Manufactures ; Rural areas ; Rural development

Chad Wilkerson

English

Research Papers in Economics

December 2001
T he recession of 2001 has hit the U.S. manufacturing sec-
tor particularly hard. Nearly all types of factories—high-tech
and low-tech, durable-goods-producing and nondurable-
goods-producing—have been affected in some way. But the
slump has hurt rural America especially, because manufactur-
ing remains more prevalent in rural areas than in metro areas.
This article looks at just how important factory activity is
to rural areas across the country. It also examines how rural
factories performed during the expansion of the 1990s and the
recession of 2001. The article then discusses the ongoing chal-
lenges rural manufacturers face from increased global competi-
tion and rapidly emerging technologies in production.
CENTER FOR THE STUDY OF RURAL AMERICA
Federal Reserve Bank of Kansas City
Trends in
Rural Manufacturing
Chad Wilkerson
Associate Economist
Federal Reserve Bank of Kansas City
Commentary on the rural economy
The Main Street 
Economist
Dec Newsletter 2001  1/25/02  9:20 AM  Page 2The Main Street Economist December 2001
Rural manufacturing’s significance
Over the last 20 years, the U.S.
economy has become more service-oriented
and more reliant on imports for many of its
manufactured goods. As a result, manufac-
turing’s share of national employment and
earnings has fallen considerably. But most
of this national decline has been centered in
the nation’s metro areas. In rural areas,
manufacturing’s share of economic activity
has fallen much less (Charts 1 & 2). 
Economic studies have documented
several causes for the relatively steady pres-
ence of rural manufacturing.1 For one,
rural areas are generally more attractive to
manufacturing firms because wages, prop-
erty taxes, and land costs are all lower than
in most metro areas. Looking just at wages,
rural factory workers earned only about
two-thirds as much on average as urban
manufacturing employees in 1999. Even
so, the average earnings for a rural manu-
facturing job outpaced the average earnings
for all other rural jobs by about 50 percent.
These comparatively high wages, along
with the prestige of having a sizable plant
in a small town, continue to make manu-
facturing desirable to many local economic
developers.
A shift in some kinds of manufacturing
from urban to rural areas began in the
1980s. This shift has also helped maintain
the importance of manufacturing to rural
America. Import competition, particularly
from Asia, became intense for many
American manufacturers in the 1980s,
forcing them to look for cheaper methods
of production. One way to cut costs was to
move some operations from cities to towns,
where labor costs were cheaper. This trend
helped make up for the loss of firms in
some traditionally rural industries, such as
textiles and leather, which moved to
lower cost foreign countries due to similar
pressures of international competition.
Finally, rural areas have not experi-
enced the same boom in service activity
that metro areas have enjoyed over the
past two decades. Thus, manufacturing
remains relatively more important in
rural areas than in cities. Employment in
the telecommunications industry, in par-
ticular, has increased far more rapidly in
recent years in metro areas. The demand
for telecom services is generally greatest,
and service provision easiest, in more
populated places. Services activity has
grown to some extent in rural areas,
helping offset job losses in agriculture and
mining, but it hasn’t grown as quickly as
in the nation’s metro areas. 
- 2 -
0
5
10
15
20
25
30
1999 1994 1989 1984 1979 1974 1969
Percent
Rural
Metro
Chart 1
Manufacturing’s Share of Employment
Source: Bureau of Economic Analysis
Southeast
Mideast
New England
Great Lakes
Plains
Rocky Mountains
Southwest
Far West
Dependent (>20% of personal earnings)
Very dependent (>33.3% of personal earnings)
Source: Bureau of Economic Analysis
0
5
10
15
20
25
30
1999 1994 1989 1984 1979 1974 1969
Percent
Rural
Metro
Chart 2
Manufacturing’s Share of Personal Earnings
Source: Bureau of Economic Analysis
Dependence on Manufacturing
1999
Dec Newsletter 2001  1/25/02  9:20 AM  Page 3Regional differences in the 1990s
Manufacturing has remained important
to more than just a few of America’s rural
areas. In fact, more rural counties today
depend on manufacturing than on any other
sector of the economy. Still, the importance
of rural manufacturing ranges widely from
region to region. And the recent growth in
rural manufacturing has differed across the
country. 
Like urban manufacturing, most rural
manufacturing continues to concentrate in
the eastern half of the United States (see
map). Among the nation’s economic regions
(as defined by the Bureau of Economic
Analysis), manufacturing’s share of rural eco-
nomic activity is highest in the Great Lakes
region. Rural factories in this traditional
manufacturing region still account for 20
percent of jobs and 30 percent of personal
earnings—percentages that are very similar
to those of 30 years ago. Moreover, manufac-
turing’s presence in the region strengthened
during the 1990s, allowing steady job
growth to continue.
Rural factory employment in the 1990s
also rose considerably in the Plains and
Rocky Mountains regions. This increase has
been especially important in the Plains
region, where the rural population has
declined over the past decade. However,
many of the new plants in these traditionally
agricultural states are in the relatively low-
paying food processing industry. In the
Rocky Mountains
region, despite fairly
rapid growth in
factory jobs over the
last ten years, the con-
centration of manu-
facturing activity
actually decreased.
Jobs in many of the
region’s other rural
industries increased
even faster than man-
ufacturing jobs in the
1990s, as overall pop-
ulation surged.
In contrast to
the interior regions of
the country, rural
factory jobs in the nation’s coastal regions
declined in the 1990s. New England contin-
ued to lose a large number of jobs at rural
plants producing nondurable goods, such as
textiles. The rural Mideast suffered from
declines in many durable goods industries,
such as steel. The rural Southeast also began
losing factory jobs in the mid-1990s, partic-
ularly in textile and apparel manufacturing,
industries that have been especially hard hit
by trade agreements such as NAFTA. Finally,
over the past decade the rural Far West lost
jobs in several manufacturing industries,
including its important lumber industry.
The 2001 recession
The 2001 recession has been a rough
one for the nation’s manufacturers, particu-
larly rural ones. From the end of 2000 to the
end of 2001, U.S. manufacturing employ-
ment fell more than 7 percent, a loss of more
than 1.3 million jobs. Firms in many indus-
tries made sizable job cuts. Since the onset of
the recession last March, factory employ-
ment has fallen even more sharply in rural
areas (Chart 3). This sharper downturn,
combined with the fact that manufacturing
makes up a larger share of rural jobs, has
depressed total nonfarm employment in
rural areas more than in metro areas.
Recent activity has been mixed in the
manufacturing industries that are important
to rural areas—food and tobacco; textiles,
apparel, and leather; and lumber, furniture,
and paper (Table 1). Producers of food-
related products have held up relatively well
during the recession, showing once again
that food demand is fairly resilient in eco-
nomic downturns. Meanwhile, employment
in textiles, apparel, and leather, which was
already declining in the 1990s (particularly
following the passage of NAFTA) dropped
sharply with the recession. Employment in
wood-related industries has declined as
much as in industries that typically concen-
trate in metro areas.
Of course, no one knows exactly when
the industrial slump will end, but most ana-
lysts predict the economy will rebound
sometime in early 2002. Data from past
recessions suggest, however, that rural manu-
The Main Street Economist December 2001
- 3 -
85
90
95
100
105
Sep-02 Mar-02 Sep-01 Mar-01 Sep-00
Official start 
of recession
Metro
Rural
Index (Sep-00=100)
Chart 3
Manufacturing Employment
in the 2001 Recession
Source: Bureau of Labor Statistics
Table 1
Industry Composition and Growth
Share of Share of Avg Annual
Rural Mfg Urban Mfg Job Growth, Job Growth
Industry Group Earnings, 1999 Earnings, 1999 1990s in 2001
Food & tobacco 11% 6% 0.1% 0.2%
Textiles, apparel, leather 8 3 -4.2 -13.2
Lumber, furniture, paper 20 7 0.3 -5.9
Chemicals, petroleum, rubber 11 15 0.2 -4.2
Metal, equipment, instruments 41 55 -0.3 -9.4
Other manufacturing 10 13 0.1 -5.4
All manufacturing 100% 100% -0.4% -7.2%
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics
Dec Newsletter 2001  1/25/02  9:20 AM  Page 4On the Web: www.kc.frb.org
The Main Street Economist December 2001
facturing activity should begin a steady
rebound at the end of the downturn,
regardless of the length or depth of the
recession.
The earlier and sharper downturn in
rural manufacturing jobs relative to urban
manufacturing jobs in 2001 differs from
trends in the nation’s two most recent reces-
sions. During the relatively brief recession
of 1990-91, manufacturing employment at
the beginning of the downturn fell almost
equally in rural and urban areas before
picking up in rural areas as the recession
neared its end (Chart 4). The decline in
factory employment during the more
lengthy and painful recession of 1981-82
also showed little difference between urban
and rural areas (Chart 5). But, like the
1990-91 recession, rural factories began
adding jobs more quickly than urban areas
at the end of the downturn.
Ongoing challenges
Even before the onset of the current
recession, many rural manufacturers were
facing serious challenges. Perhaps the two
biggest ongoing challenges have been dealing
with the globalization of the economy and
finding enough workers trained in using a
new generation of technology.
Over the past decade, globalization has
clearly taken a toll on manufacturing in
many parts of the country—particularly
among producers of textiles, apparel, and
leather. These industries are largely concen-
trated in rural areas. The opening of world
trade through tariff and trade agreements
has meant that many of these products can
now be produced much more cheaply in
foreign countries. Cheaper labor—the
biggest historical advantage of rural areas—
has largely been taken away. This trend is
only likely to continue given the ongoing
expansion of trade around the world. As a
result, rural factories must find new com-
parative advantages.
Fortunately, the rapid introduction of
new manufacturing technologies offers new
sources of comparative advantage. These
technologies consist mainly of computer-
ized methods of managing inventories,
automating production, and improving
communication flows within factories. But
rural areas struggle to adopt many of these
new technologies, due largely to an inade-
quately trained workforce. The 1996 Rural
Manufacturing Survey, performed by the
U.S. Department of Agriculture, helped
illustrate this point. The survey showed that
the chief concern of both urban and rural
manufacturers is typically the quality of
their workforce.2
Contrary to popular perception, the
survey found that, in general, rural manu-
facturers were as satisfied as their urban
counterparts with their workers’ skills. Both
urban and rural manufacturers increasingly
require their workers to have many nontra-
ditional skills, such as problem-solving and
interpersonal skills. But the survey did
reveal a discrepancy between urban and
rural factories. Rural workers tend to lack
computer skills. Training workers to adapt
to ever-changing methods of production
promises to be a difficult task for rural plant
managers for years to come.
Conclusion
Manufacturing remains a driving force
in many of the nation’s rural areas, but it
also faces many challenges. Even before the
difficulties caused by the recession of 2001,
rural factories were dealing with the effects
of globalization and the rapid change of
technology. It remains to be seen how rural
factories cope with these challenges. Given
the importance of manufacturing to rural
areas, however, one thing is certain: How
well rural manufacturers are able to meet
these challenges will profoundly affect the
economic well-being of a large number of
Americans.
1 For example: Roth, Dennis. 2000. “Thinking About
Rural Manufacturing: A Brief History,” Rural America,
January.
2 Gale, et al. 1999. “Rural Competitiveness: Results
of the 1996 Rural Manufacturing Survey,” USDA
Agricultural Economic Report Number 776, March.
85
90
95
100
105
Jan-92 Jul-91 Jan-91 Jul-90 Jan-90
Official start 
of recession
Official end 
of recession
Metro
Rural
Index (Jan-90=100)
Chart 4
Manufacturing Employment
in the 1990–91 Recession
Source: Bureau of Labor Statistics
85
90
95
100
105
Jan-83 Jul-82 Jan-82 Jul-81 Jan-81
Official start 
of recession
Official end 
of recession
Metro
Rural
Index (Jan-81=100)
Chart 5
Manufacturing Employment
in the 1981–82 Recession
Source: Bureau of Labor Statistics
Dec Newsletter 2001  1/25/02  9:20 AM  Page 1

Trends in rural manufacturing

http://www.kansascityfed.org/Publicat/mse/MSE_1201.pdf

Trends in rural manufacturing

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics