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Off-farm jobs critical to ag economy ... Part 1

Executive Summary

Off-farm jobs and income are critically important to farmers and ranchers, as the rural and agricultural economy has evolved during the past half-century to benefit connected and diverse communities. Growing rural and urban economic interdependence can be difficult to see at times but an appreciation of the dynamic relationship is vital to informing policies that strengthen the financial health of communities and agricultural producers alike. Misunderstanding of “rural” connectiveness and industry diversity can lead to well-intentioned federal programs that actually hinder policy efforts to support these communities.

The growing rural and urban connection is often hiding in plain sight.

• Successful “rural” counties often become “urban” because of interconnected regional relationships between workers and businesses that span multiple counties.

• By 2018 more than half of nonmetro and farm-dependent county residents commuted outside of their county for work – an increase of more than 10 percentage points from two decades ago.

Rural communities have increasingly diverse economies.

• Fewer workers are needed as agriculture becomes more productive; 15 percent of nonmetro county employment was in the agricultural sector in 1970 but by 2019 it was 6.5 percent.

• Services jobs – such as retail, professional services, health care and restaurants – have been replacing agriculture and manufacturing jobs in rural counties for decades, growing from 40 percent of nonmetro jobs in 1970 to 57 percent by 2019.

• Only 20 percent of nonmetro counties are economically specialized in farming, whereas 30 percent have diverse economies.

Agricultural producers, especially young and beginning farmers, depend on off-farm jobs.

• Most principal operators had a main job off the farm in 2017, compared to 37 percent in 1974. Almost two out of three younger operators – under age 35 – had primary off-farm jobs in 2017.

• More-reliable income and health-care benefits were the main reasons for off-farm jobs in a 2018 survey.

• Half of farm households have negative farm income in a given year, so other income sources are critical for most farmers as they pay agricultural-investment debts.

• Of farm household income, 82 percent comes from off-farm sources – representing stable income to support farming operations.

• Debt-to-asset ratio analysis and other research show that off-farm jobs reduce financial risks, especially important for younger farmers who face greater debt needs as they grow their business.

Rural-urban connection grows

The close ties between nonmetro or rural and metro or urban counties tells the story of how the nation’s rural and urban communities have grown economically closer during the past 50 years.

• Of the rural U.S. population, 65 percent or 46 million live in counties adjacent to metro areas.

• Increased commuting of nonmetro workers to metro areas is the primary reason for reclassifying “rural” counties as “urban” during the past decades.

• Farm-dependent counties have especially gained ground in connecting workers across communities as off-farm jobs have increased in importance.

• From 1990 to 2010 farm-dependent counties had the largest percentage-point increase at 14 percent in share of high-commuting census tracts, indicating more residents were traveling farther for work.

• In 2002 more than half of farm-dependent county commuters left their home county for work. In 2018 more than six in 10 farm-dependent county residents commuted outside of their county.

The under-appreciated story of America’s rural communities is that successful “rural” counties often become “urban” precisely because of the interconnected nature of regional economies – where workers and businesses engage with each other across multiple counties.

Rural communities increasingly diverse

America’s rural areas have complex economies, with neighboring communities increasingly sharing work and business ties that benefit the larger region. Rural and production agriculture are no longer intrinsically linked because most nonmetro communities have diverse business sectors.

• Of nonmetro counties, 30 percent have diverse or nonspecialized economies, while 20 percent are farm-dependent. Service jobs continue to replace agriculture and manufacturing employment.

• Management and professional occupations are most prevalent off-farm jobs for operators and spouses.

Ag dependent on off-farm income

Jobs in other industries are vital to farm households because half of those households have negative farm income in a typical year. Most farmers cited reliable income as the key reason for off-farm jobs in a 2018 survey. Stable income was especially important for small family farms, the vast majority at 92 percent of all farms.

• Most principal operators had a main job off the farm in 2017, compared to 37 percent in 1974.

• Low debt-to-asset ratios for a farm household suggest reduced financial risks. From 2011 through 2019, so-called off-farm-occupation farms averaged 6.3 percent debt-to asset ratios. For midsized-to-larger farms, where operators typically do not work off-farm, the ratio averaged more than 13 percent.

• A Kansas City Federal Reserve study suggested that agricultural producers in rural counties with weak labor markets had greater debt-repayment risks because of fewer off-farm job opportunities.

Off-farm jobs critical to young farmers

• Young and beginning farmers are more likely than other farmers to have a primary job off the farm. Off-farm income is critical for reducing debt risks as those farmers build their businesses.

• Almost two out of three younger operators had a primary off-farm job in 2017, compared to 56 percent of all principal operators.

• Debt-to-asset ratio analysis and other research shows that off-farm jobs reduce financial risks, especially important for younger farmers who face greater debt needs as they grow their business.

• Younger farmers, under age 35, had average debt-to-asset ratios of 21 percent from 2011 to 2019. That compares to 6.3 percent for off-farm-occupation farms.

• The Kansas City Federal Reserve study noted that off-farm income is even more important for young operators in reducing debt-repayment risks.

What does “rural” economy mean?

Rural communities in the United States are often defined by “nonmetropolitan” or “nonmetro” county status. While there are other ways to geographically describe “rural,” the lack of consistent economic data often limits the use of other definitions for studying the rural economy through time.

Nonmetro, referred to hereafter as rural, areas include counties with urban clusters of fewer than 50,000 persons and other counties classified as not having substantial commuting ties to larger metropolitan regions. With each decennial census, counties are evaluated and sometimes reclassified to reflect updated population and commuting changes. Reclassification means that the definition of “rural” evolves, especially as metropolitan areas continue their outward growth to encompass more counties.

Defining rural seemed less difficult half a century ago when the word was more synonymous with agriculture; if a person lived and worked in a rural area she or he was assumed to have ties to production agriculture. But America’s rural areas have had more-complex economies for some time now, with neighboring communities increasingly sharing work and business ties that benefit the larger region. Thus rural and production agriculture are no longer intrinsically linked because most nonmetro communities have diverse business sectors.

The 2019 population of nonmetro counties was 46 million, or 14 percent of the U.S. population. Most of that population, 30 million or 65 percent, lived in counties adjacent to metro areas. The close ties between metro and nonmetro counties tells the central story of how the nation’s urban and rural communities have grown economically, and geographically, closer during the past 50 years.

Reclassification hides evolving economic trends

Describing rural economic trends is complicated by the basic measurement problem of county reclassification. For example in 1940 about 57 percent of the U.S. population lived in nonmetro counties. But by 2018 the share of population in those counties was 14 percent. Much of that population loss was due to economically thriving nonmetro counties being reclassified as “metro” as larger cities expanded their economic footprint.

Eight out of 10 U.S. counties were nonmetro in 1974 – see Exhibit 1. But by 2015 the share of nonmetro counties was 63 percent due to reclassifications during that period. Most reclassifications to metro happened between 1994 and 2015.

The reclassification of nonmetro counties to metro counties since 1974 can be visually seen in Exhibit 2. Expanding metro areas that predate 1974 are the primary influence for nonmetro-county reclassifications, with some exceptions seen in less-populated northeast, upper-plains and northwest states. During the four decades four out of five counties reclassified from nonmetro to metro were adjacent to existing metropolitan areas.

Often counties that switch from nonmetro to metro can still feel rural in character and support jobs in agriculture for decades after. But reclassification separates those communities administratively and “rural” becomes everything but those metro counties.

  • Of the nonmetro counties that later became metro, 20 percent were farm-dependent in 1974.
  • Of those reclassified metro counties, 8 percent were still farm-dependent in 2015.

The under-appreciated story in the reclassification process is that successful “rural” counties often become “urban” precisely because of the interconnected nature of regional economies – where workers and businesses engage with each other across multiple counties. That leaves nonmetro counties, when viewed in a static state, to appear less connected to urban areas than they really are.

Commuting highlights job connection

U.S. Census Bureau data on greater-commuting census tracts demonstrate how commuting has increasingly connected communities – see Exhibit 3. Those data, available since 1990, show that farm-dependent counties had the largest percentage-point increase in greater-commuting census tracts during a 20-year period. Greater-commuting census tracts are where 30 percent or more of employed residents commute to a metropolitan, micropolitan or small town for work.

Counties that were continuously metropolitan since 1974 had about 7 percent of census tracts as greater-commuting by 2010. That was a decline in greater-commuting census tracts of 1.4 percentage points from 1990. Employees in those more-mature urban counties are closer to their place of work, hence the reduced share of greater-commuting census tracts.

Counties that were reclassified as metro after 1994 unsurprisingly had a growing share of greater-commuting census tracts, from 21 percent to 32 percent, during the 20 years. The increased commuting between nonmetro counties that were adjacent to metro areas is a primary reason for their reclassification. Even so, the magnitude of change during the 20 years is telling how important job commuting has become for previously nonmetro counties.

Counties that had remained nonmetro during the past 50 years also showed significant increases in greater-commuting census tracts from 1990 to 2006-2010. While less of a change than counties reclassified as metro, nonmetro areas still saw the share of greater-commuting census tracts increase to more than one in four. But in the farm-dependent subset of nonmetro counties, greater-commuting tracts increased from almost 9 percent in 1990 to 23 percent by 2010, a 14-percentage point increase, and likely related to the increasing number of agricultural operators that had off-farm employment.

Commuting continues to grow

Newer U.S. Census data, 2002 to 2018, show that workers are increasingly commuting outside their home county for work – demonstrating the growing importance of regional labor markets in recent years. That’s especially true for farm-dependent counties.

An example is farm-dependent Spencer County, Kentucky – see Exhibit 4. The county, within the Louisville metro region, is similar to many communities where workers often travel to other counties for employment. In 2018 the vast majority of Spencer County residents with payroll jobs commuted out of the county for work.

In 2002 almost four in 10 workers commuted outside of their home county for work. Nonmetro county residents were more likely than metro residents to commute outside of their county. More than half of farm-dependent residents with payroll jobs commuted outside their home county in 2002.

By 2018 the share of workers commuting outside of their home county had increased to 46 percent, an increase of 7 percentage points from 2002. But the change was more drastic for nonmetro and farm-dependent counties, both seeing more than 10 percentage-point increases during the same period. In 2018 more than six in 10 farm-dependent county residents commuted outside of their home county for payroll jobs.

The Exhibit 6 map illustrates where commuting increased the most during the 2002-2018 time period, and in relation to metro counties.

In 2002 almost 47 percent of counties with reported data had more than half of their residents leaving their home community, orange-colored counties on the map, for payroll employment – and were often in or near metropolitan areas. By 2018 more than seven in 10 counties had at least half their residents working outside their home county. Those greater-commuting counties have spread out to cover much more area in the United States, apart from very large and sparsely populated counties in some western states.

Rural areas more economically diverse

Changing commuting patterns show how rural and urban areas are growing more economically connected. Rural areas also have increasingly diverse employment opportunities, as commuting expands and industry sectors evolve.

Exhibit 7 shows the change in the share of farm, forestry and agricultural-services employment – the ag sector – for the U.S. metro, and nonmetro counties since the 1970s. In 1970 farm employment was 15 percent of nonmetro jobs, but that share dropped substantially by 1990 to less than 10 percent. By 2010 nonmetro ag-sector employment was 6.9 percent of total employment and has only declined slightly since then.

Manufacturing and the ag sector, together, represented one in three jobs for nonmetro counties in 1970 – see Exhibit 8. Those sectors exported their products to towns across the United States and to other countries, bringing important revenue to communities and employment opportunities. But by 2010 continued productivity gains had reduced the share of jobs in those sectors to one in six, where it has largely remained. Both sectors continue as critical engines of economic prosperity in many nonmetro communities but will need fewer workers as technology replaces labor.

Service jobs – including retail, restaurants and health care – have increased to fill the nonmetro-employment declines of the ag sector and manufacturing. The share of government, construction and other smaller-sector employment was relatively stable during the half century but service-sector jobs grew by almost 17 percentage points. The increase in service-sector jobs brought employment opportunities for less-skilled workers – in retail and restaurants for example – but also the need for better-skilled jobs in health care, business operations, information technology and finance. Many of those jobs offered better and stable pay for farmers and ranchers – and in turn became their primary source of income.

A further breakout of 2019 sector employment for nonmetro counties, seen in Exhibit 9, shows how diverse jobs are in rural areas. Farm, Forestry, and Agricultural Services largely employs workers in farming or ranching production. Agricultural Services – at 1.5 percent of employment and almost one in four jobs in the larger ag sector – includes farm labor, harvest and management-contract services such as livestock breeding and soil-preparation services. More than half of nonmetro jobs are found in Services – retail trade, health care, leisure and hospitality – and professional services. Government jobs employ one in six nonmetro workers.

Nonmetro-county job trends show that rural economies are becoming more diversified but geography and natural resources play a role in how nonmetro regions have evolved.

Economic specializations detailed

Farm-dependent counties, and other economic specializations, are described by the U.S. Department of Agriculture’s Economic Research Service in typology codes that are useful in understanding how rural economy jobs have changed in recent times. Typology codes describe the economic drivers of a county at a given time and are available from 1979 onward. But county-typology assignments prior to 2000 are difficult to compare with later versions because the number and definition of economic specializations changed during that time. The most recent 2015 farm-dependent definition includes counties with either 25 percent or more of labor income from farming, or 16 percent or more of jobs were in farming during 2010-2012.

In 2015 most counties were classified as nonmetro and had a diverse range of economic specializations – see Exhibit 10. When grouped by the USDA’s farm-production regions, some notable distinctions can be found.

• Farming – 20 percent of all nonmetro counties were farming-dependent, but in the Plains region 44 percent were dependent on agricultural jobs and income. The Atlantic region had only 5 percent of counties dependent on farming. The South region had only 6 percent of counties dependent on farming.

• Manufacturing – About three in 10 counties in the Midwest and South regions were manufacturing-dependent. The West region had only 1 percent of nonmetro counties dependent on manufacturing, and other were only 7 percent in the Plains region.

• Nonspecialized – Nonspecialized counties have diversified economies and were the most prevalent nonmetro type at 30 percent. The South region had the most nonspecialized counties. The West and Plains regions had the smallest shares, but diverse economies were still found in about one in five counties.

• Recreation – 12 percent of nonmetro counties were recreation-dependent, but the West region had twice as many counties in that specialization. The Plains and South regions had very small percentages of recreation-dependent counties.

• Mining – Mining-dependent communities, at 9 percent of nonmetro counties, represented the smallest category but did have larger concentrations in Plains and West regions.

• Federal and State Government – 12 percent of nonmetro counties are dependent on jobs in federal and state government, such as university towns. The West region had the greatest share at 19 percent whereas the Midwest region had the smallest share at 7 percent.

Farm-dependent counties have historically been concentrated in the Plains region – see Exhibit 11. From 1974 to 2015 a small number of counties switch to farm-dependency, mostly in the Plains region, but declining farm employment in the United States caused more counties to switch from farm-dependency to other economic specialization. Almost half of the counties that switched from farm-dependent since 1974 became nonspecialized, while 20 percent changed to manufacturing-dependent counties.

Population loss has been a challenge for counties that have remained farm-dependent and have been less able to diversify their economies. Counties that were farm-dependent in 2015 had seen population, on average, decline by 4 percent from 1974 to 2019. By contrast, counties that were not farm-dependent in 2015 had grown 55 percent in population during the same period. Exhibit 12 shows how counties changed in population from 1974 to 2019, illustrating the connection between less economically diverse regions and population decline. Many farm-dependent counties in the Midwest and Plains states, for example, have seen continuous population decline since the mid-1970s.

Workforces mean economically resilient 

While “rural” populations can be perceived as being isolated from nearby cities, the reality is that most rural residents with payroll jobs commute to those regional economic hotspots for employment. And those cities, in turn, depend on the broader regional population for business labor and spending. This regional dependency becomes formalized through time when nonmetro counties are reclassified to metro, but that can also hide the dynamic success stories of many rural areas.

To be continued ...

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CoBank is a $158 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. It’s a member of the Farm Credit System. Visit www.cobank.com for more information.

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