Myths and Realities of the Urban-Rural Divide Tessa Conroy, PhD Economic Development Specialist University of Wisconsin-Madison/Extension Entrepreneurship as an Economic Development Strategy

While it’s true that coming out of the recession the economy is at near full employment, the national or even state-level unemployment figures can mask regional differences. Coming out of the recession, the rural jobs recovery has generally lagged behind urban areas. These jobs numbers considered in a broader context seem to be indicative of a more challenging economic situation in rural America.

The industrial composition of urban and rural Wisconsin is different The industrial composition of urban and rural Wisconsin is different. My sense is that people with a predominantly urban background think rural and they think agriculture. It’s true that agriculture and other resource-based sectors are a much larger part of the economy than in urban areas, but, as a source of earnings it is still well under 10%. So, in rural areas, nonfarm income is really important. Even for farm households their nonfarm income can be significant. In rural economies, manufacturing and the public sector are really important. That means that often in small towns the schools, police department, road department, and post office are really important and that changes in government spending can disproportionally effect rural communities. Other services: Accomodation, food services, retail Producer services: Finance, information

The industrial composition of urban and rural Wisconsin is different The industrial composition of urban and rural Wisconsin is different. My sense is that people with a predominantly urban background think rural and they think agriculture. It’s true that agriculture and other resource-based sectors are a much larger part of the economy than in urban areas, but, as a source of earnings it is still well under 10%. So, in rural areas, nonfarm income is really important. Even for farm households their nonfarm income can be significant. In rural economies, manufacturing and the public sector are really important. That means that often in small towns the schools, police department, road department, and post office are really important and that changes in government spending can disproportionally effect rural communities.

When thinking about the job growth it may be tempting to think about sectors like agriculture and manufacturing that have been the source of historical advantages. These sectors are similar in that measured by output and productivity they’ve been incredibly successful, but the same advances that have driven this growth have reduced the need for labor. Which there have been some recent short term increases, the long-term trend is toward much leaner manufacturing and a sector that employs fewer people.

Historically, recruitment has been a popular strategy Historically, recruitment has been a popular strategy. But, for most rural communities the chances of getting a large company to move in are quite small. Based on some research we’ve done here at UW you can see that the share of firms that ever move is very small. Most of those move only a small distance, because they’ve outgrown their current facilities for example. So, these sectors while an important part of the rural economy, for most rural communities it is unlikely that a single smoke stack is the solution to job creation.

Instead of focusing on focusing on just one sector for job growth, economies of all sizes are diversifying beyond their historical legacies. Instead of any one sector being the key, new businesses in general are key sources of job growth. New businesses create the large majority of net new jobs, we used to think it was small businesses and that’s not untrue. But we’ve gotten more precise, and now we can see that age also matter, perhaps more than size. New businesses create jobs an new businesses happen to be small.

This figure is calculated from the Census BDS Establishment Characteristics Data Tables. This describes the net job creation in each establishment age categories for each year. The importance of new businesses has been remarkably persistent even during the recession. What increases, are net jobs lost in mature businesses, and we can see that even those negative effects have declined as we’ve come out of the Recession.

The fact that new businesses can be a source of job creation could be especially good for rural communities which seemingly have the seeds of entrepreneurial activity. Rural areas have more proprietorships, which are indicative of at least one self-employed person or partnership, per 1000 residents compared to rural areas. Rural areas are already home to farming, which is arguably one of the most entrepreneurial occupations, but farming only account for about 1/6 of proprietorships.

Rural businesses also have higher survival rates Rural businesses also have higher survival rates. Arguably this is due to there being less competitive pressure for other businesses in rural settings. However, with fewer employment businesses survive, to some extent, because they have to.

Who can be come entrepreneurs Who can be come entrepreneurs? Often rural areas get some bad press for being undereducated or less educated. I would argue that when it comes to employment, that the education or skills possessed are only half of the equation. We also need to think about the skills required by employers in the region. It may not be that a community is “under” educated per se, so much as they are appropriately skilled to the jobs available in their region. I would only when workers are falling short of the skills required by employers are they truly under educated. The graphic shows that most urban areas are overeducated. There residents have higher education levels than would be expected based on the industries there. There are also a large number of rural counties that are over-educated. If these people have to take a job under their skill level, we’d consider them underemployed or as having a skill surplus. Entrepreneurship may be a really attractive option for these people who want to stay in their high amenity area but have a job better-suited to their skills. Moore, S. (February 2005). Regional Asset Indicators: Tapping the Skills Surplus in Rural America. The Main Street Economist. Center for the Study of Rural America. Federal Reserve Bank of Kansas City.

I’m showing all 9 categories for these last two slides because there are some interesting gradients. Foreign born are more than twice as entrepreneurial as natives. U.S close to twice as ”diverse” by this metric, but that’s expected, as Wisconsin is far from the coasts and southern border. We do have some foreign-born that could be an opportunity but less so in rural areas. But we can think about diversity a little differerently… Most Rural Most Urban

Interestingly, based on this figure the most urban and most rural populations are similarly more diverse in having larger shares of people born out of state. But, this figure is a bit of a cautionary tale in that, even in this case where urban and rural areas seem statistically similar, it’s likely driven by different forces. In urban areas, this is likely young, skilled people drawn to metropolitan job centers. In rural areas, this likely driven by retirees who are moving to high amenity locations. These people have higher level of human and financial capital and may be looking for a way to still continue their professional lives outside of conventional wage-and-salary employment. These characteristics make them a promising pool of potential entrepreneurs. Most Rural Most Urban

Questions or Comments? Contact Information: tessa.conroy@wisc.edu