Kathy Deck: Where Is The Workforce Going?

Editor’s note: Kathy Deck is the director of the University of Arkansas’ Walton College of Business Center for Business and Economic Research. She will present her state and local economic forecast on Thursday, Jan. 16, 2014 in Rogers.

The state of Arkansas enters 2014 with an economy that is full of contradictions. Our recession was much more muted than the nation’s, but while the country’s unemployment rate steadily declines, the unemployment rate in Arkansas stabilized a year ago and is creeping back up.

Total nonfarm employment in most of the state’s metropolitan areas is growing at a reasonable clip, but the more rural counties of the state are experiencing employment downturns more severe than those that took place during the Great Recession. As happened during the last expansion, our business and community leaders face significant challenges to make sure that the state fully participates in the nation’s economic growth.

In the United States, the most recent unemployment rate peak was in November 2009 when a full 10 percent of the labor force was unable to find jobs. As of November 2013, the unemployment rate had dropped markedly to 7.0 percent. While this sounds like significant progress, that same period was marked by quite slow labor force growth—over the entire four years, there was only 0.2 percent annual labor force growth. Had the labor force grown by pre-Great Recession rates, the improvement in the unemployment rate would have been much more muted.

The labor force growth (or lack of growth) story is much more dramatic in Arkansas. The Arkansas unemployment rate peaked at 8.0 percent in October 2010, fell to 7.1 percent in December 2012, and has risen again to 7.5 percent as of November 2013. So, although the state never had an unemployment problem as severe as the nation’s, the recovery from elevated levels has been tepid.

Moreover, during the past four years, the labor force has actually declined by 1.2 percent, which equates to 16,488 people. Population estimates from the U.S. Census Bureau are not available through 2013, but as of 2012, the state’s population was still growing. This leads to an obvious question: what is happening to the state’s labor force dropouts if they are not, in fact, leaving Arkansas?

There are several possible answers to this puzzle. The state of Arkansas could be facing a relatively high number of retirees as the Baby Boomer generation ages. Younger citizens could be attending college in greater numbers as the prospects for those with lower educational attainment become fewer. Alternatively, young people may be depending on their parents’ financial support for longer as they consider less attractive options. Disability payments could be acting as the last safety net for those who cannot work. The data that are available are inconclusive about which explanation is the correct one, but almost certainly, the answer is some combination of all of the above.

The labor force puzzle comes down to opportunity. Arkansas is a relatively rural state, and about 65 percent of our labor force resides in one of six metropolitan statistical areas. This percentage has been growing—a decade ago, only 61 percent were metro dwellers and two decades ago, only 58 percent of Arkansas citizens lived in our densest places. This trend is not unique to Arkansas, but instead is representative of the urbanization of the United States. In fact, 84 percent of the U.S. population lives in a metropolitan area. People move to metropolitan areas seeking out the economic success that can be elusive in more rural areas.

And, there is the chance of prosperity to be had in the metropolitan areas of Arkansas. 46,300 more people are employed in the six biggest metro regions of Arkansas than in late 2009. In Central Arkansas, employment is back to its pre-recession peak; in Northwest Arkansas and in Jonesboro, employment is far above the pre-recession levels.

The mix of employment is changing somewhat, with more healthcare and professional and business service workers and fewer manufacturing workers, bankers, and construction workers than before. But, the economic growth is palpable in these areas, so it is unsurprising that the labor force growth that we do have in Arkansas is located there.

The leaders of our businesses and communities know that there is nothing more important for our economic success than to have a well-trained, highly motivated, hard-working labor force to dangle in front of employers.

Investments in education and infrastructure must be designed with growing a high quality workforce as the strategic goal. There is nothing else that deserves as much focus as making sure that those who want to work have the opportunity to do so and help make us all better off.

These leaders should have an eye on the weak labor force growth rates that occurred in 2012 and 2013 and be searching for ways to turn the trend around in 2014.