In the District of Columbia, Maryland, and Virginia, the federal government doesn’t just provide jobs and financial stability for individual families—it helps drive state and local economies.
Although the region’s economy has diversified in recent decades, the federal government remains the largest employer in the DC metropolitan area. Many more people work for businesses and nonprofits that receive federal government grants or contracts. These workers also spend money in the region, helping create jobs in other sectors.
Understanding how federal jobs contribute to the GDP of each state and the District can help policymakers prepare for a federal workforce reduction and address potential shortfalls in state and local budgets.
WHY THIS MATTERS
Nearly 450,000 civilian federal employees work in DC, Maryland, and Virginia. As a significant share of the regional workforce, these federal workers contribute to state and local governments’ revenues by paying personal income and sales taxes. Governments then use these funds to provide critical services to their communities, such as social safety net supports, education, health care, and transportation.
That means even a small reduction to the federal workforce in the region could increase unemployment, decrease tax revenues at the state and local levels, and reduce income for local businesses.
This would come at a time when DC, Maryland, and Virginia are already facing budget challenges. Both Virginia and Maryland generate half of their revenue from personal income taxes, while personal income taxes make up about 27 percent of DC’s revenue. Job loss could also cause people to move out of the region, lowering revenues from local business, sales, and property taxes and further contributing to an economic slowdown.
A decrease in revenue would make it even more challenging for state and local policymakers to balance budgets and plan for the future. An increase in unemployment could also put added pressure on assistance programs at a time when states and localities would have less revenue to fund these programs.
KEY TAKEAWAYS
Nearly 1 in 10 workers in the DC metropolitan area are federal workers. If federal civilian jobs were cut, unemployment increases, loss of personal income, and decreased spending power would be geographically concentrated around DC, reaching throughout Maryland and Virginia.
If three-quarters of federal jobs were cut, unemployment increases would put the unemployment rate in the DC metropolitan area at 9.6 percent, surpassing the worst unemployment rate the area saw during the pandemic (9.4 percent).
Cutting the federal workforce by half would increase unemployment rates across Maryland and Virginia. The Baltimore-Columbia-Towson area in Maryland could see unemployment rise from 2.9 to 4.6 percent, while rates in the Virginia Beach-Chesapeake-Norfolk area would almost double, increasing from 2.6 to 5.5 percent. In both areas, a 50 percent federal workforce reduction would put more than 25,000 people out of work.
To help stabilize state and local economies, policymakers could explore ways to help unemployed workers move into jobs in other sectors of the regional economy that are growing, such as professional services.
HOW WE DID IT
This overview provides a snapshot of the data presented in the slide deck. Download the deck for more information on labor and employment, fiscal health, housing, population, and the nonprofit sector in the DC metropolitan region.
The first figure draws on data from the DC Office of Tax Revenue, the Comptroller of Maryland, and the Virginia Department of Taxation to calculate their sources of revenue by type of tax. One limitation of this comparison is that DC is not a state, but a district, meaning its tax composition differs from that of states. For example, DC collects property taxes, while in Maryland and Virginia, property taxes are largely collected at the local level.
The second and third figures use data from the US Office of Personnel Management at the core-based statistical area level and county-level local area unemployment statistics program data from the US Bureau of Labor Statistics. The authors merged March 2024 data from these two datasets. The final dataset and underlying code to merge the various files together are available on the Urban Institute Github repository.
