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With Unemployment Low, Arkansas Economists Weigh Effects

3 min read

While two Arkansas economists don’t expect state unemployment to fall much further, the effect of historically low jobless levels could put workers at an advantage when seeking a new job or higher wages.

Kathy Deck, the director of the Center for Business and Economic Research in the Sam M. Walton College of Business at the University of Arkansas; and Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, both say Arkansas unemployment, at 3.8 percent in May, can’t get much lower.

“At some point the unemployment rate gets so low you can’t have a lower unemployment rate because people are always in transition,” Deck said. “People are always going to be quitting and getting fired and starting their own businesses. I think we are right now as a state where our unemployment rate is low enough that there are wage pressures in our market.”

Higher wages has been among the missing pieces of the economic recovery. Earlier this month, the U.S. Department of Labor’s report on national unemployment showed average hourly pay up 2.5 percent compared with a year ago, even as nationwide hiring slowed. While that’s below the 3.5 percent consistent with healthy economic growth, it’s above the 2 percent that has occurred for most of the seven-year recovery from the Great Recession.

The prospect of rising wages is only one factor that makes for a good job market for workers. Another: employers are still searching to fill positions.

“When employers go to the marketplace to find their next employee, they want that perfect person, but they’re probably in another organization making a difference somewhere,” Deck said. “That’s why you hear so much of this, ‘I have a hard time finding a person.'”

That could mean favorable conditions for employed workers to get jobs better-suited to them. 

“If you need more hours, or if you’re looking for a job that uses training that you have, with a low unemployment situation you’re in a much better situation to find that perfect job,” Deck said. “The pressures are all the right way for the workers right now. Workers have a better bargaining position.”

At 3.8 percent, Arkansas’ unemployment rate sits below the national average of 4.7 percent. But Pakko thinks the state’s numbers might be skewed. 

“The unemployment rate has been falling rapidly in Arkansas, but the pace that it’s been falling leads me to believe it’s a statistical anomaly,” he said. “There are often revisions at the end of the year, and just looking ahead to the end of this year it’s not unlikely that we’ll see some revision.”

But Pakko said he believes that the state will float around 4 percent unemployment for the remainder of 2016.

Market Changes

Although the overwhelming majority of Arkansas industries and sectors are performing well, manufacturing has struggled and continues to do so, the economists said.

“Manufacturing has clearly been a weak point and that is an important point in Arkansas’ economy — durable goods manufacturing in particular,” Pakko said.

According to Deck, manufacturing jobs are changing, becoming more technical than they were in the past.

“Manufacturing now does more with fewer people,” Deck said. “Manufacturing itself is restructuring generally across the board.”

According to Pakko, another sector that is weak at the moment is mining and natural resources, which includes energy production, the oil industry and the natural gas sector. But that sector is small in Arkansas and doesn’t have a large impact on the Arkansas economy or unemployment rate, he said.

Deck said trade, transportation and utilities, a large and impactful sector for the state, is performing well. It encompasses retail sales, logistics and shipping goods.

“We have all of those pieces here in Arkansas — Wal-Mart and J.B. Hunt to name a few,” Deck said.

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