John Phipps: Is Rural America Now The Epicenter Of Today's Labor Woes?

From Scott Emich in St Peter, MN:

“In rural America every 40 miles or so there is a manufacturing plant for a national business.  How are the small independent businesses that are the grain elevators, welding shops, independent seed dealers, local Co-op’s, etc.  going to continue to be able to find labor at the wages that they can pay?  There is going to be a big discrepancy between the national businesses and the locals in pay scale. I fear even more for the small-town main street.”

Great question, Scott. Like you I see evidence of this all over my county. We have some light manufacturing in the single town of size (9000), and every one has a sign or ad about hiring. Some fast-food outlets are not opening the dining rooms due to lack of personnel. Finding help is also a constant gripe among farmers. But this is not so much about being rural, but rather being at full employment.

While economists bicker about the definition of full employment, at 3.6% we can’t be far away. The idea there is a pool of slackers sitting and drawing government aid is inaccurate. At worst, this pool is no bigger than it ever was. Labor force participation is 82.6%, the best since 2019.

Total employment is 158 million, the same as before the pandemic. Meanwhile, real wages (which have been adjusted for inflation) continue to drop, suggesting there is no compelling demand for labor. Rural employment faces some unique issues, however.

While wages are generally lower than cities, the cost of living is significantly lower as well – primarily due to housing.

Rural America continues to lose population faster than urban areas, and the worker pool is not just smaller, but older and less educated. Growth in largely rural states has been almost exclusively on the fringes of growing urban centers.

Working in the city and living in the country is a good economic strategy for all kinds of workers, which shrinks the pool for truly rural employers. Add in automation, like restaurants going from waitstaff to kiosks or all carry-out, online retailing, and less immigration of all kinds, and rural employers face a stiff challenge.

Of course, there is wage level that will attract those workers, but for too many small firms, they cannot operate with such labor costs.