Strengthening the Rural Economy - The Current State of Rural America

II. THE CURRENT STATE OF RURAL AMERICA

While rural America offers many opportunities, it also faces unique challenges in growing its economy and maintaining an educated and healthy labor force. In this section, we begin by describing how the U.S. population is distributed geographically and the sectors in which the rural population is employed. We then examine how rural communities have fared compared with their urban counterparts in labor force participation, educational attainment, poverty rates, and access to health care.

A. The Diverse Rural Economy

About 17 percent of the U.S. population lives in rural counties.¹  Figure 1 shows that virtually every state contains rural areas, reflecting the country’s diversity of communities. That said, rural counties are not uniformly distributed. With the exception of the coast, the Western United States is dominated by low-density rural land where the distance between metropolitan areas is larger and population density is lower, while the Eastern United States is mainly a mixture of high-density rural and urban areas.

 

Among individuals who identify themselves as farmers, agriculture has become a less important source of income.²  Figure 2 shows that about half of farm household income came from the farm in 1960. Today, the vast majority (89 percent in 2008) comes from off the farm. Because agriculture is one of the key industries that distinguishes rural America from urban areas and because of its continued contribution to productivity and trade, we discuss it in greater detail below. 

1. The U.S. Agricultural Sector

 

Perhaps the defining feature in the history of U.S. agriculture is its persistent gains in efficiency. Even relative to America’s surge in productivity over the past half century, American agricultural productivity has grown rapidly. Figure 3 shows that farm productivity nearly tripled in the second half of the twentieth century, while nonfarm productivity increased by about 75 percent. Almost all of this divergence in productivity growth occurred after 1980. A consequence of this tremendous increase in productivity is that, despite increases in total agricultural output, employment has declined. In 1900, about 41 percent of the total U.S. workforce farmed. This share dropped to 16 percent in 1945, 4 percent in 1970, and only 2 percent in 2000. ³

 

 

Figure 4 shows how the productivity of the agricultural sector in the United States compares with that of other high-income countries. As measured by agriculture value added per worker, the United States has remained substantially more productive than other Organisation of Economic Co-operation and Development (OECD) high-income countries.⁴ Specifically, value added per worker grew from $16,000 in 1970 to $59,300 in 2005 in the United States, compared with an increase from $8,000 in 1970 to $35,700 in 2005 in high-income OECD countries.

 

 

2. International Trade Plays an Important Role in Rural America

 

It should not be surprising that the U.S. agricultural sector is very competitive in the international market. Indeed, in 2008, U.S. agricultural exports were worth $70 billion according to Census definitions, and $115 billion using the Department of Agriculture’s broader definition. The share of American agricultural output exported in 2007 (using the Census definitions) was 15 percent, having increased from 11 percent in 1999. Thus, access to foreign markets is very important for American agriculture. Likewise, although gross agricultural output only constituted about 2.5 percent of total GDP over this period, agriculture made up 2.8 percent of total exports in 1999, rising to 3.4 percent in 2007, according to Census definitions. Notably, this competitiveness is not primarily driven by farm support programs. Since 1991, high-value commodities (for instance, fruit and meat) have made up a larger fraction of exports than bulk commodities (for instance, wheat and rice), though they receive far less Federal support.

 

In addition to productivity growth, removing trade barriers has played an important role in agriculture’s success. Analysis by the CEA of major free trade agreements (FTAs) between 1985 and 2005 confirms that U.S. agricultural exports increased while import growth remained largely unchanged following these FTAs.⁵  Table 2 shows the weighted-average growth rate in exports and imports before and after the implementation of these FTAs.⁶  On average, in the five years following an FTA, agricultural exports to the FTA partner grew at a very rapid pace (14 percent), up from a rate of 6 percent beforehand.

 

 

Exports to the rest of the world also grew, but only at a rate of 3 percent, up from 1 percent growth beforehand. Prior to the FTAs’ implementation, exports to the partner country were growing 5 percentage points faster than exports to the rest of the world, but after, they were growing 11 percentage points faster.⁷  There is no evidence that import growth from FTA countries accelerated after the implementation of an FTA. Thus, on net, American agriculture appears to have benefited from recent trade liberalization agreements, and increased access to foreign markets has translated into increased opportunity for American agriculture.

B. The Labor Force in Rural America

 

While the rural economy has become increasingly diverse, it faces a number of unique challenges regarding its labor force. First, incomes are lower and poverty rates are higher in rural areas than they are in urban areas. Second, a lower proportion of the rural population is of working age (20-64), which presents challenges for future job creation, and the share of the U.S. population living in rural counties has steadily declined over time. Third, a higher portion of rural residents are on disability and therefore unable to participate in the rural workforce. Fourth, educational attainment lags behind that of urban areas for the working-age population. Recognizing these challenges, the Administration has made education a major pillar in its policies for rural America. Its focus on expanding opportunities for small businesses, tourism and recreation, and clean energy will also help to make rural households better off while attracting a new generation of young workers.

 

1. Income and Poverty Rates
 
On average, rural residents have notably lower incomes than urban residents. Tables 3A and 3B show that between 1979 and 1999, the average urban resident experienced greater increases in income, in both level changes and percent growth, compared with his or her rural counterpart. The poverty rate paints a similar picture. While the rural poverty rate decreased sizably between 1979 and 1999, the average rural county posts poverty rates at least several percentage points above those observed in urban counties. Note that the cost of living is higher in urban areas and ideal measures of income and poverty would adjust for these differences. We have not done so here.

 

 

2. Labor Force Participation

 

The extent to which a population is comprised of able, working-age people is an important indicator of potential employment. The trajectory of the labor force, measured by the age and training composition of the rural population, helps predict its future economic health. To examine the current and future economic health of rural America, we compare the average age composition in urban, high-density rural, and low-density rural counties in 1970 and 2000. Table 4 reveals that the share of the population under age 20 has declined since 1970 but remains similar across urban and rural classifications. While the share of the population in the prime working ages (20-49) has increased in both urban and rural counties since the 1970s, it continues to be substantially lower in rural counties. Rural counties also tend to be relatively older, which holds among the elderly (65+) and near-retirement (50-64) age groups.

 

 

The overall share of the U.S. population living in rural counties also has been steadily declining over time, with high-density rural counties experiencing particularly sharp declines (see Figure 5).⁸  From 1900 to 1970, rural counties lost nearly 0.3 percentage point of the U.S. population per year. From 1970 to 2008, this trend has continued, albeit at a slower rate, costing rural counties almost 0.1 percent of the U.S. population annually. The net effect of these declines is a broad-scale population shift from rural to urban America. In 1900, about 40 percent of the population lived in a county that ultimately would be classified as rural in present-day America, whereas today that share has dwindled to half this amount.

 

An additional measure of labor force depth is the share of the working-age population (25-64 years old) healthy enough to be counted as an active member of the labor force.⁹  The Federal Social Security Disability Insurance (SSDI) program provides monthly cash benefits to people who are unable to work due to a disability. In 2008, disability insurance enrollment as a share of the working-age population was 6.5 percent in high-density rural areas and 5.7 percent in low-density rural areas, compared with 3.9 percent in urban areas.¹⁰  Thus, the average rural resident was much more likely to be enrolled in SSDI than his or her urban counterpart. Because individuals enrolled in SSDI are unlikely to exit from the program, these disparities are also likely to impact future labor force capacity.¹¹

 

3. Educational Attainment

 

Over time, the share of the population of ages 25–64 with more than a high school education in an average urban county has been persistently above the share in an average rural county (see Table 5). While rural counties have made great strides in ensuring that larger proportions of their populations pursue schooling beyond high school, they have been unable to close this gap. Additionally, the rate of progress in educational attainment has been slightly slower in rural areas, causing education levels in rural areas to slip further behind those in urban areas. In 2000, an urban resident was between 10 and 15 percentage points more likely to have attended college than a rural resident. Two decades earlier, this difference was between 9 and 13 percentage points.

 

This growth differential is driven by the share of the working-age population that has completed only high school. In the average urban county, this share fell 11 percentage points over the two decades, compared with just 3 to 6 percentage points in the average rural county. Put another way, in 1980 rural residents were 1.1 times more likely to stop attending school after high school than urban residents. By 2000, this ratio was up to 1.3-1.4.

 

 

C. The Status of Health Care in Rural America

 

Health care costs have continued to rise for individuals and families throughout the United States, while health insurance coverage has eroded for hundreds of thousands of Americans. Because health care costs account for a much larger share of rural residents’ average income, the relentless rise in health care costs in recent years has disproportionately impacted them. In this section we lay out the health care challenges faced by rural residents. In Section VI, we discuss how these challenges are being addressed through the Recovery Act and health care reform.

 

While residents of non-metropolitan areas have comparable rates of health insurance coverage to metropolitan areas and the nation overall, they are more likely to be enrolled in public programs such as Medicaid for low-income families, the Children’s Health Insurance Program, and especially Medicare for the elderly (due to the relatively older rural population) rather than holding private insurance, as shown in the Table 6.¹²  Residents of rural areas have less access to doctors and other health care providers than their counterparts in urban areas. As a result, they are more likely to forego needed care. Finally, improvements in health status in rural areas have not kept pace with those in urban areas. See Box 2 for a description of health care and other issues in rural American Indian and Alaska Native communities.¹³

 

1. The Burden of High Costs

 

Families in non-metropolitan areas are more likely than families in metropolitan areas to have a high burden in affording health insurance coverage, defined as health expenses exceeding 10 percent of after-tax family income. While total out-of-pocket health expenses are comparable in metropolitan and non-metropolitan areas ($3,265 versus $3,216 in 2005, the year with the most recent available data, in 2007 dollars), incomes in non-metropolitan areas tend to be lower. As a result, 24.2 percent of families in non-metropolitan areas spend more than 10 percent of their income on health insurance coverage, compared with 18.1 percent of families in metropolitan areas (Jones et al. 2009).

2. Lack of Access to Doctors and Health Services

 

In addition to the higher burdens from the cost of health insurance coverage, rural families have less access to health care services. For instance, rural areas tend to have fewer active doctors and specialists per person than metropolitan areas. As a result, rural residents face greater difficulties in accessing care. This complicates early detection and regular treatment of diseases such as cancer.

 

Non-metropolitan counties had on average 1.2 active doctors for every 1,000 residents in 2007, compared with 3.0 active doctors for the same number of residents in metropolitan areas. Metropolitan counties also had more than 3 times as many specialists, 1.1 for every 1,000 residents compared with only 0.3 for every 1,000 residents in non-metropolitan counties.¹⁴ 

 

Finally, in addition to disparities in health care infrastructure and workforce capacity, rural residents face specific geographic challenges in accessing medical care. One report found longer travel times for emergency services in small and geographically isolated rural communities (Chan, Hart, and Goodman 2006). This can be especially problematic for acute events such as heart attacks and strokes, where the time that elapses until the patient reaches the hospital can mean the difference between life and death.
 

Box 2: The Rural American Indian and Alaska Native Population

American Indian Areas (AIAs) are overwhelmingly located in rural areas and, as of 2000, were home to 34 percent of American Indians and Alaska Natives. Residents of AIAs lag the rest of the country in terms of poverty rates, educational attainment, and health status.

In 1989, approximately 40 percent of American Indians or Alaska Natives living in AIAs or in Alaska Native Village Statistical Areas (ANVSAs) were living in poverty, versus just 13 percent of the total U.S. population. Although the family poverty rate for American Indians and Alaska Natives in AIAs in the 48 contiguous states fell by at least 7 percentage points over the subsequent decade, in 2000 it remained three times the poverty rate for the entire U.S. population (Taylor and Kalt 2005).

In the 2000 Census, approximately one-third of American Indians or Alaska Natives over the age of 25 who lived in AIAs or ANVSAs had less than a high school education (Ogunwole 2006). While this represented a significant improvement over the percentage in 1989 (43 percent), it remains substantially higher than the corresponding fraction for all American Indians and Alaska Natives (29 percent) or for the total U.S. population (20 percent). Also, only 8 percent of those over the age of 25 who lived in AIAs and 4 percent of those over the age of 25 who lived in ANVSAs had a bachelor’s degree or higher in 2000, compared with 12 percent of all American Indians and Alaska Natives and 24 percent of the total U.S. population.

American Indians and Alaska Natives also have lower average health status compared with the rest of the U.S. population. American Indians and Alaska Natives born in 2000 had a life expectancy that was approximately 2.4 years lower than that of the entire U.S. population, and the infant mortality rate among this group was substantially higher than the general U.S. population (Department of Health and Human Services 2006). American Indians and Alaska Natives also have the highest rates of type 2 diabetes in the United States. Finally, the uninsured rate was 28 percent among American Indians and Alaska Natives in 2008, compared with 17 percent for the total population (Department of Health and Human Services 2009).

3. Diverging Mortality Rates

 

While mortality rates in the United States overall have declined over the past few decades, mortality rates in metropolitan and non-metropolitan areas have diverged since the early 1990s. Figure 6 shows that, since 1990, non-metropolitan mortality has declined at an average annual rate of only 0.73 percent, significantly slower than the metropolitan rate of 1.27 percent. While the source of this divergence is unclear, it is likely that improvements in access to health care and in the affordability of that care in rural areas could help to narrow this gap in mortality rates.

 

 

D. Traditional Federal Support for Rural America

 

A key aim of Federal policy is to increase economic opportunities and overall standards of living in rural areas. While the Department of Agriculture has a significant focus on rural development, other Federal agencies also play a role, including the Small Business Administration, the Department of Health and Human Services, the Department of the Interior, and the Environmental Protection Agency, among others. Long before the Administration’s recent efforts to strengthen rural America, Federal support for rural areas through these many agencies was extensive.

 

To illustrate this traditional support, consider expenditures in 2007. About $390 billion in Federal funding was directed to rural areas through non-loan, non-insurance programs in that year. The left-hand pie chart in Figure 7 shows that approximately 84 percent of this funding went to health care, Social Security, military wages and procurement, and non-military wages and procurement (including the Postal Service). The remaining 16 percent – denoted as “other spending” – is further broken out in the right-hand pie chart. This “other” component of rural spending constituted about $62 billion in 2007. About one-quarter of this spending was directed toward transportation infrastructure. Spending on social services and food assistance (17 percent), income security (16 percent), the agricultural sector (15 percent), and education (13 percent) represent the next largest areas of spending. Spending on housing and other infrastructure, while smaller, was still a substantial portion of Federal funding.
 

 

Continue to III. Growing New Businesses in Rural America

  

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1The share of the U.S. population categorized as living in rural areas ranges from 17 to 49 percent, depending on the definition.  Unless otherwise noted, analysis in this report defines urban counties as those containing metropolitan areas.  Of the remaining counties, rural counties with greater than 25 persons per square mile are classified as high-density rural; those with fewer are classified as low-density rural.  Counties are identified by the Federal Information Processing Standard (FIPS) code for the 2000 Census.   In a small number of cases, counties changed boundaries or FIPS codes between 1970 and 2000. These changes are particularly prevalent in Alaska and Virginia. Other states affected to a lesser extent are Arizona, Colorado, Florida, Hawaii, Maryland, Missouri, Montana, New Mexico, and South Dakota.  In general, we drop counties that did not exist in the 2000 Census.

² The data provided by the Department of Agriculture are based on different surveys before and after 1988.  The survey data from before 1988 over-estimated on-farm income because they assumed that farm operator households received all farm business income, including that earned by contractors.  A farmer is counted in this survey if his or her farm surpasses a minimum sales threshold, which varies over time; additionally, early years in the series included farms over an acreage threshold.

³ The statistics for 1970 and 2000 are as a share of the employed labor force, whereas the earlier figures are as a share of the total labor force (Dimitri, Effland, and Conklin 2005).

⁴Agriculture value added per worker measures the output of the agricultural sector less the value of intermediate inputs.  Agriculture includes value added from forestry, fishing, and cultivation of crops and livestock production.

⁵ The analysis covers FTAs with Australia, Canada, Chile, Israel, Jordan, Mexico, and Singapore.  We exclude 10 additional FTAs that the United States has implemented since 2005 because the window for evaluating the post-implementation effects is too short.

⁶ In the table, prior refers to the annualized growth rate between 6 years before FTA implementation and the calendar year before implementation.  Post refers to the annualized growth rate between the calendar year before implementation and 5 years after that.  Change represents the difference between post-period and prior-period growth rates.  FTA consists of the weighted-average of the bilateral trade around the FTA agreements for the listed countries.  Non FTA consists of the weighted average of trade with the set of countries that have never implemented an FTA with the United States.  The CEA used the Department of Agriculture’s definition of agricultural products.

⁷ Results are weighted by the amount of exports the year before FTA implementation.  Unweighted results show the same pattern.

⁸Counties are classified as described above.  Because this figure covers years before 1970, the calculations here involve more counties with changed borders or FIPS codes, though the number is still relatively small.

⁹The definition of “working-age population” here is different from that above due to the age categories available in the Social Security Administration’s published data.

¹⁰So as not to overstate disability “intensity,” we first net out the fraction of SSDI recipients younger than 25 or older than 64 years, roughly 5.25 percent as of December 2008 (Social Security Administration 2009).

¹¹Less than one percent of claimants exit SSDI in a typical year because they are under 65 and no longer meet the standards for receiving disability benefits (Autor and Duggan 2006).

¹²Due to data limitations, the health care analyses in this report do not classify counties into rural and urban categories.  Instead, they use the Bureau of Labor Statistics Current Population Survey’s metropolitan and non-metropolitan classifications.  In this table, percentages are not directly comparable to published Census results due to CEA calculations assigning individuals to only one coverage category.  For those covered by multiple types of insurance, individuals were assigned to categories in the following order of precedence:  Medicare, Military, Children’s Health Insurance Program, Medicaid, Private Insurance.  Individuals not assigned to one of these categories are considered uninsured.

¹³An American Indian Area includes American Indian reservations, trust lands, tribal jurisdictions, and designated statistical areas (Ogunwole 2006).

¹⁴These statistics are generated by weighting each county by its population.  The results are similar if no population weights are used.