====================================================================== Center for Community Economic Development University of Wisconsin-Extension COMMUNITY ECONOMICS NEWSLETTER No. 242 December, 1996 ====================================================================== Rural Underemployment/1 by Steven C. Deller/2 Since the mid-1980 there has been a growing recognition that underemployment is a more prevalent problem in rural areas of the US than in urban areas. Rural underemployment, a measure of economic distress in labor markets, reflects many employment-related problems among rural residents who work or would like to work. Included in underemployment are those that are unemployed and seeking work, those that are sub-employed, discouraged workers who have left the labor force because of their inability to find a job. Employed people can be underemployed: either unable to find a job with sufficient number of hours or pays above a poverty-level wage, or both. Research has shown that since at least 1980 rural residents are more likely to be underemployed than urban residents. In addition, certain forms of underemployment are particularly prevalent in rural areas. A common research approach to defining underemployment is the Labor Utilization Framework (LUF). When the LUF approach is used working-age individuals are classified into one of six categories: * Not in the labor force * Sub-unemployment: includes individuals not in the labor force because they are unable to find work and part-year employees out of the labor force but looking for additional work * Unemployed: includes individuals employed and searching for work in the previous four-week period and employed individuals laid-off from work or in the job transition process * Underemployed by low hours: includes persons working less than 35 hours per work who would prefer full-time employment * Underemployed by low earnings: includes individuals whose labor income is less than 1.25 times the individual poverty thresholds determined by the Social Security Administration *Adequately employed: excludes persons in the prior LUF categories, but includes voluntary part-time employment. The more recent studies of underemployment using the LUF approach rely on the March Current Population Survey (CPS). For the most recent CPS (1993), about 19 percent of nonmetro males are classified as underemployed while 27.6 percent of nonmetro females are underemployed. These levels compare to 18 percent underemployment for metro males and 21.2 percent for metro females. For this period the official unemployment rate was below six percent. For women, particularly in nonmetro areas, the largest source of underemployment is underemployment by low earnings (11.8% nonmetro vs 7.1% metro). This compares to 6.9 percent for nonmetro men and 4.5 percent for metro males. The smallest source of underemployment for both women and men is sub-unemployed, or the discouraged working generally accounting for less than four percent. In short, for rural areas more than one in five workers is underemployed. Researchers have demonstrated that the large rural/urban difference in the prevalence of underemployment in the US is principally due to differences in the mix of industries. A comparison of average industrial underemployment rates by major industrial sector (manufacturing, services, natural resource-based) shows some interesting results. With the exception of resource-based employment for men, industrial underemployment rates on average are significantly higher in rural areas than urban, regardless of industry. In rural areas, approximately 19 percent of men affiliated with manufacturing were underemployed over the 1980-93 period. This compares to slightly over 14 percent for urban men. For women, the rural/urban differential in manufacturing is even higher: 24 percent in rural areas compared to 16.6 percent in urban areas. In the service industries, a similar pattern is observed: higher rates of industrial underemployment in rural areas than urban areas. For rural men, the level of industrial underemployment in services is 16.5 percent and 27.3 percent for women. The highest level of industrial underemployment is in the resources-based sector where rural men are underemployed at the rate of 26.7 percent and 34.7 percent for women. A careful assessment of the higher underemployment rates in rural industries shows that the higher rates are not principally a result of differences in demographic characteristics or educational attainment levels of rural versus urban residents. Instead, there are clear differences in the employment opportunities available to rural residents, even within an industry. Workers in manufacturing are more likely to become unemployed, but the likelihood is greater for a rural resident than an urban resident. Similarly, service industry workers overall are more likely to earn lower wages and work insufficient hours, relative to manufacturing workers, but the likelihood is even greater among rural residents. By focusing attention on underemployment rather than on unemployment alone, it is possible to better understand the extent of economic distress related to employment. In rural communities, rates of underemployment are comparatively high relative to urban areas, even within major industrial sectors. Rates are also observed to be very high among disadvantaged segments of the rural population: young entrants to the labor force, older workers, workers that did not complete high school, and minority populations. These observations underscore the poorer employment opportunities in rural areas compared to urban areas, and points out the need for not only more jobs but better job opportunities for rural residents. Thus, even during the current period of remarkably low unemployment rates the issue of underemployment remains pervasive. Given the vulnerability of certain segments of both rural and urban population segments, communities could face substantial challenges to create the market based opportunities implied in federal and state level welfare reform initiatives. Ron Shaffer Community Development Economist 1/ This material draws on the report by Jill L. Findeis, Ganesh Rauniyar, and Wan-ling Hsu, "The Prevalence of Rural Underemployment," __Rural Development Views__, Center for Economic and Community Development, Pennsylvania State University, Spring, 1966. 2/ Associate Professor and Community Development Economist, Department of Agricultural and Applied Economics, University of Wisconsin-Madison/Extension. =========================================================== If you would like a paper copy of the Community Economics Newsletter, please contact the Center for Community Economic Development, 1327 University Avenue, Madison, WI 53715 or call (608) 265-8136 or e-mail me at hamilton@aae.wisc.edu. ===========================================================