Full Employment Is Good for Rural Americans But Bad for Rural America

(Bloomberg View) -- It's been so long since we've had strong labor markets in the U.S. that we've forgotten what kind of pain they can cause. Very low unemployment will be good for rural Americans but bad for rural America.

As the Wall Street Journal recently reported, tight labor markets are causing problems in northern New England already. The unemployment rates in Maine, New Hampshire and Vermont are all 3 percent or lower, compared with 4.5 percent for the U.S. as a whole. The populations of all three states skew older, and they have very low population growth. For the economy to grow at all, these states are relying on an increase in the labor force participation rate or workers to move in from elsewhere.

But you can only coax so much labor force growth out of a rapidly graying population, and rural New England is not attracting significant domestic or international migration. This puts local employers in a bind. Rural economies tend to be poorer, with lower average incomes than the country as a whole. In a tight labor market, many businesses simply don't have the profit margin cushion necessary to raise wages to attract or retain talent. And if they're unable to get the workers they need, their choices are shutting down or leaving for another place with deeper labor pools.

Rural workers are subject to their own dynamics in a tight labor market. In high demand, they have the bargaining power to ask for raises. More importantly, they have an easier time of doing something that's difficult in a bad labor market -- leaving for another job or another locale.

With the experience of both the housing boom years and then the bust following the great recession, we have a pretty good idea of the cyclical patterns of migration in the 21st century. As Jed Kolko, chief economist for Indeed, has shown visually, when the labor market is hot, people rush toward the low-density suburbs of large metropolitan areas and away from dense urban areas. They also move from cold-weather states in the Northeast and the Midwest toward warm-weather and sunny states in the South and the West. And also, as we saw in the most recent year, they leave rural areas. When the labor market is bad, the whole pattern jams up as people are frozen in place.

There are a few factors suggesting that in the years to come, migration patterns may be even more exaggerated than we've seen over the past few decades. First, as the economy has continued to evolve, high-paying rural jobs like coal mining and manufacturing are mostly a thing of the past. The service sector is our future, and the service economy requires at least a modest amount of density that mostly doesn't exist in rural America.

Second, for the remainder of the Trump presidency at least, it's questionable how much immigration we'll have, and in the past high levels of immigration have arguably slowed the urban migration of rural America. We haven't seen the combination of tight labor markets and low immigration in this country in a long time, but it may be happening now. If firms in larger urban areas need workers, they're going to get more of them from rural America than they have in the past.

And third, there's pent-up demand for migration. The two large generations in America right now are millennials, who are getting to an age where they're looking to settle down or move to start their families, and baby boomers, who are ready to retire, which frees them up to move away from wherever they made their careers.

There are many benefits to this new environment. Rural workers who have previously felt trapped are now able to move somewhere else for opportunity and a better life. Low-productivity businesses will die, replaced by higher-productivity ones as workers shift from less productive rural employment to more productive urban employment. Perhaps some of the populist angst in the country will dissipate, if large swaths of people who feel left behind by the modern economy are able to move toward cities and share in its wealth. 

But the rural communities, with even fewer working-age residents, will be even worse off than they are now. It will still be a tale of two Americas, but more and more people will be able to move from the withering America to the thriving America.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

To contact the author of this story: Conor Sen at csen9@bloomberg.net.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net.

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