By: Scott Albrecht
November 18, 2013
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EDITOR'S NOTE: This article is excerpted from a policy brief issued by the National Agricultural & Rural Development Policy Center. The complete brief is available here.
Household income inequality is higher today than four decades ago for both metro and non-metro populations. The inequality trend, however, for metro households has been much steeper. ...
Why has inequality risen faster among metro households than non-metro households?
Essentially, the key processes driving up income inequality between households are urban phenomena. For example, economists note that new technologies complement skilled workers, a trend known as skill-biased technological change. Tasks traditionally performed by moderately-skilled workers can now be executed more efficiently by a skilled worker with a computer, for example. This trend has been mirrored by a decline in private sector union membership and good-paying manufacturing jobs. New technologies also created new opportunities for "superstars" (actors, athletes) to reach larger markets.
The growing skill gap, declining manufacturing employment, and higher incomes for economic "superstars" are especially important in urban areas. For example, research by Don Albrecht (2012) shows that incomes for less-skilled workers are similar for metro and non-metro workers, but the gap between those with a college degree and those without is much larger in metro areas. This has two effects. First, as opportunities for less skilled workers have stagnated over the last several decades, the impact on inequality has been larger in metro than in non-metro areas. Second, talented, well-educated rural residents are drawn to urban areas where they can claim a higher salary.
Along those same lines, the richest Americans have enjoyed stronger income growth than most Americans; non-metro households represent 16.3% of all households but less than 5% of the richest 1% of households by household income (according to the ACS five year sample, 2007-2011). Economic superstars - CEOs, athletes, musicians, and hedge fund managers - are concentrated in big cities. For non-metro Public Use Microdata Areas (PUMA), there is a stronger correlation between the poverty rate and household income inequality. On the other hand, inequality in metro PUMAs is more strongly influenced by the share of very rich households.
The level of inequality also varies across rural areas. Inequality is significantly higher in the South and lowest in the Northeast and Midwest. Again, this highlights the relationship between poverty and inequality in non-metro areas. Poverty and inequality are especially high in regions with large, historically disenfranchised populations.
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The growing accumulation of wealth in cities is creating large disparities between haves and have-nots. In rural areas, the relationship is somewhat reversed - the poor are isolated, geographically and otherwise, from wealth-generating economic activities; here, poverty, exclusion, and inequality go hand-in-hand. The challenge is to assist the rural poor to gain access to and compete in an economy that is more concentrated in urban centers and more global than in the past.
Many of the rural poor live in areas where traditional sources of income have dried up, but new technologies can allow these individuals to gain access to markets in new ways. The internet connects rural vendors directly with buyers around the country and the world, but many lack access to a fast, reliable internet connection. Along these lines, modern communication technologies can decentralize the workplace in some cases, and allow rural residents to work for urban firms without relocating. But, again, these arrangements require a dependable digital connection.
Rural residents must also have the tools to compete in an evolving economy. For example, the infrastructural capacity to gain access to the internet is meaningless unless they have the knowledge and tools to exploit it. This requires an investment in education and training, especially for historically excluded populations.