Tuesday, September 2, 2014

Explaining the Gap in Pay Between Rural and Urban Work

03/03/2008
schoolchildren
Farm Security Administration photographer John Vachon photographed these schoolchildren in San Augustin County, Texas, in 1943.

People living in rural America earn less than those who live in the cities. It's been that way for ages. In 2006, the average wage and salary for workers living in nonmetro counties was $602 a week — 23 percent less than the $783 earned by urban workers.

But why?

The Economic Research Service (within the U.S. Department of Agriculture) tells us there's no single "why." It's not just lower general levels of education in nonmetro communities, or a lower cost of living in rural areas or a preponderance of low-skilled rural jobs. There are a number of reasons, and no clear and certain way to close the gap between rural and city earnings.

Yes, average educational attainment in rural counties is lower than in the cities. But even if those differences were leveled, that would not get rid of the rural/urban disparity. At best, it would narrow the 2006 gap about $31 a week — only about a quarter of the rural/urban gap.

The most striking finding is that the gap between rural and urban pay increases with levels of education. The more educated a rural resident is, the less she (or her) makes compared to her urban counterpart.

college grads


So, a high school graduate living in a rural county earns 13 percent less than a city dweller with a high school diploma.

A rural college graduate, however, earns 23 percent less than a college grad living in the city. And someone living in a rural county who has an advanced degree (law, medicine, doctorate) earns 25 percent less than a person with the same qualifications who lives in an urban county.

It's easy to see all kinds of incentives in the current system that put rural counties at a disadvantage. It makes sense for college graduates to move from rural areas to urban counties so that they can make more money. Those with high school diplomas or less might find it advantageous to move to rural areas, where the cost of living is lower and the pay cut is less dramatic. Further, for young people growing up in rural areas who want to remain, there is less of an economic incentive to earn college degrees.

John Vachon took this picture of a farm girl in Seward County, Nebraska, in 1938.

"The dual educational disadvantage of nonmetro areas is unlikely to be coincidence," write Lorin Kusmin, Robert Gibbs and Timothy Parker. "The lower demand for highly educated workers among nonmetro employers is reflected in the lower wage premium that nonmetro college graduates command. The lower premium, in turn, may both dampen motivation for rural high school graduates to attend college and increase the net migration of college graduates out of nonmetro areas."

So, college graduates in metro areas earn 56 percent more than those living in urban areas who only have a high school diploma. In rural areas, a college graduate earns only 37 percent more than a worker who finished only high school.

ERS's findings also point to a feature of cities that makes people — particularly educated people — more productive, and therefore more likely to earn higher wages. The accumulation of many educated people in one place — in cities — is tending to produce increasing economic returns.

As a result, more low-skill jobs can be found in rural areas while high-skilled jobs — also higher paying — are more concentrated in the cities. That, too, leads to the overall wage disparity between rural and urban communities.

college grads

The ERS has few suggestions for shrinking the earnings gap. The authors suggest improving schools as a way to attract "education-oriented young people with families" and thereby to raise a community's overall level of edicational attainment. Firms that employ skilled (and educated workers) are more likely to locate in places with good schools.

One of the unintended consequences of improving schools, however, may increase outmigration. "(E)fforts to raise local education levels, including encouraging young people to attend college, may be blunted by the outmigration of many of those who do earn a college degree," the authors conclude.