Editor’s Note: The President’s Council of Economic Advisers has released a 47-page report entitled “Strengthening The Rural Economy.” This is the first Presidential document aimed at the rural economy in our memory, so below are extensive excerpts. (You can get your own copy here.) The rollout of this document coincides with the President’s tour of the rural Midwest.  We have tried to stay away from the parts of the report that list the Administration’s accomplishments and have concentrated on both the President’s analysis of rural issues and his plans for rural America. We have added paragraphs to ease reading.

Rural areas are home to about 50 million Americans and are an essential part of the overall economy. This report surveys the current state of rural America and describes the Obama Administration’s policies for strengthening the rural economy. Many of these policies are already being implemented through the American Recovery and Reinvestment Act of 2009. But further work remains to ensure the prosperity and vitality of rural America. 

Our survey of the current state of rural America identifies both important strengths and significant challenges facing the rural economy.

• The rural economy is more economically diverse than it once was. Agriculture directly employs only a small fraction of rural workers, though ancillary businesses are included in other sectors. Manufacturing, services, government, and wholesale and retail trade are important additional sources of rural employment.

• The U.S. agricultural sector remains more productive than those of other high-income countries and is highly competitive in international markets.

• The labor force of rural America is aging and its educational attainment lags behind that of urban areas for the working-age population.

• Improvements in health status in rural areas have not kept pace with those in urban areas, and access to doctors and health services has been an important challenge in rural areas.

SCOPE OF REPORT

We organize the discussion of the Administration’s policies for strengthening the rural economy into four main categories. The first category includes policies to support the growth of new businesses in rural areas. These policies include programs to help strengthen small businesses in a wide range of rural industries. They also involve incentives to greatly expand clean energy opportunities, which are often centered in rural areas. There are also important new opportunities for rural tourism and recreation.

A second category of policies is aimed at strengthening rural infrastructure. Infrastructure investment is central to rural prosperity. Without road, bridges, water projects, and telecommunications, rural America cannot get its products to market efficiently or be fully integrated with the rest of the economy. For this reason, the Federal government has traditionally supported rural infrastructure projects. The Obama Administration has continued that support in important and innovative ways, such as by supporting the expansion of broadband internet access to rural areas.

A third category of policies focuses on strengthening the agricultural sector. American agriculture is among the most productive in the world. The Administration has proposed measures to further open international markets to U.S. agricultural products, proposed reforms to better target farm support programs, and urged a greater focus on local and regional food systems. 

The fourth category of policies is aimed at strengthening the labor force and improving the quality of life in rural America by investing in education and health care. A new set of policies aims to close the gap in educational outcomes between rural and urban areas. The Administration is also investing in the health of rural America by taking actions to increase the affordability and quality of health care, while bolstering the medical workforce and infrastructure to address the specific challenges facing rural areas.

AGRICULTURE

The agricultural sector is also an important but declining source of employment and earnings for rural America. In 2007, the agriculture, forestry, and fishing sector constituted about 6 percent of employment in high-density rural areas and about 12 percent of employment in lowdensity rural areas, down from 13 percent and 23 percent in 1970, respectively. Note that these shares somewhat understate the importance of agriculture in rural America, since ancillary businesses are counted in other sector categories. For example, workers who truck or wholesale crops or livestock are generally not included in the agriculture sector classification, though livestock breeders and cotton ginners are.

Among individuals who identify themselves as farmers, agriculture has become a less important source of income.2 Figure 2 shows that about half of farm household income came from the farm in 1960. Today, the vast majority (89 percent in 2008) comes from off the farm. 

Perhaps the defining feature in the history of U.S. agriculture is its persistent gains in efficiency. Even relative to America’s surge in productivity over the past half century, American agricultural productivity has grown rapidly. Figure 3 shows that farm productivity nearly tripled in the second half of the twentieth century, while nonfarm productivity increased by about 75 percent. Almost all of this divergence in productivity growth occurred after 1980. A consequence of this tremendous increase in productivity is that, despite increases in total agricultural output, employment has declined. In 1900, about 41 percent of the total U.S. workforce farmed. This share dropped to 16 percent in 1945, 4 percent in 1970, and only 2 percent in 2000.

It should not be surprising that the U.S. agricultural sector is very competitive in the international market. Indeed, in 2008, U.S. agricultural exports were worth $70 billion according to Census definitions, and $115 billion using the Department of Agriculture’s broader definition. The share of American agricultural output exported in 2007 (using the Census definitions) was 15 percent, having increased from 11 percent in 1999. Thus, access to foreign markets is very important for American agriculture. Likewise, although gross agricultural output only constituted about 2.5 percent of total GDP over this period, agriculture made up 2.8 percent of total exports in 1999, rising to 3.4 percent in 2007, according to Census definitions. Notably, this competitiveness is not primarily driven by farm support programs. Since 1991, high-value commodities (for instance, fruit and meat) have made up a larger fraction of exports than bulk commodities (for instance, wheat and rice), though they receive far less Federal support.

LABOR FORCE 

While the rural economy has become increasingly diverse, it faces a number of unique challenges regarding its labor force. First, incomes are lower and poverty rates are higher in rural areas than they are in urban areas. Second, a lower proportion of the rural population is of working age (20-64), which presents challenges for future job creation, and the share of the U.S. population living in rural counties has steadily declined over time. Third, a higher portion of rural residents are on disability and therefore unable to participate in the rural workforce. Fourth, educational attainment lags behind that of urban areas for the working-age population. Recognizing these challenges, the Administration has made education a major pillar in its policies for rural America. Its focus on expanding opportunities for small businesses, tourism and recreation, and clean energy will also help to make rural households better off while attracting a new generation of young workers.

The overall share of the U.S. population living in rural counties also has been steadily declining over time, with high-density rural counties experiencing particularly sharp declines (see Figure 5).8 From 1900 to 1970, rural counties lost nearly 0.3 percentage point of the U.S. population per year. From 1970 to 2008, this trend has continued, albeit at a slower rate, costing rural counties almost 0.1 percent of the U.S. population annually. The net effect of these declines is a broad-scale population shift from rural to urban America. In 1900, about 40 percent of the population lived in a county that ultimately would be classified as rural in present-day America, whereas today that share has dwindled to half this amount.

An additional measure of labor force depth is the share of the working-age population (25-64 years old) healthy enough to be counted as an active member of the labor force.9 The Federal Social Security Disability Insurance (SSDI) program provides monthly cash benefits to people who are unable to work due to a disability. In 2008, disability insurance enrollment as a share of the working-age population was 6.5 percent in high-density rural areas and 5.7 percent in lowdensity rural areas, compared with 3.9 percent in urban areas.10 Thus, the average rural resident was much more likely to be enrolled in SSDI than his or her urban counterpart. Because individuals enrolled in SSDI are unlikely to exit from the program, these disparities are also likely to impact future labor force capacity.

EDUCATIONAL ATTAINMENT

Over time, the share of the population of ages 25–64 with more than a high school education in an average urban county has been persistently above the share in an average rural county (see Table 5). While rural counties have made great strides in ensuring that larger proportions of their populations pursue schooling beyond high school, they have been unable to close this gap. Additionally, the rate of progress in educational attainment has been slightly slower in rural areas, causing education levels in rural areas to slip further behind those in urban areas. In 2000, an urban resident was between 10 and 15 percentage points more likely to have attended college than a rural resident. Two decades earlier, this difference was between 9 and 13 percentage points.

This growth differential is driven by the share of the working-age population that has completed only high school. In the average urban county, this share fell 11 percentage points over the two decades, compared with just 3 to 6 percentage points in the average rural county. Put another way, in 1980 rural residents were 1.1 times more likely to stop attending school after high school than urban residents. By 2000, this ratio was up to 1.3-1.4.

HEALTH

While residents of non-metropolitan areas have comparable rates of health insurance coverage to metropolitan areas and the nation overall, they are more likely to be enrolled in public programs such as Medicaid for low-income families, the Children’s Health Insurance Program, and especially Medicare for the elderly (due to the relatively older rural population) rather than holding private insurance, as shown in the Table 6.12 Residents of rural areas have less access to doctors and other health care providers than their counterparts in urban areas. As a result, they are more likely to forego needed care. Finally, improvements in health status in rural areas have not kept pace with those in urban areas.

Families in non-metropolitan areas are more likely than families in metropolitan areas to have a high burden in affording health insurance coverage, defined as health expenses exceeding 10 percent of after-tax family income. While total out-of-pocket health expenses are comparable in metropolitan and non-metropolitan areas ($3,265 versus $3,216 in 2005, the year with the most recent available data, in 2007 dollars), incomes in non-metropolitan areas tend to be lower. As a result, 24.2 percent of families in non-metropolitan areas spend more than 10 percent of their income on health insurance coverage, compared with 18.1 percent of families in metropolitan areas.

Non-metropolitan counties had on average 1.2 active doctors for every 1,000 residents in 2007, compared with 3.0 active doctors for the same number of residents in metropolitan areas. Metropolitan counties also had more than 3 times as many specialists, 1.1 for every 1,000 residents compared with only 0.3 for every 1,000 residents in non-metropolitan counties.14 Finally, in addition to disparities in health care infrastructure and workforce capacity, rural residents face specific geographic challenges in accessing medical care. One report found longer travel times for emergency services in small and geographically isolated rural communities.  

DIVERGING MORTALITY RATES

While mortality rates in the United States overall have declined over the past few decades, mortality rates in metropolitan and non-metropolitan areas have diverged since the early 1990s. Figure 6 shows that, since 1990, non-metropolitan mortality has declined at an average annual rate of only 0.73 percent, significantly slower than the metropolitan rate of 1.27 percent. While the source of this divergence is unclear, it is likely that improvements in access to health care and in the affordability of that care in rural areas could help to narrow this gap in mortality rates. 

FEDERAL SUPPORT

Long before the Administration’s recent efforts to strengthen rural America, Federal support for rural areas through these many agencies was extensive. To illustrate this traditional support, consider expenditures in 2007.

About $390 billion in Federal funding was directed to rural areas through non-loan, non-insurance programs in that year. (See chart below.) The left-hand pie chart in Figure 7 shows that approximately 84 percent of this funding went to health care, Social Security, military wages and procurement, and non-military wages and procurement (including the Postal Service). The remaining 16 percent – denoted as “other spending” – is further broken out in the right-hand pie chart. This “other” component of rural spending constituted about $62 billion in 2007. About one-quarter of this spending was directed toward transportation infrastructure. Spending on social services and food assistance (17 percent), income security (16 percent), the agricultural sector (15 percent), and education (13 percent) represent the next largest areas of spending. Spending on housing and other infrastructure, while smaller, was still a substantial portion of Federal funding.

SMALL BUSINESS

Long-term investment in innovation and entrepreneurship is critical for the economic health of rural communities. In addition to continuing strong support of existing programs, the Administration has introduced new policies that will foster rural revitalization. In particular, the Department of Agriculture will lead a strategy to promote economic opportunities through regional planning among Federal agencies and state and local governments through its Rural Innovation Initiative (see Box 5, in Section VI). Recognizing that rural areas often suffer from higher poverty and unemployment rates, the Department of Agriculture and the Small Business Administration recently announced their intent to work together to better coordinate development programs and increase the number of guaranteed small business loans  

The fiscal year 2011 budget also includes almost $100 million for the promotion of regional innovation clusters through the Small Business Administration and the Economic Development Administration. The Economic Development Administration will use its budget allocation to distribute regional planning and matching grants to support the creation of regional innovation hubs. The Small Business Administration will promote small business participation in regional economic clusters by awarding grants on a competitive basis to facilitate the coordination of resources through business counseling, training, and mentorships. The proposed fiscal year 2011 budget also expands the Emerging Leaders Initiative and the Minority Business Development Agency, both of which will play critical roles in supporting American Indian and Alaska Native businesses by providing technical assistance and connecting business leaders to regional networks. 

CLEAN ENERGY

The rural economy will also benefit from policies aimed at moving the American economy toward cleaner domestic sources of energy. Existing Administration policies – the Renewable Fuel Standard recently enacted under the Energy Independence and Security Act of 2007 (EISA) and Recovery Act incentives for the development of bio-energy – will increase the amount of bio-based transportation fuels and renewable energy produced in rural areas. Further energy and climate legislation could greatly expand the use of energy sources located in rural areas such as bio-energy, solar, wind, biomass, and geothermal to produce electricity and transportation fuels. 

RECREATION AND TOURISM

America’s Federal lands are precious national assets that are an important source of employment in rural areas through their support of the tourism industry. These lands – wildlife refuges, national parks, national forests, and Bureau of Land Management lands – are located disproportionately in rural areas.

 Recently, there have been more than 620 million annual visits to these lands, including over 310 million to national parks and wildlife refuges. The Department of the Interior estimates that its lands support over 320,000 jobs in tourism and recreation. Recent studies estimate that the National Park Service alone annually contributes $6.3 billion in labor income and $9 billion in value added, the wildlife refuges provide an estimated $1.7 billion in sales and $542.8 million in employment income, and recreational visits to the National Forests contribute $11.2 billion to GDP.

 America’s Federal lands support a wide variety of activities. Every year, about 7 million anglers visit national wildlife refuges, as do 2 million hunters and many millions of birders. Of those surveyed on their national forest recreation visits, the primary activities were hiking or walking, downhill skiing, viewing natural features, hunting, and fishing. Additionally, about 40 percent listed viewing wildlife as an activity in which they participated.

 Recreation and tourism on Federal lands is a growth industry, with the potential to increasingly benefit rural America. For example, the Department of Agriculture estimates that the number of visitors has increased at national forests from 134 million in 1964 to 206 million in 2007. Likewise, the number of recreation visits to the national parks has increased from 205 million in 1979 to 275 million in 2008.

 Unfortunately, two problems – deferred maintenance and damaged ecosystems – prevent America’s Federal lands from reaching their full economic potential. In 2009, the Fish and Wildlife Service, Bureau of Land Management, National Parks Service, and Forest Service had a combined deferred maintenance project backlog of between $16 and $22 billion. The Forest Service estimates that 37 percent of its administrative facilities need major repairs or renovations.

The failure to do needed maintenance leads to eroded roads, closed-off trails, and hazardous dilapidated buildings, and reduces the safety and accessibility of America’s Federal lands. In turn, this makes them less attractive tourist destinations.

 Similarly, a legacy of damaged ecosystems has decreased the attractiveness of many Federal lands. Aside from the reduction in ecosystem services that these lands provide to the whole country, the harms to recreation and tourism take many forms.

 Whether through decreasing bird biodiversity that attracts birders, fish abundance that attracts recreational fishermen, the population of native species prized by amateur naturalists, or the quality and quantity of water available for water recreation, ecosystem degradation is harmful to tourism on Federal lands.

For example, the Forest Service estimates that 25 million acres of its lands are at future risk from insects and diseases. Furthermore, a legacy of counterproductive fire suppression has led to an excessive build-up of combustible material on Federal lands, leading to more extreme wildfires which – aside from endangering surrounding communities – harm ecosystems and site facilities, keeping away visitors.

NEW TOURISM POLICIES

Through the Recovery Act, the Administration has increased investment on Federal lands, reducing the problems of deferred maintenance and ecosystem degradation and creating a stronger foundation for the future of rural tourism.

 The Recovery Act invests over $2.3 billion to preserve and improve the accessibility and experience of America’s extraordinary Federal lands. Much of this spending goes disproportionately to rural areas; for example, the CEA estimates that 65 percent of Forest Service spending has been allocated to rural counties. The funding is roughly evenly split between the Department of the Interior (National Park Service, Fish and Wildlife Service, and the Bureau of Land Management) and the Department of Agriculture’s Forest Service. To make parks and forests safer and more accessible, these funds will repair eroded trails and roads, close hazardous abandoned mines near tourist sites, build visitor facilities, and invest in many other assets.  

RURAL INFRASTRUCTURE

 The Federal government’s traditional support of rural infrastructure has focused on transportation, telecommunications, and energy and water infrastructure. This support has played a crucial role in linking rural residents economically and socially with the rest of the country and the world and in providing them with important basic services.

Transportation

 Of all the Federal efforts to tie Americans together, none is more tangible than the Federalaid highway system. The Department of Transportation supports the construction and maintenance of important highway projects in all 50 states and has invested billions of dollars in highway construction and maintenance since the 1950s. About 65 percent of all interstate highway miles – and 70 percent of all Federal-aid highway miles – run through rural areas.

These highways allow rural Americans to sell their products in key markets throughout the country and the world. Beyond highways, Federal programs also support the rail, barge, and ocean-going transportation infrastructures. 

Telecommunications

While the Postal Service has long been the primary vehicle for sending goods and written communications in the United States, the Federal government has also played a crucial role in ensuring access to telecommunications in rural areas, with the same goal of connecting Americans to one another.

Today, all telecommunications carriers that provide interstate or international service contribute to the Universal Service Fund (USF), often through a service fee on their bills. Contributors paid about $7.3 billion into the Fund in 2009, and this revenue was used to support a range of programs designed to promote universal access to essential communications services at reasonable rates. For example, the USF’s Rural Health Care program subsidizes telecom and internet services for rural health care providers. Additionally, the Department of Agriculture’s Rural Utilities Service (RUS) provides loans to fund traditional telecommunications infrastructure and voice telephone service.

RURAL BROADBAND

Only about 70 percent of rural households with internet access had a high speed broadband connection in 2007, compared with 84 percent of urban households. This difference in broadband adoption is not just a consequence of income differences. Even when rural and urban households are matched by income, broadband connections are less prevalent among rural households.

Much of the difference between rural and urban broadband subscribership reflects availability: residents of some rural areas have no terrestrial broadband internet service providers, and other areas are served by only a single provider and therefore have no competition. The Administration has made a priority of accelerating the rollout of broadband internet service to rural America. 

The most important vehicles for accomplishing this goal are monies authorized in the Recovery Act for providing loans, grants, and loan-grant combinations to expand access to broadband in rural and underserved areas of America. For instance, the Department of Agriculture’s Rural Utilities Service will use billions to support loans and grants that facilitate broadband deployment in rural areas, with the objective of funding projects that will support rural economic development and job creation beyond the immediate construction and operations of the broadband facilities.

 The Department of Commerce’s National Telecommunications and Information Administration was given $4.7 billion for its Broadband Technology Opportunities Program to deploy broadband infrastructure in unserved and underserved areas (many of which are rural), expand public computer center capacity, and encourage sustainable adoption of broadband service. And the Administration intends to support broadband expansion in rural America beyond the Recovery Act. For instance, the Administration has included $690 million for direct loans in telecommunications and $418 million for loans and grants to help transition rural economies into the modern information economy in its proposed fiscal year 2011 budget.

There are several reasons that expanded broadband service is important for employment and income growth in rural areas. Most employment growth in the United States over the last several decades has been in the service sector, where jobs are particularly likely to benefit from broadband access.

 Broadband service may allow rural areas to compete for a range of service jobs, from call centers to software development. And even in non-service industries, internet tools can help businesses connect more efficiently with customers and suppliers. For instance, American farmers can use the internet to track product prices, obtain weather forecasts, buy and sell commodity futures, track the progress of supplies ordered or products shipped, and find markets for specialty farm products. Broadband internet connections also are increasingly useful as a substitute for business travel.

Broadband-enabled employment is valuable in rural areas not only for the income opportunities it provides, but also because it helps further diversify local economies. Broadband internet access enables employment that is both flexible and untethered to local economic conditions. One example of how broadband access can diversify income sources is through home businesses, which are substantially more common in rural areas than urban ones.

Broadband service helps rural businesses find markets that otherwise might be unavailable to them, facilitates online ordering and billing, and integrates the rural economy with the rest of the country (and the world) more effectively than is possible over slow-speed internet connections. It also allows continued access to online training and education.

Finally, broadband service expands opportunities for improving the provision of medical and health services for rural populations. More accessible health information, products, and services confer real economic benefits to rural communities and their residents. One study of hospitals in 24 rural communities found that the benefits of telemedicine include savings from outsourcing of procedures, transportation savings for patients who were able to obtain services electronically from their local hospital rather than traveling to a distant specialist, and income savings to patients from reductions in missed work.

AGRICULTURAL EXPORTS

As part of the Administration’s National Export Initiative, the President has called for further measures to open foreign markets to American products. A key beneficiary of such expanded opportunities will be American agriculture, which is extremely competitive in international markets.

The President recently called for concluding the Doha round of trade negotiations, a large component of which is related to opening up agricultural markets around the world. This would require countries to reduce protective tariffs and distortive subsidies in their agricultural sectors.

More open trade allows the highly productive U.S. agricultural sector to export its products more easily. Further, the United States tends to have lower barriers to trade than many other countries. As discussed previously, the change in access that has resulted from previous free trade agreements has often been bigger for U.S. exporters than importers into the United States. An agreement such as this would allow the United States to reform policies that have been in some cases ruled noncompliant with the World Trade Organization (such as the subsidies for cotton). Having subsidies that are ruled illegal can cause damage to the industry and other sectors as other countries are allowed to impose retaliatory tariffs on U.S. goods.

ENSURING COMPETITION

Finally, the Administration is working to promote fair competition in agriculture not only internationally, but also at home.

The Administration is committed to protecting fair and open competition and enforcing antitrust laws in the agricultural sector. The Department of Justice and the Department of Agriculture are holding five public outreach workshops in 2010 to solicit public input on the state of competition, regulation, and consolidation in the agricultural industry. 

One aim of these workshops is to foster dialogue and ensure that a wide variety of viewpoints are heard on issues such as the impact of agriculture concentration on food costs, how patents and intellectual property affect agricultural marketing and production, and increasing retailer concentration.

 The first such event, held in Iowa in March, drew hundreds of farmers, ranchers, and industry leaders, who participated in a vigorous discussion about competition in markets ranging from seeds to livestock. Four more workshops have already been scheduled in 2010 to focus specifically on the poultry, livestock, and dairy markets.

FARM SUPPORT

The Administration’s proposed fiscal year 2011 budget includes a number of reforms to existing Federal support for the agricultural sector.

 First, to better target payments, it proposes more stringent income eligibility requirements to preclude the wealthiest farmers from receiving payments. Currently, farms with $500,000 or more in sales receive 38 percent of subsidies, although they account for only 4 percent of farms.

 In the Administration’s budget, after being phased in over three years, farmers with a farm-adjusted gross income (AGI) over $500,000 or nonfarm AGI over $250,000 would no longer be eligible for direct payments.

 Second, it proposes reforming the crop insurance program to reduce windfall profits enjoyed by private companies that supply reinsurance. The crop insurance program has grown dramatically since it began in 1981, from $18 million to $7 billion in 2009 (all in 2008 dollars). This change to the crop insurance program is projected to save $8 billion over 10 years. Together, these reforms ensure that the Federal government will continue to provide a safety net to farmers while freeing up resources that can then be directed toward other priorities.  

HEALTH AND EDUCATION

There are significant gaps in educational attainment and in the quality and availability of health care between rural and urban communities.

 These gaps arise in part because rural areas face several unique challenges in achieving high-quality education and health care. First, the recruitment of high-quality teachers and health care professionals may be more challenging; for example, rural professionals often face lower pay and difficult working conditions.

 Second, because of lower population densities, it is harder for rural areas to support specialized classes in their schools, such as vocational and advanced classes, and specialized health care providers, such as experts in the treatment of relatively unusual conditions.

 And third, the fact that rural students are often far from institutions of higher education makes it more costly for them to attend school beyond high school, and the fact that rural residents are often far from hospitals makes it more difficult for them to obtain timely, high-quality medical care.

 The Administration is working to help rural communities overcome these challenges, and in doing so, to close the gaps with urban areas. These efforts are being conducted through the Recovery Act, which is funding a range of programs strengthening rural education and health care; through health care reform, which may prove particularly beneficial to rural America; 

CONCLUSION

The history of rural America is one of proud accomplishment. 

American agricultural productivity is among the very highest in the world and agricultural products are important exports. Rural America also contributes to the production of U.S. goods and services in many other sectors including manufacturing, services, government, and wholesale and retail trade. The President is committed to ensuring that the future of rural America is as distinguished as its past.

 The Administration is actively taking steps to put rural Americans on a path toward greater prosperity through a wide range of policies. One set of policies seeks to promote rural businesses and further the diversification of the rural economy by helping rural small business, fostering rural areas’ role in leading the clean energy transformation, and encouraging rural recreation and tourism. Other policies are providing crucial investments in rural infrastructure in telecommunications, water distribution, and other areas.

 To promote the continued vitality of American agriculture, the Administration is working to open foreign markets, improve farm income support programs, and promote local and regional food systems. The Administration is also working to strengthen the rural labor force through initiatives in education and healthcare.

 Crucial steps to strengthening the rural economy are already being taken through the Recovery Act and other policies. These steps include investments in areas ranging from health information technology and education to infrastructure and small business loans; comprehensive health insurance reform that will have large benefits for rural communities; and much more. The Administration is committed to building on these unprecedented measures in the months and years to come.