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Department of Agricultural, Environmental, and Development Economics


Rural America’s Economic Stagnation

March 9, 2020

According to recent data from The Census Bureau, around 50 million Americans live in rural areas which are plagued by dwindling economic opportunities, high poverty rates and persistent population decline. The fact that fewer rural residents are moving to urban areas for work, which has been a traditional route to prosperity for generations of rural residents, leaves many stuck in stagnating communities.

Mark Partridge, Professor at The Ohio University and Swank Chair in Rural-Urban Policy, studies priority issues related to rural and communities and their growth. Partridge’s recent research brings to light another economic indicator, economic dynamism, measured by rates of job creation and destruction. Partridge’s research shows economic dynamism continues to decline in the U.S., in Ohio in particular and even more so in rural areas. In general, this equates to a less entrepreneurial, less innovative and less flexible economy.

“New firms make up a smaller share of total employment in the Midwest than in other parts of the country,” says Partridge.

The research titled “Rural America’s Stagnant Economic Performance: What’s the Role of Declining Dynamism?” was just published by the American Enterprise Institute.

Partridge says there is no one explanation for declining dynamism, but this trend is partially attributable to the fact that healthcare is tied to the employer, high student debts, greater costs associated with state-specific occupational licensing requirements, and increasing industrial concentration that is associated with less firm start-ups and higher price margins.

“The realities of lower employment growth, lower GDP growth, and declining business dynamism seem daunting, says Partridge. “But a closer look at Ohio’s economy and the economic performance of its core metropolitan areas can help us better understand the investments that need to be made locally to offset these broader, national-level trends and spur future growth for the state’s economy.”

According to Partridge, the lack of mobility in rural America suggests a role for place-based policies aimed at specific rural communities and regions that intrinsically experience larger decreases in new firm creations, increasing declines in self-employment and fewer employment opportunities.

In the report, Partridge makes the case for policies that encourage more firm startups through changes in tax and regulatory policies that disproportionately favor large and existing firms. Further, he illustrates the economic benefits that come about after implementation of labor supply enhancements and through increasing local labor market flexibility.

As a result, the case for the increase in efforts to remove constraints on dynamism would appear to have the most positive effects in rural areas.

Source: Mark Partridge