Policy options for a changing rural America.

Many rural communities are looking at other innovative ways of attracting and retaining high-paying industries and employment to rural areas. The traditional way of attracting firms to a region by offering tax reductions may no longer be sufficient. New approaches, such as providing training and technical assistance by local educational institutions to clusters of similar firms, may be more successful than tax-based incentives because they help firms to adapt innovative production techniques. Training and business assistance programs can help new entrepreneurs in some rural areas enhance their business acumen and improve business communication skills. Networks of small businesses can help build a more effective business infrastructure by coordinating marketing services, warehousing, business resources and computer technology.

Capitalizing on new uses of the nation's natural resource base may be essential to ensuring the economic well being of rural America. This resource base can provide such uses as water filtration, carbon sequestration, and nontraditional energy sources, including methane utilization. Some rural areas may be well suited for the development of renewable energy as well as the production of more traditional fossil-fuel energy. Natural amenities, though, will be the trump card for some rural areas. Rural counties with varied topography, relatively large lakes or coastal areas, warm and sunny winters, and temperate summers have tended to reap huge benefits from tourism and recreation, one of the fastest growing rural industries. Recent ERS research finds that tourism and recreational development in rural areas leads to increases in local employment, income and wage levels, and improvements in social conditions, such as poverty, education and health. These strategies have drawbacks, however, particularly in the form of higher housing costs in nonmetro recreation counties.

Human Resource Development

The wage gap between urban and rural workers reflects a rural workforce with less education and training than urban workers. In 2006, median weekly earnings for nonmetro workers ($509) were about 84 percent of the metro average ($607). In 2005, only 16.9 percent of rural adults age 25 and older had completed college, half the percentage of urban adults. Moreover, the rural-urban gap in college completion has widened since 1990. Today, employers are increasingly attracted to rural areas offering concentrations of well-educated and skilled workers. A labor force with low educational levels poses challenges for many rural counties seeking economic development. Rural areas with poorly funded public schools, few good universities and community colleges, very low educational attainment, and high levels of economic distress may find it hard to compete in the new economy. Recent ERS-sponsored research documents the direct link between improved labor force quality and economic development outcomes, finding that increases in the number of adults with some college education resulted in higher per capita income and employment growth rates, although less so in nonmetro than metro counties. Efforts to reduce high school dropout rates, increase high school graduation rates, enhance student preparation for college, and increase college attendance are all critical to improving local labor quality.

Infrastructure & Public Services

Telecommunications, electricity, water and waste disposal systems, and transportation infrastructures (such as highways and airports) are essential for community well-being and economic development. But many rural communities are financially restrained because of a limited tax base, high costs associated with economies of size, and difficulties adjusting to population growth or decline. Investments in needed infrastructure have increased in recent years, but high costs and deregulation pose challenges.

Investment in rural infrastructure not only enhances the well being of community residents, but also facilitates the expansion of existing businesses and the development of new ones. Recent ERS research assessed the economic impacts of 87 water and sewer projects funded by the Economic Development Administration development and found that these projects in general created or saved jobs, spurred private-sector investment, attracted government funds and enlarged the property tax base. But the average urban water/sewer facility, which costs only about one-third more than the average rural facility, generated two to three times the economic impacts of rural facilities. The rural-urban difference in economic benefits likely stems from the generally more abundant infrastructure of urban areas--easy access to highways, railroads, and airports, primary and secondary suppliers, input and output markets, community facilities and amenities and skilled labor.

The federal government has helped rural communities finance public infrastructure, but many communities still lack infrastructure like advanced telecommunications and air transportation services. Information and communication technology--abetted by financial and technical assistance--can help smaller communities enjoy the same benefits as cities, such as higher standards of health care and virtually unlimited educational opportunities. Federal financial assistance for deploying broadband access and incentives for state, private, and public partnerships to develop fiber optic or wireless capabilities are among the options for rural areas seeking to invest in a telecommunication infrastructure.

Because many rural problems occur region wide, some policies need to address broader geographic implications. Agriculture, as a major source of income and employment, is concentrated in the northern Great Plains and western Corn Belt. Rural manufacturing is disproportionately located in the Midwest and southeast. Mining and other extractive activities are conducted west of the Mississippi River and in Appalachia. All of these industries have experienced very slow job growth or job loss in recent decades. Regional or multicommunity cooperative efforts, such as the Delta Regional Authority and the Northern Great Plains Regional Authority, may offer rural areas a better chance of success in responding to industry wide declines or problems associated with persistent poverty, population loss or educational disadvantage. Job generation and human resource development will require close coordination to ensure that the skills possessed by workers will be appropriate for the new, largely service-based and information-dependent industries, and that the jobs will be available in the regional economy.

Unfortunately, little empirical analysis is available on what strategies will be most effective in which areas under what circumstances. There is no one formula for success. Policy analysts will do well to look to the areas that have achieved prosperity to help develop successful prototypes for areas that may be unprepared to meet the challenges of the future.

Leslie A. Whitener

Tim Parker

Reprinted from Amber Waves, May 2007

http://www.ers.usda.gov/AmberWaves/May07Special-Issue/Features/Policy.htm