hard to organize unions. And unions historically have been a force that reduces inequality, particularly not by giving everybody a college degree, but by allowing people with high school degrees and more modest educational attainment and more modest jobs to earn a bigger share of the pot. So there's, I mean I could cite other examples too. There's no shortage of purely economic policy changes: Minimum wage, health insurance, education, taxation policy, taxation enforcement, all of which would reduce inequality and it might also just make the economy function better.

[fade up outro]

NM: James Harrigan is a Professor of Economics at the University of Virginia. Thanks to him and journalist Peter Galuszka for joining us this week.  Be sure to catch our next episode in a couple weeks. We’re going to break down the latest General Assembly special session -- the bills that died and those that passed into law. One way or another, the results are going to be a big deal to a whole lot of Virginians.  My name’s Nathan Moore, and I’m the host of Bold Dominion. Huge thanks as always to our producer Aaryan Balu. Find this show online at BoldDominion.org. Go ahead and subscribe… it’s just a click away.  Keep social distancing, y’all, and I’ll talk with you in two weeks!