Greg Kaza: Union County Achieves Elusive Income Goal

Editor’s note: Economist Greg Kaza is executive director of the Arkansas Policy Foundation, a Little Rock think tank established in 1995.

A long-stated goal of Arkansas officials is achieving 100 percent parity with the national average in terms of per capita personal income (PCPI) as measured by the U.S. Bureau of Economic Analysis. Officials could learn a great deal from Union County, one of only two Arkansas counties to achieve parity in 2012.

Public officials have struggled with the parity issue for decades. Arkansas’ PCPI was only 43 percent of the U.S. in 1929. Arkansas was 47 percent when World War II started (1941), and 60 percent when the conflict ended (1945).

Arkansas business leaders played an important role in increasing PCPI in the postwar era. They recruited manufacturing enterprises – which tend to pay above-average wages – from other states. Arkansas’ PCPI increased from 61 to 76 percent (1955-1973) because of their efforts.

Arkansas PCPI stagnated between 76 and 78 percent during the next three decades (1973-2007). It peaked at 78.50 percent (1995), despite the economic boom of the mid-to-late 1990s. But Arkansas has achieved 80 percent each year since 2009, recording an all-time high of 81 percent (2012).

A handful of Arkansas’ 75 counties have made greater progress.

Pulaski County, the seat of state government reached 100 percent for the first time in 1991. Its PCPI was 105 percent in 2012, one of only two Arkansas counties greater than the U.S. average.

Other successes were short-lived: Arkansas, Lonoke, and Prairie counties achieved parity for at least one year, only to retreat below the U.S. average. Prairie County’s achievement was historic: the Arkansas record (129 percent in 1974).

Union County, by contrast, made consistent and steady progress toward the goal. Union County’s PCPI ranged between 81 and 96 percent of the U.S. (1969 to 2007).

One factor: a manufacturing base that contributes a significant percentage of total compensation to Union County employees.

Another factor: an entrepreneurial, risk-taking culture that has created thousands of jobs.

Union County finally broke 100 percent for the first time in 2008 (101.86), and topped the century mark in 2011 and 2012. (PCPI for 2013 will be released later this year).

More significantly, Union County PCPI (106.26) led all 75 Arkansas counties in 2012, besting Pulaski County.

Many factors play a role. These include foundations of the American free enterprise system such as the rule of law, freedom of contract, respect for property rights, and a non-arbitrary regulatory environment. Another factor is infrastructure, a broad category encompassing roads, airports, waterways, rail lines and the power grid.

A skilled workforce – a product of Arkansas’ education system is another factor.

And a final factor that does not receive enough attention from policymakers are tax rates (capital gains, income) that place Arkansas at a competitive disadvantage with regional or national economies.

Arkansas will eventually achieve 100 percent income parity if officials make a sincere effort to understand each of these factors. They can also learn from Union County’s example.