Why Is U.S. Poverty Higher in Nonmetropolitan than in Metropolitan Areas?

Abstract

ABSTRACT In the U.S., people are more likely to be poor if they live in a nonmetropolitan (nonmetro) than in a metropolitan (metro) area. A common explanation for this phenomenon is that nonmetro places offer relatively few economic and social opportunities. This article explores another plausible explanation, asking if the disproportionate poverty in nonmetro areas partly reflects attitudes of people with personal attributes related to poverty: they may be attracted to nonmetro places or otherwise reluctant (or unable) to leave them. To test this hypothesis, data from nine waves of the Panel Study of Income Dynamics (PSID) are used to track economic well‐being and nonmetro–metro residential choice among a sample of 2,007 low‐income householders. A series of multivariate regression models are estimated in which the dependent variable is a householder's income to need (adjusted for spatial cost‐of‐housing differences), and regressors are individual attributes, a binary variable for nonmetro residence, and state fixed‐effects. Regression results show that controlling for householder educational attainment reduces the negative association between nonmetro residence and income to need; but controlling for unobserved, time‐invariant heterogeneity via individual fixed‐effects increases the magnitude of this negative association. Study findings thus appear to indicate that enduring nonmetro poverty is explained both by a sorting of low human capital individuals into nonmetro areas and by reduced economic opportunities in nonmetro compared to metro places.