The current economic boom in the United States has raised incomes, spurred new business development and increased employment in most areas across the nation. The Memphis region is no exception. Led by trade, transportation, gaming and health services, the area's economy has provided an exuberant business environment for the region in the 1990s.
The Memphis region is greater in geographic area, population and economic potential than just the Memphis metropolitan statistical area (MSA), located in the southwest corner of Tennessee. The Federal Reserve Bank of St. Louis' Memphis zone comprises 39 counties in northern Mississippi, 21 counties in western Tennessee and 13 counties in eastern Arkansas. In addition to the Memphis metropolitan area, the region contains just three other, much smaller urban market centers: Jackson, Tenn.; Jonesboro, Ark.; and Tupelo, Miss. Like most of the Mid-South, these market centers owe a portion of their success to links with the Memphis MSA. Still, each has its own characteristics: agricultural processing in Jonesboro, furniture manufacturing in Tupelo, and a service and marketing mix in Jackson.
The remainder of the zone is rural. It is these rural economies that are a cause for concern, as they are lagging behind both the national economy and the area's urban economies on every significant measure of economic well-being. Understanding why this is so requires an analysis of both the process and the problems of economic development in rural counties—and how they are tied to urban centers.
Population statistics provide the first hint of what is happening in the rural Mississippi Delta counties. Increases in population are not keeping up with the growth occurring in the urban areas. While the 65 rural counties still have a bigger population than the eight urban counties—1.6 million people in the rural areas in 1995 compared with 1.3 million in the urban areas—the trend is toward urban population growth. Between 1985 and 1995, the urban population growth was 12 percent, while the rural population growth was only 0.2 percent. (See Table 1.)
Perhaps more significant is job creation, which has been less robust in the rural counties than in the urban counties, even though the rural population is greater. Between 1985 and 1995, the eight urban counties—dominated by Memphis—added 175,988 new jobs for area workers, while the rural counties added only 101,091. This translates to a 31.7 percent increase in urban jobs compared with 19.8 percent in rural jobs over the decade. Clearly, the job picture improved in both areas, but the cities outperformed the countryside.
Why are the rural counties neither providing as many jobs nor growing as rapidly? A big issue is the lack of training and education. Rural workforces just do not have the training required for modern economic development. In 1990, 24.5 percent of the U.S. population 18 years and older had a two-year associate's degree or better. Shelby County, which includes Memphis, almost matched that level at 23.2 percent. The rural counties, however, fared less well, with rural Mississippi at 15.3 percent, rural Tennessee at 9.8 percent and rural Arkansas at 10.2 percent. In addition, the percentage of rural residents without a basic high school diploma or GED was far higher than either the urban counties or the national average. Urban or rural, business development requires more workers with computer, communications and office skills than ever before. These skills are generally learned through the higher educational system.
It follows that per capita personal income in the rural counties around Memphis is below both local urban levels and the national average. Although rural income per capita has grown significantly over the last decade, it is still approximately just two-thirds the size of the national per capita income. And from 1985 to 1995, per capita income grew $6,433 to a total of $15,324 in the 65 rural counties, compared with $10,471 growth and a total of $23,640 in the Memphis MSA.
The good news is that wages per job have improved at a slightly faster rate than personal income. In fact, as Table 2 shows, wages per job have generally grown more rapidly in the Delta counties than in the United States as a whole. And from 1985 to 1995, rural wages grew slightly faster than urban wages. The rural wage level deficit in the Delta, however, is still significant compared with the Memphis MSA wage level. Part of the improvement in wages may be attributed to the casinos in rural Mississippi, but a greater factor is the overall job growth brought about by the shift in rural industry from manufacturing and agriculture to trade and services.
A poorly educated workforce is a significant barrier to economic performance. Focusing solely on these problems, however, is not likely to lead to a solution. The structure of industry is changing for rural as well as urban counties. Business leaders must adapt to those changing circumstances if they want to successfully implement rural economic development.
Everyone recognizes that the future of business and jobs in metropolitan areas is centered in service-producing companies. The same is true in rural counties. Agriculture, while important in terms of sheer acreage, is no longer the driving force of rural economies. Manufacturing, in industrial parks and along major highways, has been an important source of jobs and economic growth over the past three decades, but it too is in relative decline. Trade and services, once considered tertiary to agriculture and manufacturing, are now driving growth in all parts of the economy.
Creating an environment for successful economic progress in these new rural industries is a considerable challenge. It is not as simple as developing a competitive advantage that will allow jobs and income to progress as rapidly (or even more rapidly) than the area's urban economies. Rather, successful rural economic development is more likely to be complementary than competitive to urban development. The ingredients for wealth—financial capital, an educated workforce, supplies and final customers—are all connected to the urban economy. A successful rural economy needs to plug into these resources to grow.
Three issues are keys to enhancing rural economic development. The first is filtering. Business innovations are typically made in regions where specialized knowledge and capital are available. Movement to rural sites occurs only after a production process or a company has matured. That is, the industry filters down to rural areas. In the past, this has been the primary source of manufacturing plants locating in rural areas. Today, however, manufacturing is less important than it used to be. Capturing a manufacturing plant is more difficult, and keeping one is less likely. Only by changing the focus from manufacturing to service will rural economies be able to import jobs with greater staying power and greater value added over time.
The second issue is agglomeration. New business growth occurs near old businesses. Because the risk of failure is always high when starting a new enterprise, risks can be reduced through locating new businesses near older businesses and their customers, workers and suppliers. Consequently, a key element to enhancing rural economic development is redefining geographic space. With modern roads, rails and air transportation systems, plus a World Wide Web full of computer-based communications, everything is closer than it used to be. That knowledge has to be converted to business development plans. Rural counties need closer political, business and social ties with the urban market centers to become part of the urban development process.
The third development issue is identifying the region's growth pole. Each successful economy has a leading industry or an exemplary firm. In the Memphis area, names like Federal Express, First Tennessee, Harrah's and Methodist Hospitals immediately come to mind. Using firms like these as the foundation for rural economic development is important. If a new firm or plant is tied to the growth pole as a customer or supplier, the probability of success rises. In addition, the exemplary growth-pole firm provides an opportunity for imitation.
Implementing this sort of economic development requires rural counties to engage in three activities. First, they need to build from community-based initiatives, using local talent to bring in new business. Second, business development must be economically integrated with the region's cities. Without the wedge of filtering and agglomeration around an urban growth pole, a rural economic development effort will be a long-term struggle. Third, economic developers need to recognize the primacy of service-based economic growth. It is the source of future jobs and income growth.
Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.
Fed in Print: An index of the economic research conducted by the Fed.
FedCommunities.org is a portal to community development resources from all 12 Federal Reserve Banks and the Federal Reserve Board of Governors.