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Radford University economics professor addresses government shutdown and its potential impacts on Virginia

by Chad Osborne

Radford, VA (10/28/2025) — The U.S. government shutdown is now more than three weeks old, making it the second-longest shutdown in the nation's history. Radford University Professor of Economics Thomas Duncan speaks in the Q&A below about the shutdown's economic impacts throughout the commonwealth, including Southwest Virginia, and how political uncertainty plays a role. Duncan is an expert in politics and economics.

Q: What are the impacts of the shutdown on the people of Virginia?

Duncan: Virginia is pretty reliant on federal spending, both due to its proximity to Washington, D.C., and its military ties. Overall, federal spending is about 9% of the state's GDP. Much of that spending will continue during a shutdown, but certainly not all of it. There are really three main areas of concern for people in the shutdown: 1) the lost salaries of the federal workers who reside in Virginia, 2) the continuation of federal money during the shutdown, and 3) the undone functions of furloughed workers. I will try to address all three of these in turn.

Workers: Virginia is among the top 10 states in share of civilian federal jobs. There are federal jobs housed in Virginia-based facilities, and there are people who work in Washington, D.C. agencies who commute from the surrounding Virginia communities. Getting data in real time on the impacts is somewhat difficult, particularly with the reporting agencies affected by the shutdown. However, there are some estimates. The FRED (Federal Reserve Economic Data) data from the Federal Reserve estimates that federal employment in Virginia was approximately 185,000 in August 2025. Using 2023 census data, it is estimated that about 6.5% of the federal civilian workforce is located in Virginia, and that those workers account for around 3.5-4% of Virginia's overall employment. Federal workers also tend to have average salaries that are above the overall average salary for Virginia. In short, it is a sizable population that makes pretty good money on average. The interruption in the flow of that money across Virginia can be significant.

The overall impact will be decided by how long the shutdown goes; which employees are considered essential vs. not; and whether the furloughed pay will be paid back or is lost indefinitely. Essential workers are continuing to work without pay, which means their jobs are getting done, but they are likely to be contributing less to the local economies in terms of spending. Most federal jobs in Virginia are located in Northern Virginia, but there are sizable numbers in Norfolk/Hampton Roads and Richmond, also. So, expect at least some impact on local spending in those areas. Unpaid workers will not be shopping as often, eating out as often, etc. The furloughed "nonessential" workers are neither working nor being paid. So, their jobs are not being completed, and they are likely to be contributing less to local spending. Either one of these groups could have people starting to look for alternative employment outside of the federal government, but the job market is already fairly tight. Adding more competition to that market may make it tighter for nonfederal workers to find new jobs also. Think of it as a ripple effect. The furloughed employees may also not see back pay, creating a lot more uncertainty about their future. There is currently a reasonable amount of friction between the administration and congressional messaging about future back pay. It's at least enough to give people pause.

Federal Program Spending: The major entitlement programs nationwide are reasonably unaffected by the shutdown. Social Security, Medicare and Medicaid do not run off of annual budget appropriations, so the programs themselves are not currently in jeopardy. I will note that I am speaking specifically to the shutdown effect here, as healthcare spending is one of the political motivations for it. How that plays out will have an impact on the system, but that is not a DIRECT effect of being shut down. Under the law as currently enacted, these programs should be largely fine.

Other programs have rolling dates for continuing. While they may not be part of the particular political haggling, the timing of the program renewals can cause problems. Assistance programs like SNAP and WIC are set for renewals right now, so Congress not being in session can cause some serious issues for their continuance. These issues likely fall away when renewed later, but for people dependent on them, it will be quite difficult to get by for a month or several months while waiting for the program legislation negotiations. Some states have indicated they can float these payments for a while, but some states cannot. For Virginia, Gov. Glenn Youngkin has said it can be floated here. That will not be an indefinite solution, though, so the longer the shutdown goes, the more strain that may place on Virginia's ability to keep financing.

Federal Program Management: The issue of management overlaps with the spending. For example, the housing subsidy programs do not appear to be in financial trouble currently. However, a program like that requires people to file applications, which then requires people to read and approve those applications. If there is no one reading or approving, then the money will not flow even if it technically exists in the system somewhere. This halt in various government programs can be problematic.

Farm subsidies and claims are one area of concern, and one that may impact several areas of Virginia, including Southwest. We are in/near one of the agricultural selling periods. Farmers have been hit pretty hard by the trade war, with China not accepting soybeans and other products. This is already creating enough of an issue that there is talk of a bailout similar to what happened in the last trade war. Whether that happens or not, the typical USDA and other programs that may help struggling farmers will not have people reading and approving applications either. This may contribute to a pretty significant crunch. Even when the government reopens, applications like this will have a serious backlog. It could take a while to see any resolution or relief. For farmers who barely make ends meet, this could end up being something of a double whammy of trade issues and the shutdown.

Q: What sectors of the economy may be most vulnerable?

Duncan: As noted, there may be serious issues for the farming community. Part of that will depend on what various farms have in terms of nonfederal insurance or other savings plans to weather the short-term crunch.

Other concerns are the lowered spending by those workers not being paid. Reports are that many federal employees are working paycheck to paycheck, even with their higher average salary. Likely, this is at least partially because they live in higher cost-of-living areas to have those jobs and salaries. If these unpaid or furloughed workers start missing mortgage or rent payments, it could be a significant stressor on the housing sector of the economy.

Local retail shops that cater to the federal sector will also see a shortfall in cash flow.

Q: What about federal contracts?

Duncan: Virginia has a significant military and defense sector presence. For example, Norfolk/Hampton Roads is tied into naval projects. Northern Virginia is home to several contractors, lobbyists, etc. However, if the contracts have already been awarded, the shutdown should not interrupt the payment.

The administration has played a bit fast and loose with canceling contracts that were awarded, but it is unclear whether these actions have a direct connection to being shut down or not. If it is legal for the president to cancel contracts, he can do so when the government is open or closed. If it is not legal, then the money will have to be rewarded according to the contract. I believe there are still ongoing cases regarding this issue overall.

Q: Should the tourist industry be worried?

Duncan: Tourism can slow if economic growth slows. As this is likely to happen to a degree, it is likely there will be some negative impact. If unpaid federal employees are not shopping or dining out as much, it is also unlikely they are traveling. October/fall is a time of leaves changing and some tourism opportunities to Southwest and Western Virginia, but they may see a more muted tourism sector. If the other local businesses have seen the disruption in their customers, they may also not take the vacations they were once considering.

As for the federal part, those places that require federal employees to be available will likely not be open. As an example within Washington, D.C., limits, the Smithsonian and the National Zoo are closed. Any Virginia tourist attractions that must be opened to the public will see similar closures. If they are closed, the local areas that rely on foot traffic will see tourist revenue decline for that reason also.

At least for now, the national parks in Virginia remain open. Though we often see the parks and outdoor monuments closed in shutdowns, this is usually what is known as "political theatre." It's a visual signal of the shutdown to get news reports and rile up one side or the other, but closing these outdoor public spaces seems more expensive than leaving them unmanned. However, even if they are open, if these areas typically collect revenue using an employee-manned station, they will see revenue declines as no one is there to collect the money.

Q: Is there something specific about Southwest Virginia?

Duncan: I have mentioned a few things that could impact Southwest Virginia specifically: the fall tourist impact, the farm programs and the interruption of several federal programs.

To the extent that much of Southwest Virginia is rural, it will likely be hit by the same issues of lost markets for products and the slowdown/lack of federal relief through the shutdown.

Parts of Southwest Virginia are also significantly more rural and somewhat less well-off than areas of Northern or Eastern Virginia. There are relatively larger percentages of the population in Southwest Virginia using SNAP. If that program is interrupted, it will have a larger impact on the area because of its larger use.

From what I have seen, WIC usage is not significantly higher in Southwest Virginia than in other parts of the state, however. So, while it will impact those who rely on it, it is not likely to be a greater impact for the area than elsewhere.

Q: Are state jobs impacted?

Duncan: Currently, we are told by the governor's office that the state budgets are relatively fine for the time being. His office has released statements saying state employees should be minimally impacted. I imagine all of that depends on how long the shutdown lasts.

Q: Is this shutdown unusual?

Duncan: This shutdown has been going for 21 days (as of writing). That puts it in line with 1995. In 2018, there was a shutdown of 35 days. All three of these are outliers and severe, but it is not unheard of.

Q: What role has political uncertainty played in the outcomes here?

Duncan: There is a lot of uncertainty in the length of the shutdown and in the congressional outcomes it may produce. How it ends is somewhat up in the air with both sides digging in on their respective stance.

There is also a lot of conflicting messaging happening around the shutdown, some mentioned above. Will furloughed employees receive back pay (there are differing congressional and administration viewpoints on this)? Will a standalone bill to pay troops (or anyone else) be passed? Can the administration legally move money around within the budget to pay troops (there are significant legal questions about this move)? These are just illustrative of the many legal challenges faced during the shutdown.

Here, I am not talking about the path to ending it - concessions, future policy outcomes, etc. - but just the uncertainties of its actual operation currently. Even with a narrow focus, there is a great deal of uncertainty.

Uncertainty is exceptionally bad for economies. When consumers become uncertain about their future, they tend to not spend as much money. When businesses become uncertain about their future, they tend to not make any big investments. Everyone plays a waiting game, which slows down current economic activity.

On one hand, this is a short-run problem. Once the shutdown is over, the uncertainty clears up, and people move on, so it could be a difficult month but create the sort of long-run recession that we often see after something like a stock market collapse. It can be considered more of a pause for breath while waiting for the resolution in the near future.

On the other hand, what is being asked to be passed to open the government again is still a very short continuing resolution. It would have only been a few weeks while negotiations for a longer-term budget were negotiated. However, if there is this much division about the CR (continuing resolution), it may make people cautious about resuming consumption and investment with another potential showdown right around the corner.

If this uncertainty leads to additional job loss or reduced job growth, people may feel something of a snowball effect that turns a breath into a recession. I have seen some estimates out of Oxford that overall U.S. GDP could slow down .1-.2 %. If that is accurate, it would be more harmful than the 2018 shutdown.

About Thomas Duncan

Thomas K. Duncan is a professor of economics in the Radford University Davis College of Business and Economics. Duncan has taught courses in principles-level macroeconomics, comparative economic systems, institutional economics and international economics. His expertise includes politics and economics, national defense, national security, conflict, international relations and current macroeconomic trends (unemployment, inflation, GDP and recessions).

Email: tduncan13@radford.edu
Phone: 540-831-6057

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