Northwest Arkansas wages increase, still low for unemployment rate

How Northwest Arkansas salaries compare
How Northwest Arkansas salaries compare

In spite of a low unemployment rate, wages in Northwest Arkansas are still low compared to peer regions.

The average annual salary of $44,980 and 2.9 percent unemployment rate in 2016 were lower than five regions the Northwest Arkansas Council uses as benchmarks, according to its 2017 State of Northwest Arkansas Region Report.

The council, an economic development organization, in 2015 selected Austin, Texas; Des Moines, Iowa; Madison, Wis.; and Durham-Chapel Hill and Raleigh, N.C., as peers.

Low unemployment is typically accompanied by high wages, said Mervin Jebaraj, director for the Center for Business and Economic Research at the University of Arkansas, Fayetteville. But that's not always the case.

"That's been a national problem, a statewide problem. It's not just here," Jebaraj said.

From 2012 to 2016, average wages grew 1.9 percent in Northwest Arkansas, "placing the region in the middle of the pack when compared to the peer regions," according to the report. Annual wage growth was strongest in the Madison region at 2.5 percent.

The local unemployment rate declined 3 percent since 2012, which was the second largest decline among peer regions.

Low-wage factors

A few factors could be keeping wages from increasing more, Jebaraj said. First, he said, there is a lack of labor force, which means a lot of people could be working but aren't.

This might seem counterintuitive when looking at the low unemployment numbers, but unemployment rates don't factor in the long-term unemployed, which hasn't changed in the last year, he said. Long-term unemployment includes those who have not worked for more than 27 weeks.

"Employers know there are more workers who could enter the market, so they don't have to raise wages," he said. "Wages are going up, just not significantly."

Another issue could be that many Baby Boomers, who generally earn higher wages, are retiring. They are often being replaced by younger, less experienced millennials who would logically make less, Jebaraj said. The generation in the middle is much smaller in size.

This is particularly true in Northwest Arkansas where the median age of 28 is younger than many other areas, according to American Community Survey conducted by the U.S. Census Bureau. The median age is 37.8 nationally. The median is the middle number in a list of ordered numbers.

People of all ages are looking to improve and acquire a broad range of skills, said Elston Forte, NWA Career Specialist at Goodwill Industries of Arkansas. Goodwill offers free professional development and related services.

"A lot of individuals walk through these doors and say 'I may have made X amount in my career, but I see Northwest Arkansas growing tremendously,'" he said. "So a lot of them are willing to take a step back to take 10 steps forward; they're willing to accept lower-paying jobs just so they can get in with certain companies."

Jebaraj said younger workers will eventually gain experience and earn more money.

The final factor Jebaraj thinks may attribute to depressed wages is the lack of employers. As an example, an area may have only a few large businesses, giving them close to a monopoly to keep wages down.

"There's no competition for other jobs unless you're willing to move," he said.

Where people work

The majority -- 53 percent -- of the 233,110 surveyed workers in Northwest Arkansas are employed in five job areas: office and administrative support; sales; transportation and material moving; production; and food preparation and serving related, according to May 2016 data from the federal Bureau of Labor Statistics. The estimates don't include the self-employed.

Almost 15 percent of jobs are in administrative support.

The area is unique in the percent of higher-end jobs, said Mike Harvey, chief operating officer for the Northwest Arkansas Council.

"There's no place in the country frankly that has the concentration on the high-end of business occupations that we do," he said. "We have about six or seven times the national average of the high, white-collar jobs."

Harvey said the number of high-paying corporate jobs in the area isn't new because more than 40 percent of new jobs generated in the past 15 years have been white-collar jobs. The job creation is led by the three Fortune 500 companies headquartered here -- Walmart, Tyson Foods and J.B. Hunt Transport Services.

"You don't think of poultry operation, for instance, having a lot of white-collar workers, but Tyson has thousands," Harvey said.

However, this high tier still makes up a small percent of the overall workforce, and the highest-paying jobs drive up the average wage. While the average hourly wage for all jobs in the region is about $22 assuming a standard 40-hour work week, the average for the five areas with the most employees is $15.22.

Bill Mathews, co-owner and operator of Mathews Management Co. and McDonald's of Northwest Arkansas, said the food business in the area is very competitive with unemployment hovering around 2 percent. He employs about 2,000 people across Northwest Arkansas.

Mathews said in his line of work the growing population has led to more competition with other businesses for good employees. He said he raised starting salaries to $9 an hour about a year ago to keep up with the market. Minimum wage in Arkansas is $8.50 an hour; the national minimum wage is $7.25.

But it's not just about salary, Mathews said.

"It's about the total package," he said. "We talk to employees not just about hourly rate, but all the things we have to offer: Meal discount, uniforms, paid time off, health insurance, there's a lot of benefits in their package, bonus programs for hourly and lucrative for management. You have to look beyond hourly rate, especially with millennials. Time off is really important to a lot of them and health insurance. They're also looking for an opportunity to grow with a company."

Worth of wages

While the region's wages are low compared to outside the state, Northwest Arkansas continues to have the lowest cost of homeownership as a percentage of monthly household income, according to the region report.

"I'm not so concerned about wage growth as long as it keeps up with cost of living," Harvey said.

Homeownership costs were 15.3 percent of median income in 2016. The peer region average was 17.7 percent and nationally was 18.1 percent.

Affordable housing means the cost is lower than 30 percent of income and is the biggest factor when economists discuss cost of living.

Northwest Arkansas seems to have a lower cost of living, but the region's poverty rate is higher than all but one peer region, according to the region report.

Housing isn't affordable for everyone in the region, Jebaraj said.

"Compared to those peer regions, we tend to do really well. Compared to ourselves and the rest of the state, we're not doing so well. Housing affordability is serious; I think it's time now to look into it," he said.

The poverty rate in 2016 for Northwest Arkansas was 13.2 percent, a 1.1 percent improvement from 2015. The Durham-Chapel Hill region was the only peer region to have a higher poverty rate at 14.9 percent.

"For the people who have always been here, it is a lot more expensive to live here than it has been. For the people coming in for jobs, it's still more affordable," Jebaraj said.

One explanation for the differential between seemingly lower cost of living but higher poverty rate could be the numbers are skewed by those in the top percentile of wages. Northwest Arkansas, along with the rest of the country, is seeing a shrinking middle class.

Benton County skews the entire state because of significant high wages, Jebaraj said. If Benton County was removed from the state's other 74 counties, it would significantly lower the entire state's personal income average.

"It's that bad," he said.

Another explanation could lie in the other cost-of-living factors.

Jebaraj said studies have shown Northwest Arkansas transportation costs have been around 29 percent of income, which is significantly higher than housing costs. The area is spread out with no mass transit options, he said.

Housing and transportation costs combined take up more than half of the average income of those in Northwest Arkansas, higher than in Chicago and Seattle, according to the Chicago-based urban research group Center for Neighborhood Technology.

Many people don't think about transportation costs because it doesn't come in one big bill, Jebaraj said. It's car payments, insurance, filling up with gas and maintenance costs. People will buy a house further out of town because it's cheaper but don't factor in the higher cost of transportation to work and services, he said.

"If we don't do anything and stay on the same trajectory for 10 or 20 years, we will probably inherit all of the problems of other major metropolitan areas that haven't developed around transit and haven't dealt with housing affordability, and are now trying to fix it on the tail end with blunt policies when there's no way around it," he said.

photo

Low unemployment, low wages

NW News on 03/25/2018

Upcoming Events