Skills, Wages and Rural America

Why are incomes lower in rural communities than in central cities? Three economists say it's all a matter of skills.

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Rural residents on average have lower incomes than those employed in the cities. Three economists have figured out why — at least in part.

The economists, working through the Federal Reserve Bank of New York, conclude that the occupations found in rural areas require fewer skills than those found in the cities.

“We find that the occupation clusters most prevalent in urban areas — scientists, engineers, and executives — are characterized by high levels of social and resource-management skills, as well as the ability to generate ideas and solve complex problems,” write Jaison Abel, Todd Gabe and Kevin Stolarick. 

“By contrast,” the continue, “the occupation clusters that are most prevalent in rural areas—machinists, makers, and laborers—are among the lowest in terms of required skills. These differences in the skill content of work shed light on the pattern of earnings observed across the urban-rural hierarchy.”

Their findings can be seen in the distribution of people with college education in this country. In 1970, college educated people were fairly evenly divided among counties. By 2010, however, there was a large difference in the percentage of college-educated adults who had college degree from county to county. http://www.dailyyonder.com/country-separating-education/2012/05/09/3994

That divergence became particularly evident in the gap between rural and urban counties. In 1970, there was only a six-point gap in the percentage of adults with a college degree in urban and rural counties. (In 1970, 5.7 percent of adults in rural counties had a college degree; in urban counties, it was 11.6 percent.)

By 2010, the gap was nearly 15 points — 30 percent in urban counties had college degrees compared to 15.4 percent of adults in rural America.

Abel, Gabe and Stolarick surmised that the jobs found in rural America simply demanded less formal education. They devised a way to measure skills in occupations and then measured how those skills were distributed from central cities to rural communities.

You can read about their methodology in the full report, here. http://www.newyorkfed.org/research/staff_reports/sr552.pdf

One of the “most striking” patterns they found was that “the most urbanized areas of the United States — City Centers — tend to specialize in the skills-based clusters of Scientists, Technicians, Engineers, and Executives.” 

As the economists moved away from central cities, however, communities “tend to specialize in the skills-based clusters of Machinists and Makers, which include ‘hands-on’ occupations in the construction trades, production and assembly, and maintenance and repair, and to a lesser extent in the skills-based cluster of Laborers.” These occupations require fewer skills, as measured by the economists.

“It is particularly interesting to note the absence of social skills — e.g., coordination, persuasion, and negotiation — in the most rural areas, which are places where extensive interaction and face-to-face contact are hindered by the obstacles of isolation and distance,” the economists write. “Perhaps not surprisingly, we also see that rural areas tend to be under-represented in the clusters with the highest skills requirements, such as Engineers, Executives, Scientists, and Analysts.”

Jaison Abel, Todd Gabe and Kevin Stolarick
The economists devised this chart to show the difference in income by skill and location. The occupations run back to front, with the least skilled jobs (laborers) in the front. Communities are ranked 1 to 10, with 1 being the most urban and 10 being the most rural. You can see that as skills increase, so do wages. And, reading the rows left to right, you can see that for each occupational group, wages decline as the community becomes more rural.

Compensation favors these city occupations, the economists find. Executives earn the most in the cities, far more than engineers or scientists. Executives living in rural areas don’t earn the same premium.

In fact, for each high skill occupation, wages fell as the community became more rural. Every occupational group had lower wages in rural areas than in cities, but the rural penalty was higher among the most skilled jobs.

The economists write that there is something about urban areas that facilitate high-skilled employment and earns it higher wages. They describe it this way: “In particular, the dimensions of social and complex problem solving skills are apt to benefit from the flows of ideas and knowledge that are facilitated by dense urban environments.”

Their findings may help explain why young people with college degrees are reluctant to move back to rural communities. Jobs in those communities simply do not pay what can be earned in central cities.

The paper, however, does not fully explain why there should be a steady decline in wages for the same skill sets as communities become more rural.

 

 

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