A forum for information and analysis on the Arkansas economy

Metro Area Employment and Unemployment – January 2022

The latest data on metro area employment and unemployment was released by the Bureau of Labor Statistics this morning.  As with all of the monthly employment data, the metro area data have been revised or are in the process of revision.

The unemployment data from the Local Area Unemployment Statistics (LAUS) data set have been updated, but the revision is incomplete:  A full accounting of the revised data won’t be available until April 3.  For now, we have revised, not-seasonally adjusted data for January and December 2021, along with new estimates for January 2022.  The figure and table below display the unemployment rates for January and the revisions to unemployment rates for January and December 2021.

In terms of unemployment rate levels for January, the lowest rate in the state is in Northwest Arkansas and the highest is in Pine Bluff.  Four metro areas have unemployment rates above the statewide average, and four have rates below the average.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Revisions for 2021 values were all in the direction of higher estimates than previously reported.  From December 2021 to January 2022, the newly published data show that unemployment rates increased in all metro areas.  However, the data reported in the table below are for not-seasonally adjusted data.  A sharp increase in unemployment in January is one of the most prominent features of the seasonal pattern of unemployment rates.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Payroll Employment
Data on nonfarm payroll employment were also revised.  The figure and table below show the nature of the revisions.  The new data show slightly improved growth rates for Hot Springs, Jonesboro, and Texarkana.  Little Rock employment for December 2021 was revised higher by 10,300 jobs (2.8%).  Downward revisions can be seen for Northwest Arkansas, Fort Smith, Memphis and Pine Bluff.  Among the downward revisions, the largest was for Pine Bluff–revised downward by 800 jobs in December (-2.5%).

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Note that the total magnitude of the revision for all eight metro areas is 6,300, while the statewide total revision was 21,300.  Hence we can infer that significant upward revision affected the non-metropolitan portions of the state as well.

Incorporating the new, preliminary estimates for January, payroll employment growth rates are summarized in the table below:

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

For January, Hot Springs and Pine Bluff each showed declines of 1.0%; however, growth rates were positive for all metro areas in the state.  Compared to a year ago, Pine Bluff is the only metro area to have shown a net decline.  Relative to the pre-Recession/Pandemic month of February 2020, Northwest Arkansas and Jonesboro are the only metro areas to have shown positive net growth.  After incorporating the data revisions, Little Rock and Memphis are now nearly unchanged relative to February 2020.

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Arkansas Employment and Unemployment – January 2022

The latest data on Arkansas employment and unemployment was released today, including the annual “benchmark revisions” of the payroll employment data.

The information from the household survey showed a slight drop in the unemployment rate.  After the December figure was revised from 3.1% to 3.3%, the new data for January show a rate of 3.2%.  In both an economic and statistical sense, these small changes in the unemployment rate are not significant.  Broadly speaking, however, a rate lower than 3.5% is arguably approaching a lower-bound—a rate low enough that it represents people who are going through brief spells of unemployment between jobs (frictional unemployment).

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS).

The low unemployment rate should be taken in the context of broader measures of labor market activity—the labor force participation rate, for example.  As reported in the context of the data revisions on March 3, the proportion of Arkansas population that is engaged in the labor force (either employed or seeking employment) has dropped significantly since the onset of the pandemic-recession in early 2020. The participation rate ticked up from 56.2% to 56.3%, but remains over two percentage points lower than in February 2020.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS).

Payroll Employment
Today’s release included the annual “benchmark revisions” to the data on nonfarm payroll employment.  In this regular revision process, the data from the Current Employment Statistics (CES) are benchmarked to fit the more comprehensive Quarterly Census of Employment and Wages (QCEW).  In this year’s revision, the Bureau of Labor Statistics also implemented a new model for estimating employment statistics for states and metropolitan areas.

The results of this year’s revision are substantial.  Overall, the revised data show much stronger employment growth during 2021.  Previously published data indicated that Arkansas payroll employment was still slightly lower than at the onset of the pandemic-recession in February 2020.  The revised data showed that we surpassed that level in November.  As of January, the revised data show a net increase of 8,900 jobs between February 2020 and January 2022—a gain of approximately 1.0%.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES).

The table below summarizes the previously-published and revised employment data by sector.  Several sectors were revised upward, accounting for the positive net change in total nonfarm payroll employment:  As of December 2021, estimates of employment in Construction were increased by 3,600 jobs.  Employment in Education & Health Services was revised up by 6,100 and Leisure & Hospitality services by 5,000.  Another significant upward revision was in Government employment, which was entirely in the Local Government subcomponent reflecting higher estimates of employment at public schools than was previously estimated.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES).

There were some significant downward revisions as well.  Overall Manufacturing growth was revised downward by 3,300 jobs.  However, this breaks down to a negative 7,900-job revision to durable goods manufacturing and a 3,900-job positive revision to nondurable goods.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES).

As for January, the newly released data show a monthly increase of 4,000 jobs (seasonally adjusted).  Most sectors showed positive growth, with the notable exception of Construction, which was down by 700 jobs.  In total, nonfarm payroll employment is now reported to have increased by 43,200 jobs since January of 2021, with several sectors showing net gains since the onset of the recession in February 2020.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES).

The revised data suggest that the Arkansas labor market has been exhibiting a much stronger recovery than previously estimated, and is well ahead of the national economy in total employment growth.  After incorporating the data revisions and new statistics for January, Arkansas employment is now 1.0% higher than it was in February of 2020.  In contrast, the nationwide total remains 1.9% lower than the previous cyclical peak.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES).

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Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

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Revised Unemployment Data for Arkansas

The BLS has released the annual revisions of state-level employment and unemployment estimates from the Local Area Unemployment Statistics (LAUS) program.  Although the revised unemployment rate data for Arkansas are only marginally affected, some of the underlying revisions to employment, population and labor force series suggest a significantly different story than the previously-published data.

By way of background:  Each year, LAUS data are revised “to reflect new population controls, updated inputs, re-estimation of models, and adjustment to new census division and national control totals.”  In 2022, the population controls include data from the 2020 Census, using a “blended base” that reflects new population totals but vintage demographic distributions.  The 2022 revisions also include some changes in the treatment of outliers, which have required special attention during the Covid-19 pandemic, but are no longer considered a real-time concern.

After all of these changes, the headline statistic for Arkansas, the unemployment rate, was subject to minor modifications. From an unrevised peak of 10.0% in April 2020, the revised data show a more or less steady decline in the rate through late 2021, with the rate leveling off at 3.3% by the end of the year.  The previously-published figure for December was 3.1%.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

The modest changes to the unemployment rate series reflect the fact that there were only small changes to estimates of the number of unemployed.  But as shown in the figure below, the employment path and labor force totals were significantly revised. The inordinate increase in employment previously reported for December 2020 has now been completely eliminated, with the employment series showing steady, modest growth from April 2020 forward.  The labor force series (the sum of employed and unemployed) is also transformed by the revisions to employment.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Although the revised series for employment and labor force new reflect a more gradual and steady pace of recovery from the pandemic-related downturn, the revised data suggest that cumulative progress toward recovery has been less than previously indicated.  The previously-published data showed that employment had returned to within 0.7% of pre-pandemic levels, while the revised data show that employment is still 2.4% lower than in February 2020.  A similar pattern shows through to the labor force series as well.

The implication of these revisions is important:  While the number of unemployed represent a smaller proportion of the labor force than every before, the size of the labor force itself has significantly contracted.  This is most directly observable by looking at the labor force participation rate—the proportion of the population that is employed or seeking employment.  The revised data show a slightly higher participation rate in the period preceding the 2020 downturn (due to a downward revision in population estimates), but the net decline since then is now estimated to be far larger that previous data suggested.  The previously-published data indicated a net decline of approximately 1.4% of the population, while the revised data show a decline of more than 2%.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

The significant decline in labor force participation demonstrates that the unemployment rate is only a partial indicator of labor market slack. Movements into and out of the labor force can have varying implications, depending on their cause and permanence, but to ignore those labor market flows would be to miss an important part of the story—particularly under the present circumstances.

The Employment-Population ratio is indicator that is often suggested as a preferable alternative to the unemployment rate for measuring employment relative to its potential.  As shown in the chart below, by this measure, Arkansas still has a long way to recover in order to reach an employment-population ratio near pre-pandemic levels—particularly in the revised data.  Starting from around 56.5% in late 2019 and early 2020, the employment population ratio has dropped to 54.4% by the end of 2021.

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

A key question about how these trends will play out in the future is the extent to which the decline in employment and the size of the labor force are permanent, or whether they reflect protracted, but transitory effects of the pandemic/recession.  Longer term demographic trends, e.g. the retirement of the “baby-boom” generation, has long been expected to lower participation rates and employment-population ratios over time.  Recent event may have hastened that process.  Nevertheless, we expect that some further recovery in those ratios will help support ongoing economic growth as the Arkansas economy continues to emerge from the downturn of 2020.

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Metro Area Employment and Unemployment – December 2021

December was a strong month for labor markets in Arkansas, and today’s report on metropolitan area employment and unemployment confirmed that the strength was widespread.

Unemployment rates declined by at least 0.2 percentage point in all eight metro areas of the state.  December unemployment rates ranged from a low of 2.1% in Northwest Arkansas to 4.8% in Pine Bluff.  Compared to the previous December, unemployment rates were down sharply, and are now lower than pre-pandemic rates in six of the eight metro areas (Memphis and Texarkana both have slightly higher rates than in February 2020).

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Payroll Employment
Nonfarm payroll employment expanded significantly in several metro areas in December, with gains of 0.8% in Hot Springs and 0.7% in Texarkana.  Little Rock was the only metro area to show a decline for the month.  Compared to the previous December, employment has increased in all metro areas except Hot Springs, which continues to display employment growth below trend.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Three metro areas have now equaled or exceeded the employment peaks of February 2020, with Fort Smith and Jonesboro having just attained those benchmarks in December.  Memphis and Pine Bluff are each within 1 percent of their February 2020 peaks, while Hot Springs, Little Rock, and Texarkana remain 2 to 3 percent lower.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

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Arkansas Employment & Unemployment – December 2021

The year 2021 ended with another month of robust employment gains in Arkansas.  The state’s unemployment rate fell to a new record low in December, and payroll employment finished the year more than 2% higher than the end of the previous year.

The headline news was another significant drop in the unemployment rate, from 3.4% in November to 3.1% in December.  Arkansas was one of 12 states that registered all-time low unemployment rates for the month.  The number of unemployed, at 42,609 was also a record low for the series (dating back to 1976).  The U.S. unemployment rate 3.9% in December.

Source: Bureau of Labor Statistics

The drop in the unemployment rate reflected a decline of 3,750 in the number of unemployed and an increase of 2,652 in the number of employed.  The net change in the labor force was a decline of 1,098.  Compared to a year ago, the number of unemployed has fallen by over 24,500.  However, owing to the unusual surge in the measured number of employed persons in December 2020, a year-over-year comparison shows the number of employed slightly down in December 2021 (see more below).

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Payroll Employment
Nonfarm payroll employment increased by 1,200 in December (seasonally adjusted).  Over the last four months of the year alone, employment was up by 15,000.  From December 2020 to December 2021 the gain was 26,300 (2.1%).

Employment growth in goods-producing sectors was particularly robust in December with Construction and Manufacturing showing solid gains for the month.  Service-providing sectors were more mixed:  Leisure and Hospitality Services showed a strong gain, as did Wholesale Trade.  However, job-losses were recorded in Health Services and Transportation.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Arkansas payroll employment has nearly recovered to the level of the previous cyclical peak (February 2020), with the shortfall now less than 10,000 jobs, or 0.7%.  Nationwide, the data show a remaining employment shortfall of 2.3% relative to February 2020.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

Household vs. Payroll Employment
Although there are slight differences in the definitions of the number of employed covered in the household survey and the payroll survey, the two measures tend to show similar trends.  There are times, however, when the two measures give conflicting signals.  If we compare December 2021 to December 2020, the payroll survey shows an increase of 26.3 thousand jobs, while the household survey shows a decline of 1,643.  As shown in the figure below, the difference is attributable to the unusual surge in household employment recorded for December 2020.

Source: Bureau of Labor Statistics

Generally speaking, the payroll data are considered more accurate, although both measures are subject to annual revisions that can change the trends considerably.  We might have expected the December 2020 surge in employment to be revised by now, and it may be changed in the upcoming round of data revisions.  For the time being, however, the trend in Arkansas employment is probably better-represented by the data from the payroll survey rather than the household survey.

The proper measure of employment is important when it comes to evaluating the labor force participation rate.  The participation rate is calculated as the total labor force as a percentage of the population (specifically, the civilian non-institutional population aged 16 and over), where the labor force is calculated using the payroll measures of employed plus unemployed.  As shown in the figure below, Arkansas labor force participation rate–as conventionally measured–inherits the odd December 2020 employment surge.  If we use nonfarm payroll employment (with appropriate scaling and rebasing) to calculate an alternative measures, the pattern of labor force participation appears to correspond much more closely with U.S. trends.  Whichever way it is calculated, however, the participation rate has decline by approximately 1.3 percentage points since early 2020.  For the U.S. data, the decline has been approximately 1.5 percentage points.

Sources: Bureau of Labor Statistics, Arkansas Economic Development Institute

These declines in participation rates matter for interpreting the unemployment rate data.  Although unemployment rates are at or near record lows across the country, these rates are measured relative to significantly smaller bases than before the pandemic.

 

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Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

 

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Metro Area Employment and Unemployment – November 2021

The most recent report on metro area employment and unemployment showed that the strong state-level employment reports for October and November were reflected in all regions of the state.  As previously reported, the state’s unemployment rate declined sharply in November, falling by 0.3% to 3.4%.  All eight of the metro areas with portions in Arkansas saw similar declines for the month.  With the most recent declines, five metro areas now have unemployment rates equal to or lower than the rates that prevailed in the pre-pandemic month of February 2020.

Source: Bureau of Labor Statistics, Smoothed Seasonally Adjusted Metropolitan Area Estimates

Payroll Employment
Changes in nonfarm payroll employment were more mixed, with sharp increases in Northwest Arkansas, Memphis, Pine Bluff and Texarkana.  Employment  was unchanged for the month in Little Rock and Fort Smith, and declined in Hot Springs and Jonesboro.  Employment in the Fayetteville-Springdale-Rogers metro area is now nearly 4% higher than before the pandemic/recession.  In the rest of the state, however, employment remains below pre-pandemic levels.  Hot Springs, Little Rock and Texarkana are have employment totals that are more than 3% lower than in early 2020.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

As shown in the figure below, the spread in unemployment rates among Arkansas metro areas continues to reflect the relative impact of the Covid-19 Recession.  Metro areas that were among the hardest hit, including Hot Springs, Little Rock and Texarkana remain at the low end of employment growth.  Pine Bluff and Fort Smith, which lost relatively fewer jobs during the recession, are faring relatively well.  As usual, Northwest Arkansas is something of an outlier, with post-pandemic growth rates far exceeding the rest of the state.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

 

 

 

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Arkansas Personal Income – 2021:Q3

The latest report on state-level personal income, released yesterday by the Bureau of Economic Analysis, shows that personal incomes in Arkansas increased at a 2.9% annual rate in the third quarter, following a revised second quarter decline of 26.9%.  [The second quarter decline was originally reported as 29.8%.]

Source: Bureau of Economic Analysis

Arkansas growth rate was slightly higher than the national growth rate of 2.6%, and ranked 17th among the 50 states.  Second quarter growth rates ranged from -4.3% in North Dakota to 6.7% in Kentucky.

The report from the BEA noted that, in general “increases in earnings and property income (dividends, interest, and rent) more than offset a decrease in transfer receipts.”  The report also notes that states with the highest growth rates had the highest growth rates in earnings, while those with the slowest growth rates were slowed most by the nationwide decline in transfer payments.

For Arkansas, annualized earnings growth was 8.8%, accounting for 5.2 percentage points of total personal income growth.  The most significant component of earnings growth came from Wages and Salaries, which grew at a 10.8% annual rate.  Transfer Receipts declined, but that component had a smaller negative impact on personal income growth than it did in nationwide.

Source: Bureau of Economic Analysis

Cumulatively, the annualized growth of total Personal Income less Transfer Receipts over the past two years has been at 4.4% for Arkansas and 4.3% for the U.S.

Source: Bureau of Economic Analysis

A breakdown the components of earnings by sector shows that gains were widespread.  The only sectors showing declines were Construction and Military.  Farm income contributed positively to income growth in Arkansas, despite a nationwide decline.

Source: Bureau of Economic Analysis

 

 

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Arkansas Employment and Unemployment – November 2021

The November report on state labor market data showed another strong month for Arkansas.  The unemployment rate dropped by another 0.3 percentage points and payroll employment continued its trend of rapid expansion.

The headline was another drop in the Arkansas unemployment rate from 3.7% in October to 3.4% in November.  The national unemployment rate had previously been reported as falling by 0.4 percentage points in November, but Arkansas’ rate remains 0.8 percentage points lower.

Source: Bureau of Labor Statistics

The underlying data from the household survey showed the number of employed increased by 4,764 and the number of unemployed falling by more than 4,181.  The number of unemployed for the month, 46,351, was the lowest total in the series history (dating back to 1976).  With the change in employment increasing slightly more than the decline in unemployment, the labor force expanded slightly (+583).

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

Meanwhile, the potential labor force (defined as the civilian non-institutional population age 16 and over) continues to grow.  Hence, Arkansas’ labor force participation rate continues to languish at 57.0%, down 1.3 percentage points from early 2020.  The labor force participation rate for the U.S. stood at 59.2% in November, down 1.9 percentage points since February 2020.

Payroll Employment
Nonfarm payroll employment expanded by 3,300 jobs in November (seasonally adjusted).  Employment in goods-producing sectors was down slightly, with the exception of a slight improvement in nondurable goods employment.  In service-providing sectors, gains were prominent in Professional & Business Services (particularly in Administrative & Support Services), Health Care & Social Assistance, Financial Activities, and Transportation & Utilities.  Sectors showing declines included Construction, Retail Trade Accommodation & Food Service, and Other Services.  (For more detail, see PDF.)

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

In October and November alone, payroll employment expanded by more than 10,000 jobs, or 0.8%.  Over the past 12 months, the increase of nearly 28,000 jobs amounts to a growth rate of 2.2%.  Compared to the pre-recession month of February 2020, Arkansas payroll employment is down by 15,000 jobs or 0.9%.  Nationally, payroll employment remains 2.6% lower than in February 2020.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

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Seasonally adjusted data for Arkansas nonfarm payroll employment, reported in a format consistent with the monthly news release from the Arkansas Division of Workforce Services, can be found here: Table-Seasonally Adjusted NFPE. 

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Arkansas’ New 15.5% Top Income Tax Rate

The Arkansas legislature adopted major income tax legislation this week, with the accomplished goal of lowering the marginal tax rate on high incomes from 5.9% in 2021 to 5.5% in 2022, with further reductions scheduled for subsequent years that would reduce the top marginal tax rate to 4.9% in 2025.

But one quirky feature of the Arkansas tax code results in an anomalous income bracket for which the effective marginal tax rate is actually 15.5%.  Moreover, over this particular income range, the tax code contains over 60 “tax cliffs” in which small increases in pre-tax income can result tax hikes that actually reduce after-tax income.

The reason for this anomaly is Arkansas’ dual tax table arrangement, where incomes up to a certain threshold are subject to one table, while there is a completely different tax table that applies to incomes above that threshold.

Typically, a progressive income tax increases the marginal tax rate (the tax on the next dollar), in uniformly increasing steps.  The result is a relatively smooth, increasing profile for average tax rates (taxes paid/taxable income).  An example is shown in Figure 1, which shows the marginal and average tax rates in the new legislation for incomes up to $84,500.

Figure 1:

But Arkansas’ dual tax-table system includes a more significant break, where the entire tax table changes for incomes above a certain threshold.  In the new legislation, this break-point is $84,500.

Nominally, the tax tables in the new tax code specify that for incomes above $84,500 the marginal tax rates are 2% on the first $4,300 of income, 4% on income between $4,301 and $8,500, and 5.5% for incomes above that.  But this is just silly.  If the tax table only applies to incomes above $84,500, it doesn’t matter what the marginal rates are below that threshold.  It would be more straightforward, and numerically equivalent, to say that the marginal tax rate is 5.247% on every dollar up to taxable income of $84,500 ($4,434) plus 5.5% above that level.

But however it is described, this presents a problem.  The tax for an income level of $84,501 turns out to be $620 higher than it would be if the lower income table was used. That would be an effective marginal tax rate of over 60000% for that 84,501st dollar of income.

That’s what is known as a “tax cliff.” When statutory thresholds become significant enough that people might change their economic behavior (or at last their tax-reporting behavior) to account for quirks in the tax system, then resources are likely being spent inefficiently.  Here at the Arkansas Economist, we pointed out the problem with tax cliffs when the multiple tax-table system was first introduced in 2015.

The Arkansas legislature’s solution to this problem in 2021 has been to introduce over 60 little tax cliffs to the mix.  The new system of “Bracket Adjustments” specifies that anyone with a taxable income of $84,501 to $84,600 is entitled to a tax-reduction of $620.  For each $100 beyond that, the bracket adjustment is reduced by $10, until it reaches zero for incomes above $90,600.

Figure 2 illustrates the multiple tax cliffs in the new legislation, showing the stair-step nature of the bracket adjustment effect on average tax rates.

Figure 2:

At each of these mini tax cliffs, the marginal tax rate approaches infinity as we narrow the definition of “marginal.”  A one dollar increase in income that raises tax burden by $10 can be described as a marginal tax rate of 1000%.  Decreasing the granularity of the calculation, an income increase of $100 over the bracket-adjustment range results in an increase in tax obligation of $10 plus the 5.5% statutory marginal tax rate—a total marginal tax rate of 15.5%.

Figure 3 puts the two tax tables and bracket adjustments together to show the average tax rates and effective marginal tax rates over income ranges from $0 to $120,000.  The marginal tax rate in Figure 3 is calculated as the increase in tax burden for each $100 increase in income.  The result is an effective marginal tax rate of 15.5% over the bracket adjustment range.

Figure 3:
*Marginal Tax Rate as calculated in $100 increments.

So, under the assumption that $100 increments are an appropriate measure of “marginal” that matters to taxpayers (at least those in the bracket-adjustment range), we might expect people to take measures to avoid the 15.5% marginal tax burden.  Those efforts represent the efficiency loss of the tax system’s complexity.

To further illustrate the point, let us consider a tax system that is roughly equivalent to the newly adopted regime, but one that eliminates the tax cliffs.  The calculations underlying Figure 3 provide guidance for how to construct such a system.  Taking the marginal tax rates from the lower-income tax table, extending the table to impose a 15.5% explicit marginal rate on incomes between $84,500 and $90,700, with a return to the 5.5% marginal rate for incomes above $90,700, we can reconstruct an average tax profile that is virtually indistinguishable from the one shown in Figure 3.

Zooming in on the bracket-adjustment range shows how this hypothetical unified tax table eliminates the stair-step nature of the tax cliffs while retaining the ramping-up of average tax rates—revealing the relevance of this near-observationally equivalent representation of the newly-adopted tax code.

Figure 4:

So, in a very real sense, the new tax code includes a 15.5% effective marginal rate over a specific range on incomes.

But does this all matter?  When it comes to a static analysis government revenue, the relevant measure is how the average tax rate schedule and the population income profile overlap. That is also true when it comes to the tax burden on individuals.  But when it comes to economic decision-making, marginal calculations matter  To the extent that the tax-cliffs and brackets with high effective marginal rates affect taxpayer behavior, a static revenue projection might be overstated relative to a dynamic analysis that takes tax-avoidance behavior into account.  Ultimately, whether the effect is quantitatively significant or not is an empirical question.

 

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Metro Area Employment & Unemployment – October 2021

Today’s report on metro area employment showed that the positive developments seen in the state-level report carried over to all of Arkansas’ metro areas.  Unemployment declined and payroll employment expanded.

The statewide unemployment rate had previously been reported as declining by a remarkable 0.3 percentage points to 3.7%.  Unemployment rates in all eight of Arkansas’ metro areas reflected the lower unemployment, with rates falling by 0.2 to 0.4 percentage points.  Rates are considerably lower than a year ago, and are generally near pre-pandemic levels.  Unemployment rates are lower than in February 2020 in Texarkana, Fort Smith, and the Fayetteville MSA.  Memphis, Texarkana and Little Rock continue to experience higher unemployment rates than before the economic downturn, but even in those metro areas rates are elevated by less than a percentage point.

Source: Bureau of Labor Statistics, Smoothed Metropolitan Area Estimates

News from the payroll survey was similarly upbeat: employment increased in five metro areas and decreased in none.  Gains were particularly notable in Jonesboro (+1,800), Fayetteville (+900), and Texarkana (+500).  All eight metro areas have shown positive employment growth over the past 12 months, and two—Jonesboro and Fayetteville—now show higher employment levels than before the pandemic.

Source: Bureau of Labor Statistics, Current Employment Statistics (CES)

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Little Rock Regional Economic Briefing – Nov. 17th, 2021

LOGOS

Please join the Little Rock Branch of the Federal Reserve Bank of St. Louis and the Arkansas Economic Development Institute on Thursday, November 17th, for a regional economic briefing for business leaders, educators, community development practitioners and others interested in the economy.

During this virtual presentation, you will hear an update on economic conditions and the outlook for the region and nation.

There is no charge to attend, but registration is required by Nov. 15.

Date: Thurs., Nov. 17, 2021
Time: 8 – 10 a.m.
Location: Virtual

 

Click Here for More Information

Special Reports: Impact of Covid-19 on the Arkansas Economy

Arkansas Consumer Spending in 2020
One of the most significant and unexpected features of the Arkansas economy during the COVID-19 pandemic has been the robust behavior of consumer spending…
Read more…

Leisure and Hospitality Industries in Arkansas–2020
Of all the sectors of the economy hat have been disrupted by the COVID-19 pandemic, industries in the Leisure and Hospitality category have been among the hardest-hit…
Read more…

Forecast Update (July)
“Incoming data have continued to show a more rapid recovery from the COVID-19 shutdowns than previously expected.”
Read more…

Forecast Update (June)
Information since May has suggested that Arkansas has not been as severely impacted as other parts of the country, and that the sharp declines in national employment have abated.
Read more…

Forecast Update (May)
“The economic impact of the COVID-19 pandemic continues to be more rapid and more severe than initially expected… In this updated report we present new projections for the Arkansas economy.”
Read more…

Forecast Update (April)
“In this note we update that forecast with new estimates of the magnitude of the downturn. We also update and extend our previous guidance on how the forecast is likely to impact sales tax receipts of local governments.”
Read more …

Implications for Local Government Sales Tax Collections
“In this note, we focus on consumer spending and the outlook for sales tax collections by county and municipal governments.” Read more…

Arkansas Economic Outlook (March)
“It appears that a dramatic downturn in economic activity over the remainder of 2020 is unavoidable for the nation and for Arkansas.”  Read more…

 

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