Community Connections News Release

A Small Town Rarity--Unemployed Workers

by Terry L. Besser
Assistant Professor and Extension Sociologist
Iowa State University Extension to Communities

Which of the following is hardest to find in small Iowa towns?

• A Chinese restaurant
• A cappuccino bar
• A men's or children's clothing store
• A Jewish synagogue
• A foreign film
• Non-toll phone calls
• A masseur
• Unemployed workers

In January 1997, Iowa's unemployment rate (3.8 percent) was 2 percent lower than the national figure. Putting the Iowa figure in context, the higher U.S. unemployment level is so low that some analysts fear that the low numbers of available unemployed workers will drive up labor costs and lead to an escalating inflation rate. The shortage of labor is also viewed as a problem because it limits the ability of businesses and economies to expand, a particular concern of many small towns. It is a real paradox of our society that a low rate of unemployment is seen as a problem and, that it exists side by side with a lack of well paying jobs, again -- particularly in small towns.

Iowa small towns share this dilemma with other rural communities in the Midwest. A recent study of the labor shortage in 15 rural Wisconsin counties may be useful in understanding Iowa's situation. Gary P. Green, a rural sociologist at the University of Wisconsin, interviewed employers, residents (as employees), temporary employment services and, where available, community college personnel in each of the studied counties.

Green points to several factors that have led to the tight labor market in rural areas. First, young adults have migrated out of rural areas. They leave to further their education, join the military, get married, or seek their fortune elsewhere, and many never return. The out-migration of youth occurs in all locations. Rural areas differ however, in that they are not able to attract sufficient numbers of in-migrants to make up for the loss of their out-migrating offspring.

A second reason is the movement of low wage employers to rural locations. Many moved during the Farm Crisis of the 1980s when rural communities welcomed all economic activity, even if it offered low wages. While the labor shortage affects all types of employers, the businesses with the most difficulty in retaining and attracting new employees pay on the average $2 an hour less than the others and are less likely to offer health benefits.

Areas where low wage jobs prevail find that local workers migrate to other communities and states with higher paying jobs. Green reports that Wisconsin assembly workers living in counties bordering Minnesota drive across the state line and get paid $4.50 more an hour for the same job that they performed in their home county. Naturally, the home community will experience a greater labor shortage than its Minnesota neighbor with the higher wages.

The prevalence of low wage jobs makes it difficult to establish and maintain the community's housing stock. Contractors contend that they cannot build houses at a price that is affordable for low wage earners, even if there are two per family. This causes a general depression of the local housing market and means that there is less affordable housing available for new workers who might move to town to fill job vacancies.

Green proposes four strategies to help communities address the problem of low wages and a tight labor market. They are:

• Establish business networks. These are working arrangements between businesses within a community (or in neighboring communities) to share information, employee training costs, equipment, insurance costs, consultant services, and even employees. A primary benefit of networking can be realized by providing training for employees. Often employers are reluctant to invest in employee training for fear that employees will take their skills to higher paying jobs offered by other employers. However, by sharing training costs, the investment involved may be low enough to make employee loss a reasonable risk. Better trained employees enable businesses to be more productive, more competitive and more prosperous in the long run.

• Remove policies that provide incentives to employers to locate in the area without regard to the wages offered by the employer. Enforce so called "clawback" laws that demand payback of local subsidies from employers who do not meet the minimum wage levels, number of employees or duration in the location.

• Implement policies that support workers, such as affordable, quality child care, transportation, housing, and educational and training opportunities. Place less emphasis on programs to aid employers, except for those mentioned in the next strategy.

• Support independent, locally-owned businesses. Green's findings show that this group of employers is much more likely to increase wages and benefits in response to labor shortages than branches of operations with distant owners. Another way to gain the advantages provided by locally-owned businesses is direct ownership of a business by the community and/or the local workers. Municipal utilities, hospitals and senior housing organizations provide models for successful community ownership. Research shows that these organizations generate more jobs and have greater commitment to the community than conventionally owned firms. They may be an especially valuable alternative to consider in circumstances where no private owner can be found to keep open a closing business.

Contacts: Terry L. Besser, ISU Extension Sociology, (515) 294-6508
Del Marks, Extension Communication Systems, (515) 294-9807

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Last update:November 18, 1997