Greater Opportunity Through Innovative Change

CONVERGENCE

(Sept. 22) Arkansas total government employment, at some point this decade, will surpass the number of workers in the Manufacturing private industry sector, a first in the state once known as the Land of Opportunity. Government has not surpassed Manufacturing in employment since economists first started collecting data seven decades ago in the 1930s.

Arkansas’ government sector (federal, state and local) employed 185,200 in August 2003, according to the state Department of Employment Security. Manufacturing employed 207,200 the same month. The 22,000-job margin between sectors has narrowed considerably since June 1973 when Manufacturing (204,400) and government (108,200) diverged by their widest postwar margin (96,200).

Non-Federal Sectors Cause Growth

The remarkable convergence between Arkansas’ second and third largest employment sectors¹ has accelerated since June 1995 when Manufacturing employment peaked at 247,300. There was an 80,000-job margin between Manufacturing and government two months later in August 1995. The margin has narrowed by nearly 60,000 jobs in eight years as more than 40,000 Manufacturing jobs (16 percent) disappeared while government employment expanded.

The margin between sectors was relatively stable even during World War II when government employment grew by more than 20 percent. There was a 14,800-job margin between Manufacturing (60,100) and Government (45,300) in December 1941 when war was declared. By war’s end in Europe and the Pacific the margin had widened slightly.

Federal employment has not been a contributing factor to the trend. Under Democrat William J. Clinton (1993-2001) and Republican George W. Bush (2001-) Arkansas federal employment has been negative. It declined by 600 jobs under Mr. Clinton and by 400 jobs under Mr. Bush.

Arkansas’ booming welfare state and educational sector have contributed to the convergence. Employment in Arkansas’ non-federal sectors has grown by 19,700 (14 percent) since mid-1996. During the 2001 recession these sectors added 3,400 positions as Manufacturing shed 12,300 jobs. Arkansas tax and regulatory policies, coupled with national trade and monetary policies, have contributed to job losses.

Arkansas’ Expanding Government Sector

Production and income data from the U.S. Bureau of Economic Analysis also show convergence between Manufacturing and government sectors.

Arkansas Manufacturing Gross State Product (GSP) was at a lower level in 2001—the most recent year for which data is available—than in 1995. Government GSP expanded in the same period. In brief, Arkansas Manufacturing production contracted over a multi-year period while government expanded. Government’s percentage share of total Arkansas GSP also increased and will surpass Manufacturing GSP if the trend continues at its current rate.

Arkansas earnings by place of work also shows Manufacturing income has declined since early 2000 while state and local government have expanded. Manufacturing earnings expanded by 10 percent between 1995 and 2001 while state and local government earnings exploded at a growth rate of more than 40 percent.

--Greg Kaza

1 The Services private industry sector is Arkansas’ largest in terms of employment.