There’s been a lot of headlines lately highlighting Arkansas’s record-low unemployment rate of 2.6 percent. No doubt this is good news, especially just three years after record high unemployment during the height of the COVID-19 pandemic.
But what do these labor force numbers really mean? Has Arkansas truly arrived into optimal economic bliss? Should we all kick back and relax, embracing our place at the top of the mountain? Is this as good as it gets?
While a lot of good progress has been made to improve the state’s economic health – even in the most recent legislative session – a low unemployment rate is only one piece of the economic puzzle. And policymakers should resist the tug of complacency.
Arkansas’s unemployment rate does not capture all unemployed workers. Indeed, by definition, this economic measurement only includes workers who are actively looking for work.
Arkansans of working age who are only “marginally attached” to the labor force (e.g. those who are no longer actively looking for work), those who are discouraged (e.g. those who have given up looking for work), and those who are employed only part-time for economic reasons are not included in the unemployment rate that Arkansans are most familiar with.
And in fact, when you include marginalized workers, those who have dropped out of the labor force entirely, and those who have stopped looking for work, Arkansas’s unemployment rate more than doubles to 6.8 percent.
Speaking of workers dropping out of the labor force: Arkansas’s labor force participation is still lagging behind where it was pre-pandemic – and behind our neighbors.
The labor force participation rate measures the share of adults who are employed and adults who are unemployed but actively looking for work (actively is the operative word here). Yet today, Arkansas’ labor force participation rate is still below what it was prior to the pandemic.
In fact, accounting for Arkansas’s slight population growth since February 2020, there are still more than 7,200 workers missing from Arkansas’s economy.
In other words, while the overall unemployment rate has gone down, it’s not entirely because people are going back to work. It’s also driven largely by people dropping out of the workforce entirely.
Indeed, Arkansas’s total number of workers is still below pre-pandemic levels and the state’s labor force participation rate is among the lowest in the nation, with all but one of Arkansas’s neighboring states currently scoring better.
This means a less-than-ideal share of potential workers are actually in the workforce, actively looking for work.
One concerning trend is that continuing unemployment claims (e.g. those who continue to apply for unemployment benefits) now exceed 12,000 Arkansans for the first time in more than a year and a half. This was preceded by a sharp spike in new jobless claims at the beginning of July.
While crucial unemployment reforms are still being implemented to strengthen the state’s workforce, this is a troubling trend that policymakers should watch carefully.
In May, there were 101,000 open jobs in Arkansas, an uptick from earlier in the year. At the same time, there were more than 37,000 unemployed Arkansans who hadn’t filled these jobs in the very same month, while more than 1,000,000 Arkansans of working age remained out of the labor force entirely. Clearly, there are many (too many) Arkansans who are able to work but choosing not to do so, leaving Arkansas businesses struggling to fill open jobs.
One of the chief culprits stifling the labor force is the dangerous dependency on welfare, both in Arkansas and throughout the nation. Unsurprisingly, as welfare enrollment – particularly in Arkansas’s Medicaid program – has ballooned over the last several years and decades, labor force participation has declined.
The high number of able-bodied adult welfare enrollees Arkansas has per capita would suggest that at least some of these workers find staying at home more lucrative than returning to work.
Quite simply, if the state continues to prioritize welfare over work, we shouldn’t be surprised that we get more of the former. Breaking down barriers to the workforce and tackling the crisis of dependency head- on are simple tools in our toolbox to boost Arkansas’s labor force and help AR small businesses find the workers they need.
Without a doubt, Arkansas has made significant strides in recent years, becoming one of the first states to opt out of the disastrous COVID-era unemployment bonus, shortening the maximum length of unemployment benefits to become the lowest in the country, and reducing cash welfare time limits for working-age adults. All of these accomplishments are no doubt contributing to Arkansas’s imminent economic turnaround.
But the work is far from done. The unemployment rate is only one metric of Arkansas’s overall economic health. In other key metrics, Arkansas’s labor force is still struggling. Policymakers must acknowledge this reality and continue working to reduce dependency and lower barriers into the workforce.
If they do, we'll be well on our way to becoming an economic powerhouse.