The Arkansas Labor Pool Migrates From Manufacturing To Service Sectors

Editor’s note: This article appears in the latest magazine edition of Talk Business & Politics, which you can read here.

The biggest trend that Arkansas’ labor pool of 1.3 million has undergone over the past decade has been the transition from a goods-producing, blue collar-based workforce to a fast-growing service sector that ranges from highly paid corporate CEOs to fast-food workers making minimum wage.

At the same time, the service sector is projected to add the lion’s share of Arkansas’ new jobs to the state’s economy over the next 10 years, tallying almost 120,000 of the 135,947 new jobs projected to enter the state’s labor pool by 2022, according to the latest occupational outlook from the Arkansas Department of Workforce Services (DWS).

Arkansas economist Greg Kaza, executive director of the Arkansas Policy Foundation, highlighted the fact that the highest growth rate in any of the major industries or so-called “supersectors,” will come from the leisure and hospitality industry, which is projected to grow 20.26% by 2022.

That means “there will be more waiters, waitresses and motel employees than manufacturing or information workers,” Kaza said.

According to the state’s labor statistics, Arkansas’ manufacturing workforce peaked in 1995 around 250,000 jobs but has been on a long, downhill slide ever since. In January, Arkansas the manufacturing sector sank to a measly 151,700 jobs in January, a level not seen since Orval Faubus was governor in the early 1960s, according to state labor statistics.

Since then, that number has rebounded to 155,700 in August. Still the state’s long-term projections for the blue-collar and goods-producing sector are quite grim, projecting to add only 6,937 jobs by 2022. By then, the service sector is projected to hold more than a million of the state’s 1.43 million workers, while goods-producing jobs will be down to fewer than 224,000 positions.

Those key observations and the state’s latest long-term employment outlook were the primary focus of DWS’ recent 71-page Long-Term Industry and Occupational Projections publication, which includes an overview of where the Arkansas labor market may be heading in the near future.

The Arkansas survey, which was released shortly after the U.S. 2012-2022 employment outlook in late December, contains information on the growth and decline of every industry and occupation in Arkansas. The job data is also classified by the North American Industry Classification System that was created to bring consistency and comparability to the classifying of industries and businesses across the U.S., Canada and Mexico.

In addition to the decade-long projections, DWS also recently release its 2014 Labor Market and Economic Report, which details the labor market and economic fortunes across the state’s 10 Workforce Investment Areas through the end of 2013.

Put together, both reports offer a distinct picture of what Arkansas’ workforce may look like over the next few years and the coming decade. And like the U.S. workforce, the emerging Arkansas labor pool is undergoing major changes that federal labor officials call the “new normal.”

For instance, the U.S. labor force is projected to grow 0.5 percent per year from 2012 to 2022, compared with an annual growth rate of 0.7 percent during the decade. That is partly due to the aging baby-boom generation, or workers ages 55 and older, expected to make up more than a quarter of the labor force in 2022.

What stands out, however, is that projected declines in the labor force participation rates of both men and women are expected to slow labor force growth. The overall labor force participation rate is projected to decline from 63.7 percent in 2012 to 61.6 percent in 2022, continuing the trend from the past decade.

That disappearing labor force is not just a national trend. In January, economist Kathy Deck raised the same question in a guest column for Talk Business & Politics entitled “Where Is the Workforce Going?”

“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,” said Deck, director of the University of Arkansas’ Walton College of Business Center for Business and Economic Research. “So, although the state never had an unemployment problem as severe as the nation’s, the recovery from elevated levels has been tepid.”

And although Arkansas’ population increased by 9,545 to almost 3 million residents in 2013, the lukewarm growth in the job market continues to be a major issue, state labor statistics show.

For example, the Eastern, North Central, Southeast, Southwest, West Central and Western Arkansas workforce investment areas saw decreasing populations in 2013. That resulted in the state’s labor force and employment decreasing between 2012 and 2013, at 18,100 and 17,600, respectively.

Meanwhile, between now and 2015, employment in Arkansas is projected to see modest growth, increasing by 1.45 percent between 2013 and 2015. The services-providing industries are expected to add 19,157 new jobs, while goods-producing industries are predicted to lose 430 jobs.

The top growing industry supersector for net growth is projected to be professional and business services with a gain of 7,136 jobs. The goods-producing industries could see a net loss of 430 jobs with gains of 343 in construction and losses of 230 in the natural resources and mining supersector and a loss of 543 in manufacturing.

Northwest Arkansas’ fast-growing professional and business services supersector was recently highlighted in the highly watched quarterly economic report from the U.S. Department of Commerce.

In September, the Fayetteville-Springdale-Rogers area’s professional and business service sector saw the largest economic expansion among the nation’s 381 largest metropolitan areas (MSAs) in 2013, increasing real gross domestic product (GDP) growth by 3.33 percentage points.

“This is wonderful news, but it is consistent in what we are seeing in the [Arkansas] labor numbers and consistent with what we have been seeing in one of the key industries in Northwest Arkansas – the growth of the professional and business service sector,” Deck said.

Another key trend that Arkansas is seeing along with the rest of the nation is the role health care is playing in the state’s short-term and long-term employment outlook.

While total U.S. employment is projected to increase 10.8 percent, or 15.6 million, during the decade, occupations and industries related to health care are projected to add the most new jobs between 2012 and 2022, U.S. labor officials said.

Nationwide, the health-care and social-assistance sector is projected to grow at an annual rate of 2.6 percent, adding 5 million jobs between 2012 and 2022. This accounts for nearly a third of the total projected increase in jobs. The growth reflects, in part, the demand for health-care workers to address the needs of an aging population, BLS officials say.

“In the coming decade, demographic changes are expected to have pervasive effects on the nation’s economic outlook. As individuals age, their consumption patterns change and their demand for health care and related services rises,” said Maggie Woodward, economist in the Office of Occupational Statistics and Employment Projections of the U.S. Bureau of Labor Statistics.

“These trends are expected to play an important role in sectoral growth of output and employment. In addition, by expanding insurance coverage to millions of Americans, the Patient Protection and Affordable Care Act will place even greater demands on the health care system,” Woodward said.

Meanwhile, the leisure and hospitality industry is projected to see the largest percentage growth among the supersectors in Arkansas by 2022 at more than 20 percent, followed by education and health services sector at 19.2%. Rounding out the top five are other services (12.04%), professional and business services (10.1%) and construction (8.98%).

Among the bottom five supersectors, only the information industry is expected to see negative growth. That industry is expected to see a loss of 207 jobs. The manufacturing sector is the next loser, projected to only see a growth 4.47% through 2022. The trade, transportation and utilities (6.27%), government (7.27%), and natural resources and mining sectors (7.36%) round out the bottom five.

Among individual sectors, the industry expected to see the fastest growth through 2022 is the restaurant and fast-food trade, projected to grow by 18,430 employees to a total of 96,765. The other sector expected to add more than 10,000 new employees is individual and family services, which is expected to grow from 21,231 to 32,745, a whopping 54.2% spike in employment. Three other sectors (elementary and secondary schools, offices of physicians, and colleges, universities and professional schools) all are expected to add more 5,000 employees between now and 2022.

Among the biggest decliners, the Postal Service is expected to continue cutting service in rural areas across the state. Not only is the nation’s mail delivery system expected to see the largest number of lost jobs (-918) in Arkansas, but it also expected to be among the biggest percentage decliners at -17.03%.

As expected, several manufacturing sectors are also expected to lose employees through 2022, including electrical equipment fabricators (-485), pulp, paper and paperboard makers (-443), and plastic products producers (-421). Rounding out the bottom five is landline telecom carriers, which is expected to see a loss of 379 jobs as more Arkansans switch to from wired to wireless phones.

Finally, Arkansas’ projected growth rate through 2022 is 1.04% on an annualized basis. “This projected growth rate is lower than the 1990s expansion (March 1991-March 2001, 2.4%) but greater than the current expansion (June 2009-, 0.5%),” Kaza said.

Still, Arkansas growth rate is slightly better than most of the surrounding states and better than the national average. For example, Oklahoma predicts that total payroll employment will grow by 10% over the decade, or 1% on an annualized basis – adding 175,071 jobs to the state’s economy.

In Missouri, that state’s labor force is expected to grow by 8.61% over the 10-year period, less than 1 percent in annualized growth. Arkansas’ neighbor to the north will add 224,606 jobs to the Missouri labor force, mainly in the urban population centers of Kansas City and St. Louis.

To the south, Louisiana is projected to see an annual rate of growth of 1.3 percent, slightly higher than Arkansas. The latest employment projections for Mississippi and Tennessee only extend for the 10-year period from 2008-2018.