'It's really troubling': Parts of America are trapped in a ‘catch-22’ economic situation
This article was originally published on Yahoo Finance.
While the economy and the job market have boomed in the post-Financial Crisis period, Americans living in “distressed” zip codes — which are increasingly rural — are struggling to find stability.
And their path to progress poses a “catch-22” situation, according to a researcher from the Economic Innovation Group (EIG).
“Young people are kind of trapped in debt in distressed communities,” EIG Research Director Kenan Fikri told Yahoo Finance. “And they don't really have a pathway to get out of their situation and be able to afford moving to a prosperous metropolitan area to try to turn the situation around. So it's really in a catch-22 that individuals who are trying to advance themselves from these communities end up landing.”
An EIG report, originally published in October 2018, looked at around 25,800 zip codes — 99% of the U.S. population — and compared two periods: 2007 to 2011, and 2012 to 2016. One of the primary reasons for the distressed communities being left behind, researchers found, was a lack educational attainment.
Yet when residents from these distressed communities tried to bridge that gap by attending college, they ended up burdened by student debt, creating a worse situation financially.
Distress was defined through seven metrics: educational attainment, housing vacancy, unemployment levels, poverty rate, median income, the change in number of jobs, and in business establishments.
“It's really troubling, we did a casual overlay of the [Distressed Communities Index] map with that of where student debt is most burdensome and found that delinquency rates are higher in places where economic opportunity is worse,” Fikri said.
Keith Orejel, an assistant professor at Wilmington College who studies rural communities, told Yahoo Finance that the “plight of rural America as much more structural. When one gets down to brass tacks, at the end of the day, rural areas never recovered from the Great Recession.”
Orejel added: “If you actually look at the data, it is quite shocking. Urban and metropolitan employment today is well above what it was prior to the Great Recession, whereas total employment in nonmetropolitan areas is still below what it was prior to the Great Recession. And there is clearly just an absence of job opportunities in the countryside that is making these sort of economically unappealing places to live.”
Parts of rural America are ‘projected to never fully recover’
While 97% of America’s land mass is rural, only around 20% of the population resides in those areas, according to the U.S. Census. The data also showed that around 65% of the total rural population lives east of the Mississippi River, and nearly half of the people living in rural areas are in the South.
These rural areas “are increasingly in distress, and we find that rural economic well-being is more volatile generally,” said Fikri. “As the recovery progressed, metropolitan areas really benefited disproportionately. The Great Recession didn't impact rural zip codes that severely as a group, but the recovery didn't really reach them either.”
The most distressed zip codes are concentrated “in the southeast, rural west, and urban centers in the northeast and midwest that have the country's most persistent pockets of really entrenched poverty,” Fikri explained. “And we see that poverty coincides with all sorts of other socioeconomic problems: low levels of education, low levels of employment, low levels of job growth, and low levels of new business openings.”
The South in particular saw a big decline in overall rankings.
“Louisiana, New Mexico, and West Virginia saw even more of their zip codes fall into the distressed category between the two periods and the distressed share of their populations rise accordingly,” the report stated. “They joined Alabama, Arkansas, and Mississippi to bring the number of states with approximately one-third or more of residents living in distressed communities to six.”
The problem with many of the distressed areas within these states was that a large number of jobs were overwhelmingly blue-collar work which was “physically demanding” and low-paying, according to the report: “3 out of 10 employed adults in these communities worked in such classically blue-collar jobs as production, construction, transportation, and maintenance occupations.”
But the big boom that followed the Great Recession period has disproportionately affected areas with white-collar workers, with the number of jobs surging in “prosperous” areas, as seen in the chart below:
And the post-recession recovery didn’t just miss distressed zip codes entirely, the report added. They’re also “projected to never fully recover from the Great Recession on current trendlines.”
Education as the ‘fault-line’
EIG found that the great divide between distressed communities and thriving, stable ones ultimately came down to one big fault-line: education.
Most of the major metro areas listed as distressed share the lowest ranks on college attainment nationally.
“The population differential between prosperous and distressed communities was almost entirely accounted for by the clustering of college-educated Americans in well-off zip codes,” the report stated. “Prosperous zip codes contained… 27.7 million adults with a bachelor’s degree or higher, almost six times the 4.8 million that lived in distressed zip codes.”
In Bakersfield, California for example, where nearly 50% of the population live in distressed zip codes, the area’s residents “had the lowest college attainment rate of its peers, with only 15.7% of the population holding a bachelor’s degree or higher — half the national rate,” the report stated.
And while educational attainment is seen as a crucial step for those trying to come out of struggling communities, that same college degree pushes many others into debt.
Having taken on relatively high levels of student debt because they’re unable to afford the high tuition costs, borrowers struggle to repay loans upon graduation.
In Bakersfield, the median debt held by a graduate was $15,150, while the median income was $60,862 according to an analysis by WalletHub. That means that upon graduation, student debt represented nearly a quarter of the college graduate’s income.
‘Young people fleeing the countryside’
And since education was a big driver of economic well-being, many rural communities have struggled because of trailing rates of educational attainment.
The 2017 USDA chart below details that a considerable proportion of people living in the South lacked a high school diploma.
And while some do choose to go to college, it hasn’t been an economically rewarding experience, USDA stats also reveal. In 2015, while nearly 48% of young adults aged 18 to 24 living in a city enrolled in college, only 29% of their rural counterparts did the same according to the National Center for Education Statistics.
And those who finished college then saw their earnings lag substantially behind those in urban areas, according to the USDA.
Orejel, the professor who studies rural communities, brought up another problem facing rural communities: The decline of the manufacturing industry. Manufacturing jobs that were available in rural areas — and created jobs that retained young people — served as a “staple of middle class jobs in the countryside have just been utterly devastated.”
That trend is well-observed. Yahoo Finance previously reported that since 1989, while there has been a surge in service jobs by 53.4%, goods-producing industries have fell by 15.5%.
But the transition to a more modern economy hasn’t been easy. Most of the big industries like finance and real estate don’t find these places attractive, “because rural areas don't have the infrastructure to support a lot of these more sophisticated enterprises,” Orejel explained. “And the population lacks the educational attainment to staff such positions.”
Hence the gap widens further, Orejel said: “In the bifurcated economy that has developed since 2008, where you have a lot of high tech, professional, high-education, jobs, that are fueling economic growth, those are more and more gravitating towards metropolitan areas.”
He concluded that “what's left for the rural economy is the low wage, lower end of the service sector — which are notoriously low paying with little to no benefits. And then almost complete lack of job security.”
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