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Special issue on rural and small-town America

Affordable Rural

Penny Goldberg
on Globalization


Econ Focus is the economics
magazine of the Federal Reserve
Bank of Richmond. It covers
economic issues affecting the
Fifth Federal Reserve District
and the nation and is published
by the Bank’s Research Department.
The Fifth District consists of the
District of Columbia, Maryland,
North Carolina, South Carolina,
Virginia, and most of West Virginia.

Kartik Athreya



The pandemic has worsened a long-standing national shortage of nurses.
Rural communities face the greatest challenges.

Entrepreneurship creates many local benefits, but starting a new business
in rural places can be challenging


Jessie Romero

David A. Price

Lisa Davis

John Mullin
Tim Sablik
Matthew Wells

Katrina Mullen

Sierra Latham
Sam Louis Taylor

Janin/Cliff Design, Inc.
the Federal Reserve Bank
of Richmond
P.O. Box 27622
Richmond, VA 23261

Subscriptions and additional copies:
Available free of charge through our website at or by calling
Research Publications at (800) 322-0565.

Reprints: Text may be reprinted
with the disclaimer in italics below. Permission
from the editor is required before reprinting
photos, charts, and tables. Credit Econ Focus and
send the editor a copy of the publication in which
the reprinted material appears.
The views expressed in Econ Focus are those of
the contributors and not necessarily those of the
Federal Reserve Bank of Richmond or the Federal
Reserve System.

Making It Work


New from the Richmond Fed’s Regional Matters Blog


After the Infrastructure Bill


The Many Lives of Federal Job Training

Climate Change and the Economy


Global Banks, Local Branches, and Faraway Crises


Revisiting the Community Reinvestment Act


Pinelopi Goldberg


Housing the Workforce in the Rural Fifth District


Our Work on Rural Economies

ISSN 2327-0241 (Print)
ISSN 2327-025x (Online)
Cover Image: Devon Smith, RN, dons protective gear before entering a COVID-19 patient room at Carilion Roanoke Memorial
Hospital in Roanoke, Va. Courtesy of the Carilion Clinic


Making It Work


his issue of Econ Focus is a special
issue on the economic challenges
of rural areas and small towns. I
spend a lot of time in these communities, meeting with local leaders — in
government, business, and nonprofits
— to learn from them about the issues
they face and, often, the solutions that
have worked for them. (During the
pandemic, our meetings have been
socially distanced.) What I have seen
consistently is that success does not
come from a single program or initiative. The places that are making it
work have several key elements in
common: a story, regional cooperation,
and dedicated funding — tied together
by something harder to define, which I
like to call “scrappiness.”
First, towns need a story: a reason
to visit and a reason to stay; a sense of
place to rally around. The story is for
employers, and the story is for talent.
But, importantly, the story is less about
marketing to outsiders and more about
marketing to those who live there —
why one should come and why one
should stay.
This is a relatively easy task for beach
towns and college towns, but many
other places also have strengths to build
on. In Fayetteville, W.Va., a thriving
outdoor sports industry has helped rejuvenate the area. An all-terrain vehicle
trail system draws visitors to Gilbert,
W.Va. The town of Danville, Va., has
capitalized on its riverfront and New
Bern, N.C., on its thriving waterfront
Other towns build on history, as
Cambridge, Md., is doing by honoring Harriet Tubman for her antislavery activity in that region and
by capitalizing on its rich maritime
history. Abingdon, Va., has a revitalized downtown that dates back to the
Revolutionary War (along with a thriving theater program). I could keep listing examples — the arts scene in Lake

City, S.C.; the vibrant downtown in
Aiken, S.C.; the lively retail district in
Leonardtown, Md. The common thread
is that these communities all believe
in what they have to offer and are
committed to making others believe
too. (See “In Tourism, Old Stories
and New Opportunities,” Econ Focus,
Fourth Quarter 2019.)
Second, towns need to collaborate regionally. Small towns tend to
be surrounded by other small towns.
They need to speak with one voice
and operate to take advantage of each
other’s strengths, whether those are
in education, amenities, employment
opportunities, or housing. Similarly,
a nearby bigger city isn’t a problem
but a benefit, as proximity to amenities and transportation can enhance
the story.
Third, everything I’ve talked about
obviously requires money. Here, some
places have gotten creative. Danville
and Martinsville, Va., and Asheville,
N.C., used the sales of local hospitals
to endow regional foundations that
invest in health, education, and workforce programs. In Hagerstown, Md.,
a local business association worked

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with a state senator to secure legislation to issue bonds to fund a new
baseball stadium, which is in turn
supporting downtown revitalization.
And the COVID-19 stimulus funding
represents a major opportunity.
One challenge for small towns now
is local capacity. Government institutions are slow to release money, and
they tend to distribute it to places with
a proven track record, access to matching funds, and a well-written plan for
using the money. Some communities
have built that grant writing and funding capacity, but most have not.
Bringing all these pieces together —
building a sense of place, collaborating
with neighbors, and being opportunistic about funding — requires scrappiness. It’s hard to define, but we know
it when we see it: a mix of determination, optimism, and creativity that
sets some places apart. Every town I’ve
mentioned has scrappy local leaders
who just won’t give up.
We’ll be talking about many of these
leaders and their communities at our
Investing in Rural America conference on March 30 in Greensboro,
N.C. You can register on our website,, to join us in person
or virtually.
Thanks, and enjoy the issue.

econ focus

• first quarter • 2022 1

b y k at r i n a m u l l e n

New from the Richmond Fed’s Regional Matters blog

Laura Dawson Ullrich. “Community College Enrollment in Fall 2021
and Cumulative Enrollment Impacts.”
In the first year of the COVID-19 pandemic, community colleges
experienced significant enrollment declines. By fall 2021, community
colleges were hopeful that enrollment would increase — only to
experience another, though smaller, decline. While male enrollment fell
considerably in fall 2020, female enrollment fell
slightly more than male enrollment in fall 2021.
Another trend emerged in the Fifth District: The
most urban community colleges experienced
greater enrollment declines compared with
more rural schools, due to stricter COVID-19
restrictions, limited public transportation, and
smaller campus size. Now the uncertainty of
the pandemic is causing community colleges
to think about funding and the dynamics of the
future workforce.


Hailey Phelps. “2020 Census: A Look at the Fifth District.”
Since the last U.S. Census in 2010, the national population has grown
7.4 percent, the slowest growth rate since the 1930s. The slowdown is
indicative of longer-term trends such as fewer births and more deaths
from an aging population. Fifth District states, excluding the District of
Columbia, experienced this slowdown in population growth. Still, total
population in those states increased by nearly
2.5 million people. Another takeaway from the
2020 U.S. Census is a continued population
shift toward urban areas: The number of
people living in urban counties in the Fifth
District increased, while generally, the number
living in rural areas decreased.

Joseph Mengedoth and Jacob Walker.
“Regional Job Openings and Quits Rates
Jolt to New Highs.”
The Job Openings and Labor Turnover Survey
(JOLTS) provides information not only on the
demand for labor, but also on firms’ abilities
to fill open positions or retain workers. Between June and July 2021,
the job openings rate reached record highs in the United States
and all Fifth District states — West Virginia reached the highest in
the district at 9.1 percent. Two jurisdictions in the Fifth District, the
District of Columbia and Maryland, had a higher quits rate than the
United States as a whole. Overall, the JOLTS lends itself to state-level
observations of the labor market and the confidence of workers.

Jason Kosakow. “Rising Wages and
Increased Hiring Two Years Into the
COVID-19 Pandemic.”
The Richmond Fed’s monthly survey of
businesses about their hiring plans and changes
in wages indicated that more businesses plan to
increase employment and raise wages. Of the
Fifth District firms that responded in November
2021, more than half said they planned to
increase employment in the next 12 months.
Between 2020 and 2021, the percentage of firms raising starting wages
more than doubled for most job categories. Firms have noted there is
a strong demand for workers, but it remains increasingly difficult to fill
open positions, especially those requiring a high school degree or less.
While skill matching and reservation wages continue to plague firms and
workers, increasing employment and raising wages will depend on the
ability of firms to find workers.

Erika Bell. “Rural Spotlight: Promoting Small Business
Development in South Carolina.”
Small businesses — firms with fewer than 500 employees — comprise
99.9 percent of all businesses in the United States and are vital to
local economies and communities. The Southeastern Institute for
Manufacturing and Technology in Florence, S.C., and its Gould Business
Incubator (GBI) is one example of the nearly 1,400 U.S. business
incubators that provide startups and early-stage businesses the space
and support to grow. Despite challenges from COVID-19, GBI pivoted
and reallocated resources to continue its services. With more than 30
businesses ranging from home health to IT and an urban wear retailer,
GBI has benefitted from networking and collaborating; in the process,
it says it added over $20 million into the Florence and Darlington
economies during the last fiscal year.

Tiffany Hollin-Wright and Jessica King. “Rural Spotlight:
Resuscitating the Health Care Workforce Pipeline in the Valleys.”
The COVID-19 pandemic has amplified shortages of health care
workers, especially in rural areas, where more than half of the
shortages exist. The Goodwill Industries of the Valleys, a communitybased Goodwill organization in Roanoke, Va., and the surrounding
areas, has been trying to address this shortage through its GoodCare
program. With three occupational tracks — health information,
nursing, and health care support — the program offers a six-week
foundations training course, primarily for low-income individuals and
referrals from Workforce Innovation and Opportunity Act providers.
Despite partnerships and increased enrollment, GoodCare participants
face workforce barriers including low entry-level wages, child care, and
benefits cliffs. (See also “The Rural Nursing Shortage,” p. 4.) EF

econ focus

• first quarter • 2022

b y s a m l o u i s tay l o r

After the Infrastructure Bill

i m ag e : g e tt y / i sto c k


n 1988, the congressionally chartered National Council on Public
Works Improvements issued its final
report card on the state of U.S. infrastructure. That report gave America’s
infrastructure a grade of C, and subsequent report cards issued by the
American Society of Civil Engineers, or
ASCE, have found that U.S. infrastructure needs have only grown since. The
most recent report cards from ASCE
ranked states in the Fifth District at
about the national average, with infrastructure in Maryland and North
Carolina receiving the highest overall grades of C and West Virginia and
South Carolina the lowest, receiving a
D and D+, respectively.
In November, partly in response to
such concerns, Congress passed the
Infrastructure Investment and Jobs
Act (IIJA). This legislation will spend
$1.2 trillion over the next 10 years,
of which $550 billion in new funding
is authorized over the next five years
to rebuild transportation infrastructure and energy grids and to expand
broadband access across the country.
Though supporters estimate that the
bill will produce up to $519 billion in
new revenues to largely offset the cost
of the new spending, the Congressional
Budget Office estimated that the IIJA
will produce a lower amount of new
revenues and offsets and will add $256
billion to the deficit over the 10-year
period. Though not quite as large as the
public works programs of the New Deal
era or the development of the Interstate
Highway System, the IIJA represents
the largest such spending program in
generations and is expected to make a
significant dent in the backlog of infrastructure needs across the country.
What does the IIJA mean for states
and communities in the Fifth District,
especially for small towns and rural
areas? Based on estimated amounts
of funding designated to be routed

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through existing formula-based spending programs,
it’s possible to estimate the
minimum amount of funding that will come into the
The region will benefit
from an estimated $27 billion
routed through the Highway
Trust Fund in order to
upgrade and repair roads,
including the heavily traveled
roads in Washington, D.C., as well as
those of the rural, mountainous terrain
in West Virginia. Additionally, $2.4
billion will go toward repairing bridges,
with each state having a large number
of bridges that are either considered to
be structurally deficient or approaching the end of their useful life. The Fifth
District will see $5.5 billion over the
next five years go toward public transit, with a substantial percentage of that
funding going to Virginia, Maryland,
and Washington, D.C., to help with
maintenance backlogs of the large
public transit areas around the Capital
Region. Approximately $4 billion will go
to repair and replace deficient drinking
water and wastewater systems. Finally,
Fifth District states will receive $411
million over the next five years to build
out electric vehicle charging infrastructure along major road networks as well
as throughout other communities.
One area of need that is of particular interest to rural areas in the
Fifth District is access to high-speed
internet service, known as broadband. The IIJA allocates a total of $65
billion toward broadband, with over
$42 billion of that going directly to
states to fund projects meeting minimum speeds; it requires participating states to fund projects that provide
at least one affordable service option.
Ten percent of the funding must go to
meeting service needs in the hardestto-reach areas. Each state will receive

a minimum allocation of $100 million;
additional funding will be allocated
based on broadband access maps being
developed by the FCC. In addition to
this funding, $2 billion will be available to rural areas through the U.S.
Department of Agriculture. The legislation also addresses barriers to internet access by sending $2.7 billion to
states to help their most disadvantaged communities with training and
equipment and by making COVID-era
affordability vouchers permanent at a
cost of $14.2 billion. All together, the
Biden administration projects that this
funding could help over 1.7 million
people in the Fifth District who are
currently without access to any broadband service gain access, and it could
help 8.3 million people gain access who
currently cannot afford to do so.
The Biden administration is only
starting to implement this legislation,
with the first payments going out to
states for roads and water infrastructure in December 2021. There are still
substantial hurdles to overcome in
rolling out the new spending, including finding the necessary number
of workers to undertake nationwide
construction projects in the midst
of tightness in the labor market.
Legislation of this kind is always
enacted with the promise of improving the lives of Americans. Success,
however, will be measured where the
rubber meets the road. EF
econ focus

• first quarter • 2022 3


The Rural
The pandemic has worsened a
long-standing national shortage of
nurses. Rural communities face the
greatest challenges.
Danielle Good, RN, outside Page Memorial Hospital, the 25-bed
critical access hospital in Luray, Va., where she works.


econ focus

• first quarter • 2022

outcomes. In the context of the current health crisis, a
working paper by William Padula of the University of
Southern California and Patricia Davidson of Johns Hopkins
University’s School of Nursing looked at data across 172
countries and found that having more nurses per patient was
associated with a decrease in COVID-19 mortality.
Yet many hospitals have reported increased difficulties hiring and retaining nurses. This problem is particularly acute in rural settings. In a November 2021 survey of
130 rural hospital leaders by the Chartis Group, a health
care advisory firm, nearly all respondents said they were
having trouble filling nursing positions. That is limiting the
care some of those hospitals can provide. Nearly half of the
survey respondents said they had been forced to turn away
patients due to a lack of nurses, and 27 percent reported that
they had suspended offering some hospital services altogether for the same reason.
“When we talk to rural hospital leaders, nine times out
of 10, their number one concern is staffing,” says Michael
Topchik, national leader for the Chartis Center for Rural
Health. “It is really tough to get nurses in rural America.”
This shortage of nurses isn’t new. A patient in a Cleveland
hospital over 100 years ago wrote a letter to the American
Journal of Nursing commenting on the “present shortage of
nurses.” The patient observed that the short-handed nurses
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i m age : co u rt e sy o f va l le y h e a lth


uring the pandemic, policymakers and reporters have
focused on the number of available hospital beds as a
measure of the health system’s capacity to deal with
COVID-19 infections. But those beds don’t matter
very much without medical staff — doctors, nurses,
and other trained specialists — to treat the patients in them.
And after nearly two years on the front lines of the pandemic,
health care workers are stretched thin.
Nationwide, hospitals employ 105,000 fewer workers today
than in February 2020, a loss of about 2 percent. According
to the Bureau of Labor Statistics’ Job Openings and Labor
Turnover Survey (JOLTS), almost 600,000 health care and
social assistance workers quit in November 2021, amounting
to 3 percent of the total, and the highest number on record
since the survey began in 2000. (See chart.) Many attribute
these resignations, at least in part, to health care workers’
mounting emotional and physical fatigue.
“Everybody is just tired,” says Danielle Good, a registered
nurse at Page Memorial Hospital, a 25-bed facility in Luray,
Va. “A lot of nurses feel that they can’t provide the care that
their patients deserve because they have to keep moving. A
12-hour shift sounds like a lot, but it’s not enough time when
you are short-staffed and doing the jobs of several people.”
As recurring surges of COVID-19 tax the health care
system, the availability of registered nurses has become a
major concern for hospital administrators. Nurses are critical to the assessment and treatment of patients, and numerous studies show that having more nurses improves patient


in the hospital were “like machines
Health Care Workers Call It Quits
driven at high speed to perform
Number of quits (in thousands) for health care and social assistance workers
their daily tasks” and seemed always
Those words could have just as easily
been written today. Burnout has always
been a top challenge for health care
workers, and the pandemic has dramati500
cally increased stress levels in hospitals.
A 2020 survey of health care workers by
Mental Health America found that three
in four were overwhelmed and experiencing burnout. And according to a 2021
survey of 1,000 health care workers by
Morning Consult, 19 percent of those
who had worked since February 2020
were considering quitting and leaving
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
the health care industry entirely.
This comes on top of a wave of nurse
SOURCE: U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey
retirements that has been building for
years. According to the 2018 National
Sample Survey of Registered Nurses, the
Most Rural Counties in the Fifth District Face Health Workforce Shortages
average age for a registered nurse was
50. Many will retire soon, if they haven’t
Share of nonmetro counties with health professional shortages for primary care as of January 2022
already. At the same time, the graying of
America is increasing demand for health
North Carolina
South Carolina
care services, as more baby boomers
age into their 60s and 70s. Before the
pandemic, the Bureau of Labor Statistics
predicted that the United States would
need nearly 200,000 new registered
nurses each year to keep up with retirements and rising demand for health care
over the next decade. Given the elevated
quits rate for nurses and other health
Whole County HPSA
Whole County HPSA
Whole County HPSA
care workers in recent months, that
County HPSA
Partial Virginia
County HPSA
Partial County HPSA
number is only likely to increase.
No Shortage
These problems are magnified at rural
hospitals and clinics, which serve populations that tend to be older and sicker
Whole County HPSA
Partial County HPSA
on average. Even without the loomNo Shortage
ing challenge of older nurses retiring, rural areas have long struggled
to recruit and retain enough medical
Whole County HPSA
Whole County HPSA
personnel. The Health Resources and
NOTE: "HPSA"Partial
for Health
Professional Shortage Area,
by the Health Resources and Services Administration.
Services Administration designates
Shortage and Services Administration
SOURCE: Health
counties as health professional shortage
areas (HPSAs) based on criteria such
as their population-to-provider ratio
and the average travel time to the nearest site for care. For
rural community, it’s hard to make the move to one,” says
primary care providers, nearly two-thirds of HPSAs are in
John Gale, a senior research associate and rural health
rural or partially rural areas. In the Fifth District, nearly all
expert at the University of Southern Maine.
nonmetro (rural) counties are either partial or full HPSAs
Good’s decision to work at Page Memorial Hospital after
for primary care. (See chart.) For nurses specifically, in 2020, finishing her nursing degree at James Madison University
there were nearly 30 more registered nurses per 10,000
was driven in large part by a desire to stay close to where she
people in metro counties than in nonmetro counties.
grew up.
Moreover, as with some other occupations, it can be diffi“This is my home,” she says. “I love living here. I like
cult to attract doctors and nurses to work in rural areas if
being close to my family. I like taking care of my own
they are not already from there. “Unless you grew up in a
econ focus

• first quarter • 2022 5

But while Page Memorial has mostly managed to stay
adequately staffed through the pandemic, not all rural hospitals have been so lucky. To fill in the gaps, rural hospitals
have historically turned to travel nurse agencies, which
send nurses to facilities across the country on temporary
contracts. But as COVID-19 caseloads spiked, demand for
travel nurses increased, bidding up their salaries substantially. According to some reports, travel nurses have been
able to earn more than $5,000 a week during the pandemic,
while the median salary for a rural hospital nurse is $1,200 a
week. This has both inflated the labor costs for rural hospitals relying on travel nurses and made it harder to retain
permanent nursing staff when they can earn more doing the
same job elsewhere.
Most rural hospitals lack the funds to compete with larger
urban hospital systems for personnel in terms of salary.
Indeed, they have increasingly struggled just to stay open.
Since 2010, 138 rural hospitals have closed, and another 453
are vulnerable to closure. A 2021 Chartis Group report found
that nearly half of rural hospitals were operating in the red,
and the median hospital had only 33 days cash on hand.
(See “Rural Hospital Closures and the Fifth District,” Econ
Focus, First Quarter 2019.) By all indications, the COVID-19
pandemic has only worsened these financial difficulties. Rural
hospitals rely heavily on outpatient services for revenue, and
those have been scaled back during the pandemic.
To a large extent, the growing shortage of nurses is itself
a symptom of another shortage: nursing instructors. In
the midst of a major health crisis and surging demand for
nurses, the American Association of Colleges of Nurses
reported that more than 80,000 qualified applicants to nursing programs were turned away in 2020 due to a lack of clinical sites, faculty, and other resources.
This problem also predates the pandemic. The National
Advisory Council on Nurse Education and Practice
(NACNEP) published a report in 2010 warning of an inadequate supply of nursing faculty. In an update published
December 2020, NACNEP noted that while some federal and
state investments had been made to address the issue, they
weren’t enough. There is still a shortage of both academic
nurse faculty and clinical preceptors — practicing nurses
who provide hands-on clinical training for students.
Some of the root causes of this instructor shortage are
similar to the ones behind the practicing nurse shortage.
Like nurses in general, nursing teachers are getting older:
Nearly one-third of faculty members who were active in
2015 will reach retirement age by 2025. Already, more than
50 percent of nursing schools report having vacant fulltime faculty positions. Finding new instructors to fill those
vacancies has proven difficult. Most nurse faculty positions require at least a master’s degree, narrowing the pool
of trained nurses who might apply. Less than 2 percent of
nurses hold a doctorate, but more than half of the teaching
vacancies require one.
Another reason schools struggle to find instructors is that
salaries for faculty have long lagged behind what nurses

econ focus

• first quarter • 2022

with an advanced degree could earn by practicing in the
field. According to NACNEP’s 2020 report, salaries for nursing instructors range from $57,454 for those with a master’s
degree to $120,377 for those with a doctorate. In contrast,
most practicing nurses with a master’s degree earn more
than $100,000 per year, while those with a doctorate can
earn more than $200,000.
“For a nurse to teach, it often means taking a pay cut,”
says Topchik.
As with pay for hospital nurses, faculty salary shortfalls are often the result of lack of funding, something that
federal, state, and private nonprofit entities have attempted
to address. At the federal level, the Health Resources
and Services Administration oversees the Faculty Loan
Repayment Program to assist health professional faculty
with loan repayment in exchange for teaching at institutions that train health care professionals. The program isn’t
specific to nurses, but from 2010 to 2019, it has made over
20 awards totaling more than $1 million to nurse faculty.
An example of state-based support is Maryland’s Nurse
Support Program II, created in 2005 specifically to support
nursing faculty and expand nursing program capacity in
Maryland. By 2013, the program was responsible for helping
train nearly 6,000 new undergraduate nurses. For the fiscal
year 2021, the program awarded 29 grants to state nursing
schools worth $29.3 million.
For rural hospital administrators, developing local education and training opportunities for nursing candidates could
be one way to help address staff shortfalls in the long run.
Nurses who train in a rural setting may be more likely
to stay there and practice when they graduate. Tabitha
Fox, chief nursing officer at the Robert C. Byrd Clinic in
Lewisburg, W.Va., also serves on the advisory council for
the Greenbrier School of Practical Nursing just a few miles
down the road.
“We try to get students into our clinic to do rotations and
start the recruiting process early so when they graduate,
they know we have jobs and would love to have them,” she
Another solution might be to expand apprenticeship
programs for nurse training, where nursing students learn
on the job in hospitals and clinics. When nursing schools
began in the United States, this model of training was typical, and both private and public entities have latched onto
apprenticeships as one solution to health care worker shortages. Virginia Health Services graduated its first class of
nursing assistants in April 2021 through a partnership with
the Healthcare Apprenticeship Extension Program.
“If we can’t train enough nurses in traditional academic
programs, yet there are people who want to become nurses,
that says to me that we need to think about doing things a
bit differently,” says Gale.
Expanding the number of new nurses entering the workforce is only part of the solution. As the pandemic has highlighted, many hospitals also struggle to retain qualified
nurses. Some seek new health care work in other locations,

while others choose to leave the profession entirely.
According to the National Sample Survey of Registered
Nurses, there were nearly 4 million licensed registered
nurses in the United States in 2017, but only about 83
percent of them were working in a nursing-related job. In
a 2005 article in the Labor Studies Journal, Gordon Lafer
of the University of Oregon highlighted survey evidence
suggesting that many of the qualified individuals not working as nurses would return to the profession if salaries and
work conditions at hospitals improved.
“There is no shortage of qualified personnel—there is
simply a shortage of nurses willing to work under the
current conditions created by hospital managers,” Lafer
It isn’t always just a question of money. In a 2004 article in
the Economic Journal, Michael Shields of Monash University
reviewed econometric studies of nurse wages and labor
supply starting in 1970. Most of these studies used data from
the United States. Shields concluded that very large wage
increases would be needed to generate a moderate increase
in the supply of nurses, pointing to the importance of nonpecuniary aspects of the job.
One common complaint of nurses is the ratio of patients
to staff is too high, inhibiting their ability to properly
administer care and adding to their feelings of burnout.
Numerous studies have suggested that limiting the number
of patients per nurse results in better health outcomes, but
so far only California has adopted a nurse-to-patient cap.
To be sure, capping the number of patients per nurse in
the midst of a staff shortage and major health crisis isn’t
really feasible in the short run. But some rural hospitals are
exploring other nonpecuniary incentives to entice nurses
to stay. Carilion Clinic, a health care organization based
in Roanoke, Va., recently became the first health system in
the state and the 13th in the country to be certified by the
Forum for Shared Governance. That organization promotes
empowering nurses to be more involved in decision-making,
arguing that collaboration between hospital staff, managers,
and patients results in better health outcomes. As a result of
these and other efforts to empower nurses, Carilion says it
has lowered its turnover rate below the national average.
“As much as we’re talking about recruitment, retaining our talented and dedicated employees is our top priority,” says Alicia Bales, senior director for Carilion Tazewell
Community Hospital.
At the Byrd Clinic, Fox says they have reexamined the
tasks nurses were being asked to do in order to redistribute

workloads. They created a position to handle medication refills
and asked receptionists to handle more of the phone calls to
patients. They also hired nursing assistants, which they hadn’t
previously employed, to handle tasks like taking patients’ vital
signs and cleaning examination rooms, freeing up other nurses
to focus more on patient care. When she started at the clinic in
November 2020, Fox says, there were six to seven openings on
the nursing staff. That number climbed to 12 at one point but
has since come down to just two.
“We’re trying to give our nurses more opportunities
to give us solutions,” says Fox. “They’re the ones in the
trenches daily with the patients. We want them to know
that their voices are heard. So far, I think it’s working. We
have three or four nurses in orientation right now, and once
they are on board, I think we will all breathe a little sigh of
Ultimately, there is no single solution to the nursing recruitment and retention challenges that rural communities face.
“We’ve been talking about recruiting enough nurses,
primary care physicians, and mental health staff to rural
communities for more than 30 years, and we’re not much
farther along,” says Gale.
While federal support in response to the pandemic has
helped stem the bleeding at some rural facilities, Topchik sees
the same problems now reemerging at an accelerated rate.
“The system is in absolute crisis,” he says. “If nothing
is done, we will continue to see a negative spiral in terms
of hospital margins and closures once the federal support
has worked its way through, because nothing has really
For now, most hospitals and clinics are taking things day
by day and trying to make the most of the staff and equipment they have. But looking ahead, Scot Mitchell, CEO of
the Byrd Clinic in Lewisburg, thinks the pandemic will have
a lasting effect on health care staffing.
“I think you’re going to see more people leave health care,
just because it’s less stressful somewhere else,” he says.
“Health care providers and organizations are really going to
have to change how we think about recruitment and retention. None of us know yet what will happen, but I think
having more flexibility in terms of staffing, shifts, work-life
balance, and providing staff with more opportunities to get
additional education and responsibilities are all going to be
much more important in the coming years.” EF

“Crises Collide: The COVID-19 Pandemic and the Stability of the
Rural Health Safety Net.” The Chartis Group, February 2021.
Lafer, Gordon. “Hospital Speedups and the Fiction of a Nursing
Shortage.” Labor Studies Journal, Spring 2005, vol. 30, no. 1,
pp. 27-46.

Padula, William V., and Patricia Davidson. “Countries with
High Registered Nurse (RN) Concentrations Observe Reduced
Mortality Rates of Coronavirus Disease 2019 (COVID-19).”
Working Paper, April 2020.
“Preparing Nurse Faculty, and Addressing the Shortage of Nurse
Faculty and Clinical Preceptors.” National Advisory Council on
Nurse Education and Practice, December 2020.

econ focus

• first quarter • 2022 7

by john mullin

The Many Lives of Federal Job Training
They’ve received enduring, yet tepid, bipartisan support since the 1960s
others have floundered. But assessment has been made more difficult by
a variety of complications, including
program fragmentation and the finding that program administrators have
often manipulated their performance

President John F. Kennedy signs the Manpower Development and Training Act on March 15, 1962.


ederal job training programs have
long enjoyed bipartisan support.
Yet their emphasis has varied
greatly across the years. At times, they
have been advocated primarily as a
means of helping workers displaced
by automation or international trade.
At other times, the focus has been on
creating opportunities for those from
disadvantaged backgrounds. More
recently, they have gained attention
as a possible remedy for a perceived
“skills mismatch” that many observers see reflected in record high job
vacancy rates.
Despite their enduring political popularity, federal employment and training (E&T) programs in the United
States have generally not been funded
on a vast scale. After peaking as a
share of GDP during the mid-to-late
1970s, at over 0.4 percent, their funding declined substantially in the 1980s
and has been around 0.1 percent of GDP
during the past decade. That figure
positions the United States at the low
end among advanced economies — close
to Australia, Canada, and Japan, but


econ focus

• first quarter • 2022

well below the funding levels of many
European countries, such as Denmark,
Finland, and Germany. According
to a 2019 report by the Government
Accountability Office (GAO), federal
E&T spending obligations came to
$13.9 billion in 2017, which amounted to
$87 per U.S. worker or $2,112 per unemployed worker.
Federal E&T programs have been
fragmented. The 2019 GAO report
identified 43 programs spread among
nine federal agencies, including the
Department of Labor, the Department
of Education, the Department of
Health and Human Services, and the
Department of the Interior. The report
found considerable overlap among the
programs, with 39 of the 43 providing
employment counseling and assessment
services, and 38 of the 43 providing job
readiness training.
Much research has been devoted
to assessing the programs’ efficacy. Some of the more prominent
academic studies have painted a
mixed picture, suggesting that some
programs have worked well while

The federal government’s first major
forays into E&T took place during the
Great Depression. The most enduring New Deal E&T initiative was the
establishment of the U.S. Employment
Service under the Wagner-Peyser Act of
1933. It established a nationwide system
of employment offices to match workers with jobs, a service that remains in
place today. Other major jobs programs
created under the New Deal, such as
the Works Progress Administration
and the Civilian Conservations Corps,
were discontinued during World War II,
when millions of workers entered the
armed forces.
The Great Depression had shaken
confidence in the economy’s ability
to deliver full employment without
government intervention. Reflecting
these concerns, President Franklin
Roosevelt had advanced the notion of
an “Economic Bill of Rights” in 1944
that would have recognized the right
of every individual to a paying job.
The Employment Act of 1946, enacted
under the Truman Administration,
declared that the federal government
had a responsibility to promote maximum employment.
Concerns about full employment were
soon joined by concerns about the technical capabilities of the U.S. workforce.
The Cold War — and the Soviet Union’s
1957 launch of Sputnik, in particular
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— spawned anxiety about a perceived
“missile gap” between the United States
and the Soviets. It triggered the creation
of NASA and an increased emphasis
on scientific and technical education.
In 1955 and 1960, hearings before the
Joint Economic Committee of Congress
demonstrated that policymakers also
had concerns about the influence of
automation on the U.S. economy.
Against this backdrop, the
Manpower Development and Training
Act (MDTA) was enacted under the
Kennedy Administration in 1962. The
law sought to train workers who were
unemployed as a result of automation
and technological change. Upon signing the bill, President Kennedy said
the Act would live up to its name by
“making possible the training of the
hundreds of thousands of workers who
are denied employment because they
do not possess the skills required by
our constantly changing economy.”
Under the program, eligible unemployed workers could expect up to
52 weeks of training followed by guidance through the U.S. Employment
Service about the most suitable work.
The MDTA required the Department
of Labor to analyze labor market trends
to identify occupations with impending skill shortages and to tailor training
programs accordingly.
The MDTA program was managed
by the federal government through
the Department of Labor’s 12 regional
offices. Funds were allocated to communities based on population size and
poverty rates. The program provided
subsidies for vocational and technical
training by private and public educational institutions, typically in classroom settings. Men were mostly trained
for blue-collar jobs as machine shop
workers, auto mechanics, and welders.
Women were mostly trained for clerical
occupations. In addition, the program
funded on-the-job training, usually with
private sector employers.
The goals of the MDTA program
evolved during the 1960s. For one thing,
the emphasis increasingly shifted away
from mainly classroom training toward

a combination of classroom training and
on-the-job training, as policymakers
came to believe that classroom training
was not delivering the skills demanded
by the marketplace. In addition, as the
1960s progressed and the U.S. unemployment rate declined to below
4 percent, the target of the programs
increasingly shifted from displaced
workers to those who were not ready for
competitive employment.
The programs were not free from
administrative problems. An Upjohn
Institute study found, “Federal grants.…
occasionally were a duplication of
effort” such that “the need for high-level
coordination became painfully obvious.” Another criticism of the MDTA
was that it circumvented the authority of state and local political entities by
having the federal government interact directly with local providers of job
training services.
While the MDTA was the major E&T
initiative of the 1960s, many additional
programs were launched during the
decade. The Trade Expansion Act of
1962 introduced the Trade Adjustment
Assistance program to provide transitional help for workers displaced by
import competition. The Economic
Opportunity Act of 1964 established
the Job Corps, which provides counseling, education, and training for low-income youths in a structured residential
The MDTA was superseded in 1973 by
the Comprehensive Employment and
Training Act (CETA), which attempted
to consolidate most federal E&T
programs under one statute. Consistent
with the Nixon Administration’s advocacy of the “New Federalism” — which
sought to move the administration of
government programs to the state and
local levels — the CETA brought the
concept of “revenue sharing” to federal
E&T programs. Under the policy, the
federal government provided block
grants to cities, counties, and local

government consortia so that they
could tailor and administer their own
programs. Nevertheless, the federal
government retained substantial control
over how the money was spent. Local
governments had to submit annual
plans to the Department of Labor, and
their ability to allocate funds across
different demographic groups and
program categories was restricted by
various federal formulas.
The CETA further shifted the
emphasis of federal E&T programs
toward the unemployed and economically disadvantaged. To that end, the
legislation took steps to mitigate the
problem of “cream skimming”— a practice whereby program administrators attempted to make their programs
look better by biasing their admissions
toward those applicants most likely to
do well after training, regardless of the
training’s effect on their skills. Special
programs were created for groups
with significant barriers, including
Native Americans and migrant workers. Moreover, local program administrators were required to affirm in
their annual plans that they would
support those “most in need,” including
“low-income persons.”
In a break from the MDTA, the
CETA included a major public sector
employment component, which eventually grew to be the largest part of
the CETA. By the late 1970s, however,
some observers had grown concerned
that state and local governments were
using CETA funds to pay for government positions, also known as “fiscal
substitution.” The CETA was amended
in 1978 with measures designed to
curtail the practice.
Total spending under the
CETA peaked during the Carter
Administration at levels well above
those of the MDTA program of the
1960s. But CETA programs spent
less money per “customer” than
the 1960s programs, a change that
reflected a policy shift toward making
smaller expenditures per person on
a larger group of low-income people.
Local administrators emphasized
econ focus

• first quarter • 2022 9


shorter-duration programs and job
search assistance — services designed
to place people in jobs rather than to
increase their skills.
The CETA was supplanted by the Job
Training Partnership Act (JTPA) of
1982, which cut the size and restricted
the focus of U.S. employment and
training programs. It eliminated many
public sector employment programs,
increasing the focus on training for
hard-to-employ people.
Under the JTPA, federal training
programs continued to operate under
the federalist principles introduced by
the Nixon Administration. To address
concerns that government training
programs were not providing the types
of skills demanded of potential employers, however, the JTPA required each
local training jurisdictions to establish
and take direction from a private industry council consisting of local businesses, labor organizations, and political
and community officials. (The councils
had been authorized by a 1978 amendment to the CETA but were given much
more authority by the JTPA.)
The JTPA further developed the
system for measuring program performance that had evolved under the
CETA. Local providers were to be
judged by outcome-based measures,
such as post-program employment
and wage rates. Although the performance standards were meant to improve
program performance, they increased
the incentive for administrators to
engage in cream skimming, which
tended to undermine the JTPA’s goal of
concentrating on hard-to-employ people.
Yet despite the presence of this
perverse incentive, JTPA programs
appear to have largely succeeded in
focusing on hard-to-employ people.
In 1985, for example, 40 percent of
program participants were receiving
public assistance, 41 percent were high
school dropouts, and 92 percent were
from families in poverty.

econ focus

• first quarter • 2022

The JTPA also provided job search
and training services for displaced
workers. Amendments under the
Omnibus Trade and Competitiveness
Act of 1988 reflected a desire by policymakers to shift away from providing low-cost job search and training services and toward providing
more intensive job training. Further
changes to the JTPA during the 1990s
placed greater emphasis on training for
displaced workers.
The JTPA was replaced by the
Workforce Investment Act (WIA) of
1998, which attempted a renewed
consolidation of federal and state
training and employment programs.
It increased states’ flexibility to use
federal money to develop their own
employment and training plans. The
federal government still retained some
control; states were required to submit
“training plans” for approval from the
Department of Labor.
The WIA established “one-stop
career centers” within local jurisdictions to streamline services. The WIA’s
one-stop centers were created with the
goal of providing “universal access”
across the income spectrum, which
was somewhat in tension with the goal
of providing service for those most in
need. Other WIA innovations included
individual training accounts, which
acted as vouchers to give program
participants greater choice among job
training providers, such as community colleges and private nonprofit
and for-profit schools. WIA also instituted new performance standards and
mandated that local administrators
monitor the performance of training
providers and maintain “eligibility”
lists of such providers.
WIA also sought to coordinate E&T
programs with existing social services.
This effort dovetailed with another
significant Clinton Administration
program, Temporary Assistance to
Needy Families (TANF). Enacted

in 1996, TANF replaced the welfare
program known as Aid to Families
with Dependent Children, which had
offered cash assistance to families with
children in poverty since 1935. TANF
placed various work conditions on the
receipt of aid and significantly reduced
the number of families receiving cash
The WIA was supplanted by the
Workforce Innovation and Opportunity
Act (WIOA) of 2014. WIOA placed
greater emphasis on aligning and integrating workforce programs. Among
other things, the new law increased
the emphasis on industry-recognized
credentials. Despite these changes,
however, some observers judge WIOA
to have been largely a continuation of
previous policies.
Federal job training and employment
programs have been the subject of
numerous evaluations. An interesting characteristic of the research is
the frequent use of experiments. In no
small part, experimental studies have
proliferated as a response to the skepticism that nonexperimental studies on job training have received from
academics and policymakers alike.
The results of nonexperimental studies can be distorted in many ways,
some of which stem from the strategic
behavior of program administrators,
who have been known to manipulate
program admissions and report results
to enhance their performance ratings.
“There’s a lot of games that administrators play,” says Gordon Lafer of the
University of Oregon and author of the
2002 book The Job Training Charade.
“For one, they don’t count people as
having completed the program unless
they’ve gotten a job, in order to hide
the number of people who have not
been helped by the program.”
Unfortunately, however, experimental methods in studies of job training
come with their own problems. Some
people who are randomly chosen for
the “treatment” of job training turn

out to be no-shows who do not actually receive the intended training,
while some people who are chosen for
the “control” group that is intended
to forgo training nevertheless end up
receiving training, one way or another.
“When two of my colleagues visited
a community college in Corpus Christi
that was part of an experiment, they
found that a treatment group member
and a control group member were
enrolled in the same class,” says Jeffrey
Smith of the University of WisconsinMadison. “Maybe the control group
member enrolled on his or her own
dime, but the two people were getting
the exact same training. These experiments are complicated in a way that
policymakers and policy wonks don't
necessarily want to hear about.”
The fragmented nature of federal
E&T programs makes the task of evaluating them even more difficult. “The
total number of studies is large,” says
Smith, “but since there are so many
different programs, the number of
studies per program is not very large,
so trying to gauge their combined
effect is challenging, to say the least.”
In a 2003 survey of the literature,
Lalonde identified several patterns
that had emerged from experimental
and nonexperimental evaluations. He
found that federal E&T programs had
not had a substantial effect on poverty
— a result that he attributed mostly to
the programs’ typically small investments, which generally amounted to
much less than a year of formal schooling. Yet despite the modest investments, he found that E&T programs had
consistently improved the employment
prospects of economically disadvantaged adult women. In his view, these
programs earned a high social rate of

return that may well justify their expansion. By contrast, he found discouraging
results for disadvantaged youths.
In a 2016 survey, Burt Barnow of
George Washington University and
Jeffrey Smith found that WIA programs
had positive earnings effects for adult
men and women — effects that appeared
to pass cost-benefit tests under reasonable assumptions. By contrast, they
found that WIA programs appeared
to have been worse than useless for
dislocated workers. The poor results of
Trade Adjustment Assistance programs
suggest, in their view, “that we should
perhaps seek a more efficient way to
compensate workers who suffer individually while the public benefits from
reduced trade barriers.”
Some conservative critics of federal
E&T programs argue that they are a
highly bureaucratic and costly means
of providing services that are more
effectively delivered by the private
sector. “Today’s problem is job vacancies,” says Chris Edwards of the Cato
Institute. “Companies will go to great
lengths to hire the skilled workers they
need, and they’re probably doing a lot
of training themselves.” Moreover,
Edwards believes some federal efforts
have been redundant. “Just look at
the federal Employment and Training
Administration website. It seems like
they are trying to duplicate what the
private sector is already providing.”
In Edwards’ view, the government’s
efforts are best spent on providing information that the private sector is not well
positioned to gather. “The government
can help lubricate labor markets in its

traditional manner by providing information based on broad surveys of the
economy,” he says. “The Department of
Labor can provide valuable information
on job opportunities and average salaries for different occupations.”
Gordon Lafer, a critic of the
programs, has argued that they are
more a political strategy than an actual
effort to help workers. In his view, the
existence of the programs allows politicians to claim they are doing something, without having to spend a lot of
money. The political strategy, in Lafer’s
view, puts the onus for low wages
and unemployment on workers. Lafer
favors strengthening unions and taking
other measures to increase workers’
political and market power.
Nevertheless, federal job training programs continue to enjoy some
measure of bipartisan support. With
U.S job vacancies at 10.9 million, near
their record high, many observers are
concerned that the economy may not
have a sufficient supply of skilled labor
to implement the major infrastructure plan recently enacted by Congress.
(See “After the Infrastructure Bill,”
p. 3.) To address the perceived skills
mismatch, legislators have introduced training proposals, including the Jumpstart Our Businesses
by Supporting Students (JOBS) Act,
which would expand the federal Pell
Grant program to fund educational
programs of shorter duration than are
currently allowed for students pursuing certificates and licenses. (See “Pell
Grants and Workforce Development,”
Policy Briefing, August 2021.) The
continuing support for such programs
suggests that the federal government’s
long-standing role in job training is
likely to endure. EF

Barnow, Burt S. and Jeffrey Smith. “Employment and Training
Programs.” In Means-Tested Transfer Programs in the United
States, Volume 2, ed. Robert A. Moffitt, Chicago: University of
Chicago Press, 2016.

LaLonde, Robert J. “Employment and Training Programs.” In
Means-Tested Transfer Programs in the United States, Volume 1,
ed. Robert A. Moffitt, Chicago: University of Chicago Press, 2003.

Lafer, Gordon. The Job Training Charade. Ithaca, N.Y.: Cornell
University Press, 2002.
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• first quarter • 2022 11

b y m at t h e w w e l l s

Climate Change and the Economy


ichmond Fed senior economist Toan Phan has spent the
further the Fed’s ability to understand the potential effects
past decade exploring the economics of climate change.
of climate change and climate risk on the financial system.
His research in this area began as he was finishing
Phan explains that “it felt very natural to be a part of this
graduate school in 2012, when he was struck by the potenecosystem,” noting that among other activities, he orgatial economic implications of climate-related disasters like
nized a virtual climate change economics conference at the
flooding and hurricanes. So, along with colleagues Riccardo
Richmond Fed in November 2020. That same year, he and
Colacito of the University of North Carolina and Bridget
Glenn Rudebusch, Òscar Jordà, and Stephie Fried of the San
Hoffmann of the Inter-American Development
Francisco Fed and Michael Bauer of the University
Bank, he began a project to understand the relationof Hamburg started an ongoing series of virtual
ship between increasing temperatures and economic The Fed has
seminars, where presenters explore a myriad of
growth. The resulting article, “Temperature and
long sought
topics in climate economics and finance, including
Growth: A Panel Analysis of the United States,”
the implications of climate change for infrastructo promote
garnered a great deal of attention from economists,
ture planning, ways to measure the social cost of
the stability of carbon dioxide emissions, and potential adaptation
the business world, and policymakers, as it showed
the financial
that increasing temperatures throughout the United
and mitigation policies including carbon taxes.
States are associated with reduced growth in the
Phan is also co-editor of the Fed’s System Climate
system, and
service industry and other sectors that comprise a
Forum, an internal resource for Fed researchers
significant portion of the economy, not just in agriworking on climate issues.
initiatives like
culture as was previously thought.
There is also an emerging consensus among
The Fed has long sought to promote the stabilfinancial
regulators that solving a global probPhan's seek
ity of the financial system, and research initialem like climate change will require global coopto identify
tives like Phan’s seek to identify potential threats
eration. In late 2020, the Fed joined the Network
to that stability. As another example, Phan points
for Greening the Financial System, an internato a growing research literature in climate finance threats to that
tional group of over 100 central banks and bank
documenting that financial markets have started
supervisory agencies founded in 2017. Its goal is
pricing in transition risks, or the additional
to improve the global financial system’s ability to
exposure to environmental regulations among
manage the risks associated with climate change
carbon-intensive industries, potentially reducing the price
through the sharing of ideas, best practices, and research by
of fossil fuel assets.
economists like Phan.
In other research, Phan recently partnered with Hee Soo
When reflecting on what’s next in climate economics
Kim and Christian Matthes, both of Indiana University, on
research, Phan stressed that the field is young, and there
a working paper documenting that current extreme weather
is no shortage of questions to be answered. In particuand climate-related natural disasters reduce the growth
lar, he pointed to ongoing efforts to put a monetary cost
rate of industrial production while increasing unemployon each ton of carbon dioxide or greenhouse gas emitted
ment and inflation in the United States, not just in develinto the atmosphere. He also is currently drafting a paper
oping countries, as had been suggested in earlier literature.
with Russell Wong, a Richmond Fed senior economist, and
He also has a working paper co-authored with Ranie Lin of
Laura Bakkensen of the University of Arizona that examRice University and Lala Ma of the University of Kentucky
ines the effect of sea level rise on the mortgage market, a
indicating that minority populations in the United States are market that he views as an “elephant in the room” when it
more worried about environmental issues, including global
comes to the climate’s effect on financial stability.
warming, than their nonminority counterparts, reflecting
Phan is also working with a group of researchers draftthe potentially unequal effects of environmental problems
ing the Fifth National Climate Assessment, a congressionally
across socioeconomic groups.
mandated report summarizing the rapidly growing research
Phan’s work is part of a broader effort at the Fed and
literature on estimating the effects of climate change in the
beyond to better understand climate change’s potential
United States, now and in the future. It will be up to polieffects on the economy. The System Climate Network, an
cymakers to decide whether and how to act on the findings
informal network of several hundred economists, bank
in the report, but Phan and his colleagues will continue to
supervision staff, and others within the Fed, has taken
conduct research with the hope of shedding light on this
root with the aim of sharing ideas and research that will
complex and dynamic relationship. EF


econ focus

• first quarter • 2022

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b y m at t h e w w e l l s

Global Banks, Local Branches, and
Faraway Crises
Correa, Ricardo, Horacio Sapriza,
and Andrei Zlate. “Wholesale
Funding Runs, Global Banks’
Supply of Liquidity Insurance, and
Corporate Investment.” Journal of
International Economics, November
2021, vol. 133.


ow do financial crises affecting
banks in one part of the world
ripple through the global economy? The answer to this question
provides insight into how market actors
— including investors, borrowers, and
banks — respond to risk, as well as the
effects of their reactions on the wider
Past research has shown that in
times of crisis, international banks
can experience “liquidity shocks” that
limit their access to funding due to a
range of factors, including concerns
about their solvency. As a result, these
banks are unable to lend to their own
branch offices abroad. The branches,
in turn, reduce their lending to local
firms, limiting the firms’ ability to
invest and grow.
In an article recently published in
the Journal of International Economics,
Horacio Sapriza of the Richmond Fed
and Ricardo Correa and Andrei Zlate of
the Fed Board of Governors suggested
an alternative pathway for the spread
of financial shocks. In particular, they
used the case of the 2011 European
debt crisis to show that local branches
of global banks can also amplify shocks
through pathways distinct from any
effects stemming from their parent
banks’ capitalization levels.
These branches are immersed to a
surprising extent in the economies of
the countries where they are located.
In the United States, for example,
they play an active role in the wholesale funding market, gaining access

to dollars from money market funds
looking for short-term investments.
These branches then use that money
to provide loans and revolving credit,
known as liquidity insurance, to local
Money market funds invest in these
local branches primarily through large
time deposits, which are uninsured
deposits of $100,000 or more. Also, the
Securities and Exchange Commission
instituted a requirement in late 2010
that these funds publicly disclose
their asset portfolios. As a result,
the authors posited that as the crisis
in Europe grew more severe, these
foreign branches became vulnerable
to “inefficient liquidation” — a run on
the branch — as fund managers pulled
their deposits because of general public
concern over what was happening in
Europe rather than any factors related
to the specific banks or their local
The authors found support for this
hypothesis using data on large time
deposits between 2010 and 2011 from
the Federal Financial Institutions
Examination Council, which also
showed that these runs were isolated
to euro-area bank branches specifically
and did not affect branches of banks
from other parts of the world. Putting
it in terms of numbers, between the
second and fourth quarters of 2011,
large time deposits into U.S. branches
of euro-area banks declined by almost
$250 billion.
The authors next used Fed data on
the U.S. branch networks of foreign
banks to show that the more a local
branch lost in deposits, the more the
parent bank tried to fill in the gap so
that the branch could continue lending. A significant shortfall in funding remained, however; the authors’
modeling showed that branches that

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had larger drop-offs in deposits still
decreased their lending activity.
To delve into the size of the effect,
the authors used U.S. bank supervisory data capturing all syndicated
loans (that is, loans with multiple
lenders) over $20 million to publicly
traded firms with at least three U.S.
banks participating in the loan. After
controlling for loan demand at the
firm and sector levels, they found that
the funding shock led to a decrease
of $11 billion in commercial and
industrial loans in the United States
between 2010 and 2011. They also
found that the decrease mainly took
the form of lending to fewer firms
rather than smaller lending amounts
to each firm.
How did affected firms react to the
lost loans? The authors used balance
sheet data from S&P Compustat to
show that the U.S. firms that lost funding from euro-area bank branches
reduced their investments in 2011 relative to firms that did not have such
relationships by about $22 billion, or
about 7 percent of all 2010 investment
by publicly traded firms in the sample.
These firms instead tried to build up
their own liquidity insurance, accumulating about $17 billion more in cash
reserves in the wake of the crisis than
similar firms with no euro-area bank
Typically, firms experience liquidity shocks when banks come to view
them as risky investments. In this
case, however, as the crisis in Europe
deepened, wholesale investors in the
United States believed the opposite:
Branches of euro-area banks were
no longer safe places to put their
money. The resulting chain reaction ultimately left vulnerable U.S.
firms sacrificing growth to cover cash
shortfalls. EF
econ focus

• first quarter • 2022 13

Growing Rural America
Through Startups
Entrepreneurship creates many local benefits, but starting
a new business in rural places can be challenging


econ focus

• first quarter • 2022

When researchers and policymakers talk about promoting entrepreneurship, their focus has tended to be on the
fast-growing success stories — the Apples, Googles, and
Amazons that started in a garage or basement and grew into
huge enterprises.
While there is no question that such firms have tremendous impact in terms of job creation, innovation, and
productivity growth, it’s also true that small, locally owned
businesses contribute a lot to economic health. In a 2013
Atlanta Fed discussion paper, Anil Rupasingha, now at the
USDA’s Economic Research Service, found evidence that
having a higher share of employment at small businesses
with two to 99 employees was positively associated with
local income and employment growth and poverty reduction. The impact of greater employment at larger firms was
more mixed.
Historically, rural towns have had higher concentrations
of self-employment than cities, owing largely to differences
in population density. “If you have a business that fixes air
conditioners and furnaces in a rural place, it’s not going to
employ 1,000 people like it might in a major city,” explains
Partridge. “So you tend to see more small businesses in rural
But rural entrepreneurs face significant hurdles when it
comes to getting their businesses off the ground. The first
is the low population density that traditionally encouraged
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i m age : g e tt y / i sto c k


ural places, by many measures, have tended to be
less vibrant economically than metro areas, on
average. Some small towns looking to create more
job opportunities have tried to attract large businesses, while others have leaned on their natural amenities
to draw residents and tourists. But another, less obvious,
approach is in the running: entrepreneurship. New businesses contribute disproportionately to job and productivity
growth, providing numerous benefits to a local community.
Entrepreneurship in America has become increasingly concentrated in cities. In a 2020 paper for the
American Enterprise Institute, Mark Partridge, a professor of economics at Ohio State University, documented that
the self-employment share of personal income was 12.3
percent in nonmetro areas and 7.7 percent in metro areas
in 1969. By 2017, it had fallen to 7.2 percent in nonmetro
areas and risen to 8.9 percent in metro areas. Likewise, job
creation as a percentage of employment has fallen faster in
rural places than urban areas since the 1970s. In the Fifth
District, the number of rural startups created each year
fell noticeably during the Great Recession and remained
depressed through 2019. (See chart.)
One silver lining is that the nationwide startup slump
seems to be reversing. Beginning in the summer of 2020,
applications for new businesses soared to record highs. (See
“A Pandemic-Era Startup Boom,” Econ Focus, Fourth Quarter
2021.) Can rural communities and small towns capitalize on
this surge to build more dynamic and resilient economies?


Rural Startups in the Fifth District
self-employment. More residents in a
New Firms Created in Non-Metro/Non-Micropolitan Areas
community means a bigger market for
new businesses to serve, a deeper labor
pool to draw from, and more opportu1400
nities to interact with and learn from
other business owners — and fewer resi1200
dents means the opposite.
“Entrepreneurial ecosystems are
much thinner in rural areas than they
are in urban areas,” says Stephan Goetz,
an agricultural economist and director of the Northeast Regional Center
for Rural Development at Pennsylvania
State University. This means that rural
entrepreneurs may struggle to find local
support businesses, such as accountants
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
or marketers, to help get their ventures
The drag of low population density on
NOTE: Metropolitan Statistical Areas have at least one urbanized area of 50,000 or more inhabitants. Micropolitan Statistical
startup activity can become a self-reAreas have at least one urban cluster of at least 10,000 but fewer than 50,000 people. A firm is a business organization consisting
inforcing cycle. Would-be rural entreof one or more domestic establishments in the same geographic area and industry under common ownership or control.
preneurs may move to a bigger city to
SOURCE: U.S. Census Bureau Business Dynamics Statistics
start their business or give up on their
venture entirely. Each person who
moves away makes it harder for the next new business to
For entrepreneurs in small towns hoping to build the next
Apple or Google, access to large-scale venture capital is even
As the 2020 census revealed, most rural places have lost
harder to come by. Venture capital investing, angel investpeople over the last decade. In the Fifth District, only rural
ing, and other startup investing has long been tied heavily to
counties in Virginia grew between 2010-2020, and then only
geography. A 2020 National Bureau of Economic Research
slightly — increasing their population by just 1 percent in
working paper looked at data from social networks on
that time. In every other state in the District, rural areas lost
Facebook and found that institutional investors were more
likely to invest in firms from regions where they had the
Another key ingredient for startups is access to capistrongest social ties. This has tended to concentrate investal. Historically, rural entrepreneurs have had some advantors and startups in big cities, like New York.
tages in this area. The 2016 small business credit survey
“If you’re in Silicon Valley and you walk into an investor’s
conducted by the Richmond and Atlanta Feds found that
office with a great idea, they are going to lavish you with a
rural small businesses faced fewer financing constraints and
mountain of cash long before you even produce anything,”
were more financially stable than urban small businesses.
says Russ Seagle. “In rural America, you’ve got to prove
The researchers concluded that this was partly because
yourself.” Seagle is a lifelong entrepreneur who, for the past
small community banks, which are more prevalent in rural
dozen years, has managed the Sequoyah Fund, a community
areas, are more likely to approve requests for loans from
development financial institution that makes loans primarily
local small businesses.
to Cherokee-owned businesses in western North Carolina.
That advantage may be eroding, however. The number of
(The fund takes its name from the creator of the Cherokee
banks in the United States has fallen by more than half since system of writing and isn’t related to Sequoia Capital, a
the 1980s, the result of both rapid industry consolidation
prominent Silicon Valley venture capital firm.)
and a drought in new banks being formed. (See “Who Wants
to Start a Bank?” Econ Focus, First Quarter 2016.)
Large banks may still have branches in rural places, but
they don’t necessarily serve the same function as local
For rural communities hoping to encourage more local busicommunity banks, Partridge explains. Community bank
nesses, overcoming these and other barriers is a challenge.
managers may be more inclined to lend to entrepreneurs in
One way that both rural and urban places have tried to build
their community because they have local knowledge that
their own entrepreneurial ecosystems is by first attracting
enables them to better assess the risks of local business
large firms to the area through various incentives. In theory,
ventures. Managers of bank branches whose headquarters
those firms both create jobs in the community and spur the
are in large cities may be less willing to lend to rural busicreation of other local support businesses.
nesses because they lack that specialized knowledge. “That
But a 2020 article in Economic Development Quarterly by
makes it even harder for rural businesses to get working
Partridge and co-authors Alexandra Tsvetokova of the OECD
capital,” he says.
Trento Centre for Local Development, Sydney Schreiner
econ focus

• first quarter • 2022 15

Wertz of the U.S. Treasury Department’s Office of Economic
Policy, and Carlianne Patrick of Georgia State University
called into question the effectiveness of this approach. They
found that providing incentives to attract firms to an area has
a negative effect on local startup rates. Based on these results,
Partridge argues that localities hoping to spur business
growth shouldn’t focus on providing tax incentives to attract
big firms at the expense of small ones.
“Instead, lower taxes for all businesses a little bit and
encourage startups that way,” says Partridge.
Every town is different, and there is no secret recipe to
building an innovative economy. But researchers have identified some key ingredients to creating an environment where
startups can thrive.
Broadband is increasingly crucial to the success of businesses, and it can be hard to come by in parts of rural
America. Geography, both distance and terrain, has made
it difficult to bring fast and reliable wired internet to many
rural places. (See “Closing the Digital Divide,” Econ Focus,
Second/Third Quarter 2020.) Seagle notes that in some rural
places, it can be expensive and time consuming to connect a
new business to local water and sewer systems, let alone get
broadband access or even a phone line.
“You don’t have to be at the confluence of major rivers or
highways anymore,” Seagle says. “But if you’re not digitally
connected to the rest of the world, it’s a tough row to hoe.”
Digital connections may also open doors to new funding
opportunities for rural entrepreneurs. In a 2021 article in
Research Policy, Sandy Yu of the University of Minnesota
and Lee Fleming of the University of California, Berkeley
found that crowdfunding through platforms like Kickstarter
enables entrepreneurs across regions to gain early funding, support and advice, and inexpensive market feedback.
While more crowdfunding campaigns per capita happen
in big cities, Yu and Fleming estimated that the impact per
campaign was greatest in poorer, more rural regions.
Seagle says that the Sequoyah Fund worked with a client
who developed an educational video game that taught players how to speak Cherokee. The game developer started a
Kickstarter campaign to fund the project. When it became
apparent that he needed more time to reach his crowdfunding goal, Sequoyah Fund loaned him the money to get
started, telling him that he could repay the loan once the
Kickstarter campaign ended.
“Before Kickstarter, he wouldn’t have had a whole lot of
other options,” says Seagle. “It’s possible to do these kinds of
things in rural America now.”
While building out broadband to every rural home and
business to connect entrepreneurs to the web is a continuing
process, some communities have found a solution in the form
of business incubators, which can provide rentable office space
with internet and phone access already set up. The Gould
Business Incubator, which launched in 2013, grew out of the
Southeastern Institute of Manufacturing and Technology
(SiMT), a division of Florence-Darlington Technical College
in Florence, S.C. The incubator offers fully equipped office
facilities for rent to both established and new businesses,
raising money for the college while also supporting local

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• first quarter • 2022

entrepreneurs. While it took a little while to win locals over
to the concept of an incubator, says Tressa Gardner, associate
vice president of SiMT, now the incubator is completely full,
housing 35 businesses that range from sole proprietorships to
the local baseball team — the Florence Flamingos.
“We used to say that it was worth coming into the incubator because the Wi-Fi was already set up,” says Gardner.
Now, entrepreneurs come in to take classes, access the 3D
printing facility at SiMT to make product prototypes, and
just be around other small-business owners.
In addition to providing access to crucial infrastructure,
business incubators and similar organizations help foster
a culture of entrepreneurship in places where people may
never have thought about starting a business.
The WV Hive Network, headquartered in Beckley, W.Va.,
supports startups across 12 counties in the southern part
of the state, an area that has historically been economically
reliant on the coal industry. That kind of industry concentration can prove detrimental to entrepreneurship. A 2015
Energy Economics article by Partridge, Michael Betz and
Linda Lobao of Ohio State University, and Michael Farren of
the Mercatus Center at George Mason University found that
coal mining in Appalachia reduced population growth and
“When we started, many entrepreneurs and small-business owners weren’t aware that there were organizations
that could support them in their entrepreneurial journeys,”
says Judy Moore, executive director of the WV Hive. “One
of the first things we did was to help create that mindset
and then layer in the other educational opportunities and
workshops we offer now.”
Building a support community may be an important
component of keeping local startups local. Connectivity with
broader markets, whether through physical or digital highways, can help rural businesses grow, but it can also be a
double-edged sword.
“If you bring broadband into a community, it can help the
local businesses sell their products elsewhere, but it also
helps local consumers find alternative products elsewhere in
the country,” says Goetz.
Having an environment that supports local businesses
means that entrepreneurs don’t necessarily have to look elsewhere to succeed. It may even help bring back some who
left. Dan Cox’s grandfather grew up in West Virginia but
moved to Pennsylvania after returning from the Korean
War. Cox grew up in Pennsylvania, but his grandparents
ended up moving back to West Virginia, and he visited
often. He also grew familiar with the area through his work
doing cellular service upgrades. Seeing the need for better
telecom service in the region, he decided to move to Oak
Hill, W.Va., and start his own business, Cox Telecom, with
help from WV Hive.
Once a community starts supporting entrepreneurs,
it can become a self-reinforcing process. In a 2013 article in the Journal of Regional Science, Partridge, Heather

Stephens of West Virginia University, and Alessandra
Faggian of Gran Sasso Science Institute found that having
more entrepreneurs in a region was associated with
even greater levels of self-employment 20 years later.
Additionally, they concluded that entrepreneurship was
one of the best ways to boost wages and jobs in places that
were lagging economically.
One way to cultivate an entrepreneurial environment is through education. That includes investments in
general education. Evidence suggests that a town doesn’t
need a top-tier university to become a startup hub — just
having higher levels of high school completion is associated with more entrepreneurship. Teaching entrepreneurship in schools can also get students thinking from an early
age about running their own business as a career option
and equip them with the skills to succeed. For instance, a
2017 article in Teaching and Teacher Education examined a
program in Mexico in which fifth and sixth graders created
their own small businesses with the help of teachers; the
authors found that the experience enhanced entrepreneurial
knowledge, values, and skills in the students.
In 2015, Seagle led the Sequoyah Fund to take over REAL
(Rural Entrepreneurship through Action Learning), an
entrepreneurship education program that started in North
Carolina high schools in the 1980s. The program is now
taught around the world to students from kindergarten to
college as well as new business owners. Students learn how
to think like entrepreneurs and acquire the skills needed to
run their own business. Seagle became a certified teacher of
REAL in 1999, and when the organization behind it ran into
financial difficulties, he knew he had to step in to keep the
program alive.
“I’ve seen people come into the program who had to take
over a family business but didn’t know how to do it. By the
end of the program, they had a skillset they never imagined
they could have,” says Seagle. “It’s important for us to teach
people how to create jobs rather than just seek jobs. And if
they decide that starting a business isn’t for them, this training still makes them better employees, because now they
understand their boss’s mindset and how their work affects
the bottom line.”

The pandemic seems to have prompted many people to rethink
their relationship with their job, a movement that pundits have
called the “Great Resignation.” Some have been forced out
of work by the disruptions of the pandemic while others are
reevaluating what they want to do with their careers.
Gardner recently visited a tenant at the Gould Business
Incubator who runs an insurance company. His office had
become a makeshift playroom for his grandchildren after
their day care sent the children home because of a staffing
“Everybody’s life is in flux right now,” says Gardner. “If you
can’t provide flexibility, you’re going to lose your employees.
I think a lot of people are deciding that if they are going to
work this hard, they’re going to work for themselves.”
Can rural places attract some of these new entrepreneurs to their communities? For many places, it may be an
uphill battle. In their research, both Goetz and Partridge
note that the worsening picture of rural America painted
by the data is partly an artifact of how researchers define
rural and urban — by population density. Rural towns
that succeed and grow “graduate” to metro status, leaving
behind communities that are still struggling. In a recent
interview, Edward Glaeser of Harvard University suggested
that small towns with desirable natural amenities may
benefit from a pandemic-induced migration away from
cities, but the ability of small towns without those attractive amenities to benefit from this reshuffling is less clear.
(See “Interview: Edward Glaeser,” Econ Focus, Fourth
Quarter 2021.)
Still, there are rural places that have managed to build a
thriving entrepreneurial climate seemingly in the middle
of nowhere. Partridge cites the example of Holmes County,
Ohio, a predominantly Amish region about halfway between
Columbus and Cleveland. Out of necessity, locals cultivated
a thriving small-business environment where entrepreneurs
support one another.
“Having good public schools or a nearby medical center
can help retain population,” he says. “But just having the
right attitude really makes a difference.” EF

Goetz, Stephan J., Mark D. Partridge, and Heather M. Stephens.
“The Economic Status of Rural America in the President Trump
Era and Beyond.” Applied Economic Perspectives and Policy, March
2018, vol. 40, no. 1, pp. 97-118.

Stephens, Heather M., Mark D. Partridge, and Alessandra Faggian.
“Innovation, Entrepreneurship, and Economic Growth in Lagging
Regions.” Journal of Regional Science, 2013, vol. 53, no. 5,
pp. 778-812.

Kuchler, Theresa, Yan Li, Lin Peng, Johannes Stroebel, and Dexin
Zhou. “Social Proximity to Capital: Implications for Investors and
Firms.” National Bureau of Economic Research Working Paper
No. 27299, June 2020.

Yu, Sandy, and Lee Fleming. “Regional Crowdfunding and
High Tech Entrepreneurship.” Research Policy, September 2021

Partridge, Mark D. “Rural America’s Stagnant Economic
Performance: What’s the Role of Declining Dynamism.” American
Enterprise Institute, February 2020.

econ focus

• first quarter • 2022 17


Revisiting the Community Reinvestment Act
Regulators are considering changes to how the 1977 law is implemented


uring the mid-to-late 1930s, real
estate appraisers working for the
government-sponsored Home
Owners’ Loan Corporation (HOLC)
undertook the unprecedented task of
rating the creditworthiness of neighborhoods in over 200 of America’s largest
cities. Among other things, they gauged
the incomes of a neighborhood’s residents, the quality of its housing stock,
and the proximity of amenities such
as public transportation and schools.
Perhaps unsurprisingly, their ratings
ended up being highly correlated with
measures of neighborhood affluence.
They consistently assigned their lowest
credit grade of “hazardous” to low-income neighborhoods.
Race and ethnicity also played prominent roles in HOLC credit reports. For
example, under the heading “Favorable
Influences,” the HOLC assessment
report for the neighborhood surrounding McMannen Street in Durham, N.C.,
sounds neutral, at first — citing “All
city conveniences, adequate transportation, schools located in area, also
community business center.” But under
the heading “Clarifying Remarks,”
the report added, “This was formerly
a good white residential street but
negroes are gradually taking up the
area.” The HOLC rated the neighborhood hazardous.
The pattern played out across the
country. The HOLC report for BedfordStuyvesant in Brooklyn, N.Y., noted
that “colored infiltration [is] a definitely
adverse influence on neighborhood
desirability.” The report for a south
Philadelphia neighborhood posited
that the “infiltration” of Jews in the
area had depressed house values. And
the report for a Berkeley, Calif., neighborhood stated that the HOLC grade
could have been higher “but for [the]


econ focus

• first quarter • 2022

infiltration of Orientals and gradual
infiltration of Negroes.”
The HOLC grades were used to
construct color-coded city maps in
which the lowest graded sections were
shaded red — thus giving birth to the
term “redlining.” Maps based on similar methods and biases were drawn
at about the same time by the Federal
Housing Administration, an institution
that would play a major role in postWorld War II mortgage markets. It is
difficult to judge the extent to which
these early redlined maps exerted an
independent influence versus how much
they simply reflected preexisting practices in real estate and lending markets
that may have continued regardless of
the maps. What is certain is that the
maps represented the official codification of practices that made it difficult for
minority and lower-income families to
obtain mortgages for home purchases
or improvements in redlined neighborhoods. Shut off from homeownership,
many families were blocked from what
was arguably 20th century America’s
most important avenue for the intergenerational accumulation of wealth.
The Community Reinvestment Act
(CRA) was enacted in 1977 as part of
an attempt to remedy the legacy of
redlining and to encourage banks to
meet the needs of minority and lowand moderate-income (LMI) communities. Although it was meant to address
long-standing issues, it was enacted
during a period of heightened concern
about declining conditions in the
nation’s urban neighborhoods.
While the CRA did not explicitly
target racial discrimination, it was meant
to complement civil rights laws that had

been passed during the previous decade
to address inequities in housing and
lending markets. The Fair Housing Act
of 1968 outlawed many of the discriminatory practices that had shaped the
U.S. housing market, including racially
restrictive covenants and zoning laws.
(Although the U.S. Supreme Court had
barred states from enforcing racially
restrictive covenants in its 1948 decision
in Shelley v. Kraemer, the decision had
not barred their use by private parties.)
The 1968 law’s prohibition of discriminatory mortgage lending was buttressed
by the Equal Credit Opportunity Act of
1974, which prohibited financial institutions from discriminating against
credit applicants based on, among other
protected characteristics, their race,
color, religion, national origin, or sex.
The Home Mortgage Disclosure Act
(HMDA) of 1975 assisted the enforcement of antidiscrimination laws. It
required banks to collect and disclose
data about the ethnicity and race of
credit applicants to aid in the identification of discriminatory lending practices.
Data collected under HMDA played a
role in informing congressional debate
over the CRA. Sen. William Proxmire
(D.-Wis.), the CRA’s main architect,
stated on the Senate floor, “The data
provided by [the HMDA] remove any
doubt that redlining indeed exists, that
many credit-worthy areas are denied
loans. This denial of credit, while it
is certainly not the sole cause of our
urban problems, undoubtedly aggravates urban decline.”
The CRA declares that “banks have
a continuing and affirmative obligation
to help meet the credit needs of their
local communities, including low- and
moderate-income (LMI) neighborhoods
where they are chartered, consistent
with the safe and sound operations
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of the institutions.” The Act directed
bank supervisory agencies to examine banks periodically to assess their
records of meeting the credit needs
of their entire communities, including LMI neighborhoods. To give the
CRA teeth, regulators were to factor
in their CRA assessments when deciding whether to approve a bank’s applications for mergers, acquisitions, or
branch openings.
The CRA has undergone several
legislative changes. Changes enacted
in 1989, for instance, required bank
supervisors to publicly disclose institutions’ CRA ratings and performance
assessments. In addition to legislative
changes, bank supervisors have periodically reviewed and revised the regulatory framework they employ to implement the CRA. Regulatory changes
in 1995, for example, increased the
importance of objective performance
measures relative to the more subjective and process-oriented criteria that
supervisors had previously emphasized.

i m ag e : co u rt e sy m a p pin g i n eq ua li t y

CRA exams are conducted at roughly
three-year intervals by a bank’s
federal supervisor — either the Fed,
the Office of the Comptroller of the
Currency (OCC), or the Federal Deposit
Insurance Corporation (FDIC). Banks
of different sizes are subject to different CRA tests. Large banks — those
with assets above $1.384 billion —
are evaluated under separate lending,
investment, and service tests. Small
banks — those with assets of less than
$346 million — are primarily evaluated under a retail lending test. A
blended set of tests is applied to banks
in between.
For each test, banks are evaluated
based on their performance within their
geographic “assessment areas,” which,
as a practical matter, define the communities that they are obligated to serve
under their charters. As part of a CRA
exam, banks propose assessment areas,
which bank supervisors then evaluate. The CRA spells out rules for the

Color-coded map
of Richmond,
drawn by the
federally sponsored Home
Owners' Loan
Corporation in
1937, showing
ratings of
with the
sections in red.

delineation of assessment areas, which
“may not reflect illegal discrimination”
and “may not arbitrarily exclude low- or
moderate-income geographies.” A bank’s
assessment areas typically consist of
already-defined areas such as metropolitan statistical areas or cities or counties in which the bank locates its main
office, branches, and deposit-taking
ATMs. Assessment areas are frequently
expanded to include contiguous geographies where a bank makes a substantial
amount of its loans.
According to William Nurney, a
senior manager in the Richmond Fed’s
Supervision, Regulation and Credit
department, which conducts CRA
assessments for the Richmond Fed,
“We go through an analytical process,
before every exam, where we look at
the assessment areas that the bank has
given us. We apply the criteria from
the existing CRA regulations to determine, ‘Does that assessment area make
sense within the context of the reg or
does it not?’” In cases where proposed
assessment areas do not appear to
conform to regulation, Nurney adds,
“We’ll ask them, ‘Why did you draw
the boundary here instead of there?’
We really try to understand where
they’re coming from.” The back-andforth process usually produces an
agreed-upon area, he says.

When conducting the CRA lending
tests, bank examiners address three
questions about a bank’s record. First,
is the bank meeting the needs of its
community at large by lending sufficiently within its assessment areas?
Here, examiners gauge whether a
bank’s overall lending is sufficient relative to its deposit base and whether the
bank’s lending inside its assessment
areas is sufficient relative to its lending outside the areas. Second, is the
bank making a sufficiently high fraction of its loans to borrowers located in
LMI census tracts? Finally, is the bank
making a sufficiently high fraction of
its loans to LMI borrowers?
The CRA’s investment test evaluates
a bank’s record of serving its assessment areas through qualified community development investments. “For a
large bank’s investment test, we basically look at the bank’s securities portfolio to see how much of it consists
of qualified CRA investments,” says
Nurney. “Those would include investments that focus on affordable housing,
such as bonds issued by the Virginia
Housing Development Authority.
Another qualified investment would be
a bond issued by a qualified small business development company.”
The CRA’s service test evaluates
the availability and effectiveness of
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• first quarter • 2022 19


a bank’s retail banking services and
the extent of its community development services. “We look at where a
bank has opened and closed offices to
assess whether the changes have positively or negatively affected their ability to service their assessment area as
a whole,” Nurney explains. “We also
look at a bank’s service activities, such
as whether the bank’s officers serve on
the boards of community development
organizations — Habitat for Humanity
is one example that comes to mind.”
There are four possible CRA
ratings: Outstanding, Satisfactory,
Needs to Improve, and Substantial
Noncompliance. According to a 2020
report by the Congressional Research
Service, approximately 97 percent or
more of the banks examined between
2006 and 2018 received CRA ratings of
Satisfactory or Outstanding.
For proponents of the CRA, the law
was needed to overcome market failures that may have inhibited lending in
low-income neighborhoods, even in the
absence of discrimination. By its nature,
lending is about risk assessment, which
requires information that is often in
short supply in lower-income markets.
Compared to higher-income neighborhoods, lower-income neighborhoods
often have fewer home sales and more
varied housing structures, which makes
property appraisals challenging. In
addition, credit evaluations can be more
costly for lower-income borrowers,
who often have short or irregular credit
histories. According to former Fed Chair
Ben Bernanke, “The high costs of gathering information, together with the
difficulty of keeping information proprietary, may have created a ‘first-mover’
problem, in which each financial institution has an incentive to let one of
its competitors be the first to enter an
underserved market.”
In the eyes of many, the CRA serves
as a coordinating mechanism to
increase the number of transactions in
low-income lending markets, thereby

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• first quarter • 2022

increasing the availability of information and helping to overcome the informational “first-mover” problem. The
CRA may also help overcome another
“first-mover” problem: peoples’ reluctance to be the first to invest in housing
improvements in a poor neighborhood.
Critics of the CRA contend that
credit markets tend to be highly efficient — that, if there were profits to be
made from lending to LMI communities, banks would readily make loans
without regulatory intervention. This
proposition is particularly true today,
they argue, because institutional
changes that have occurred since the
law’s 1977 enactment have made financial markets increasingly competitive.
According to Diego Zuluaga, writing in a 2019 essay published by the
Cato Institute, “Branching liberalization and the advent of online lending
have allowed for freer local bank entry,
substantially reducing the likelihood
of persistently low lending rates in
LMI communities.” He argued that the
emergence of nonbank lending has had
a similar effect, pointing to data from
the Bureau of Consumer Financial
Protection showing that the largest
U.S. nonbanks, which are not subject to
CRA regulation, actually made a higher
percentage of their mortgage loans to
LMI borrowers in 2017 than the largest U.S. banks, which are subject to it.
CRA critics also contend that the law
is costly to administer, encourages banks
to make risky loans, and undermines
their ability to diversify their loan portfolios geographically. In addition, some
observers have argued that the current
CRA framework perversely discourages banks from adding new branches or
entering new lending markets in cases
where the banks perceive that these
activities may cause an expansion of
their CRA-related requirements.
Whatever the CRA’s shortcomings,
numerous studies have found evidence
suggesting that it has at least partially
achieved the core goal of increasing
banks’ LMI lending. One such study, by
Robert Avery of the Federal Housing
Finance Agency, Glenn Canner of the

Federal Reserve Board, and Raphael
Bostic, now president of the Atlanta
Fed, examined survey data collected
by the Board about the performance
and profitability of CRA-related lending. The study found that the “majority of surveyed institutions engaged in
some lending that they would not have
done in the absence of the act.” They
also found that “the vast majority of
institutions ... were able to do so profitably,” but “that a significant minority
incurred losses from some of their
marginal CRA-related lending.” The
researchers concluded with the caveat,
however, that the CRA’s effect on loan
volumes and profitability appeared to
be small. (Bostic was a professor at the
University of Southern California at the
time of this research.)
In October 2020, the Fed published an
advance notice of proposed rule-making to seek public input about the
modernization of its CRA regulatory
and supervisory framework. The notice
advanced several reform proposals
and posed numerous questions with
the goal of eliciting responses from
community groups, financial industry
representatives, and scholars.
A key question was how to best define
bank assessment areas so that they do
not reflect illegal discrimination or arbitrarily exclude LMI census tracts. Some
community advocates favor a broadening of assessment areas. “This is a huge
area,” says Josh Silver of the National
Community Reinvestment Coalition
(NCRC). “We think it’s critically important to expand assessment areas to places
where banks do a significant amount
of lending beyond their branches.” The
NCRC also favors incorporating race
and ethnicity more explicitly in the
determination of CRA assessment areas,
proposing that CRA exams “require
banks to affirmatively include communities of color in their assessment areas.”
While usually stopping short of favoring an outright expansion of assessment
areas, some bankers have advocated

flexibility that would allow bank examiners to give them credit for community development activities outside their
current assessment borders.
The Fed is considering a variety of
approaches to assessment areas. For
large traditional banks, it has proposed
expanding assessment areas to better
reflect activities, such as deposit taking
and loan origination, that take place
in geographies far outside of their
currently delineated assessment areas.
Such an approach is being considered
for banks with high concentrations of
online business. For pure online lenders without physical loan-making locations, the Fed has proposed the establishment of national assessment areas
in lieu of the current approach, which
bases assessment areas on the locations
of an online bank’s main office.
The Fed also asked for comments
about changing the CRA ratings system.
“The CRA has done some tremendous
good, but the full potential is not realized,” says Silver. “Part of the issue is
CRA ratings. About 98 percent of banks
pass, and 90 percent get Satisfactory,
which is like a B. Imagine if 90 percent
of the students in the class are getting a
B — it wouldn’t exactly encourage excellence.” Silver and others have proposed
adding different gradations or adopting numerical scores that would similarly differentiate banks’ CRA exam
outcomes. Some bankers also appear to
favor a rating system that would better
differentiate them from their peers. To
make the ratings more consequential,
the NCRC also favors strengthening the
role of ratings in bank merger reviews.
The Fed proposal seeks to increase
the transparency of CRA lending tests.

One idea is to set quantitative targets
based on community and market standards. In the case of, say, mortgage
lending, the percentage of a bank’s
mortgages in an assessment area that
are made to LMI families would be
compared to a community benchmark
based on the percentage of households in the area that are LMI and
to a market benchmark based on the
percentage of peer-bank mortgages in
the area that are LMI.
As a general matter, the banking
industry is receptive to the idea of
increased transparency. “One of the
complaints we hear from banks is that
there isn’t a lot of predictability about
what kind of activities and products
are viewed favorably — particularly
community development activities,”
says Paige Paridon of the Bank Policy
Institute, which conducts research
and advocates for the banking industry. Thus, banks have asked for greater
clarity about what level of activity is
required to achieve certain ratings.
The banking industry is also asking
for greater flexibility. “There’s a need
for the CRA and the regulators to adapt
some of the assessments and performance tests under the CRA to recognize that there are just such a broad
range of business models,” says Paridon.
“We would like to see increased flexibility about looking at the different ways
banks serve their communities.”
Yet transparency and flexibility may
be hard to combine. “It’s a difficult
trade-off,” says Paridon. “We recognize
that it’s hard for regulators to offer the
transparency that comes with quantitative standards while also maintaining

There is one outstanding issue, in the
view of bankers and consumer advocates, that cannot be addressed by the
supervisory agencies alone — and that is
the fact that banks are subject to CRA
regulation, and nonbank lenders are not.
The banking industry favors expanding
the CRA’s jurisdiction to nonbank lenders to create a more level playing field
for compliance. “To the extent that you
are providing the same sort of products and services as banks, you should
be held to the same requirements,” says
Paridon. On this, consumer advocates
tend to agree with the bankers. “If you
have CRA applied to some financial
industry sectors and not others, you will
not be as effective in reaching traditionally underserved or formerly redlined
communities,” says Silver. “The community reinvestment obligation should
apply throughout the financial industry.” Such an extension of the CRA’s
scope, however, would require new
congressional legislation.
Thus, regulatory reform remains the
main task at hand. The Fed, OCC, and
FDIC are currently working toward
creating a CRA framework that is
consistent across the agencies. “There
have been a lot of conversations and
discussions — a real effort to find an
approach that all three agencies can sign
off on and implement and reinforce,”
says Nurney of the Richmond Fed.
“They have been at it since last year,
and they have received a lot of insights
based on industry and public feedback.”
A likely next step is for the agencies to
formulate a set of proposed rules that
can be published for public comment. EF

Avery, Robert B., Raphael W. Bostic, and Glenn B. Canner.
“Assessing the Necessity and Efficiency of the Community
Reinvestment Act.” Housing Policy Debate, 2005, vol. 16, no. 1,
pp. 143-172.

Board of Governors of the Federal Reserve System. “Community
Reinvestment Act: Advance Notice of Proposed Rulemaking;
Request for Comment.” Federal Register, Oct. 19, 2020, vol. 85,
no. 202, pp. 66410-66463.

Barr, Michael S. “Credit Where It Counts: The Community
Reinvestment Act and Its Critics.” New York University Law
Review, May 2005, vol. 80, no. 2, pp 513-652.

econ focus

• first quarter • 2022 21


Pinelopi Goldberg
On developing countries, measuring
economies by satellite, and the learning



econ focus

• first quarter • 2022

EF: Many people and institutions involved in development economics in the 1990s were optimistic about the
ability of globalization to bring progress to developing countries. Reducing trade restrictions and eliminating barriers to direct foreign investment were of course
a major part of the so-called “Washington Consensus”
about what developing countries should do. Is there still
such a sense of optimism?
Goldberg: Globalization was just one component of the
Washington Consensus. In my opinion, it did deliver. It did
help countries, especially in East Asia, reduce poverty and
grow quickly.
But right now, there is a pessimism that the same model
can deliver in the future. So my answer to your question is
“no.” This is partly because of the rise of automation. The
traditional advantage of low-wage countries has been in
low-skill-intensive manufacturing, which they would export
to richer countries consistent with their comparative advantage. At the same time, this process created export revenue,
which they could invest in physical infrastructure, human
capital, institutions, and so on. This is a model that worked
well in many countries, especially in East Asia.
With the rise of automation, there is fear that machines
are going to replace low-wage workers in many developing countries. That said, this has not happened yet. But the
concern is there.
What is more real, in my view, is that there has been an
enormous backlash against globalization — not just in the
United States, in many countries all over the world. We’ve
seen worldwide the rise of economic nationalism. Trade is
not dead; trade is still growing, actually. But I don’t think
Share this article:


ale economist Pinelopi “Penny” Goldberg was
educated in her native Greece at a Germanlanguage school, the Deutsche Schule Athen. “My
parents were engineers, and they had a natural admiration for German engineering,” she explains. “So they
sent us to a German school.” From there, she went to
study economics at a German university, where the
curriculum at the time centered on the writings of the
field’s important figures. “We were very much encouraged in Germany to read the great texts, with everything in the original — Adam Smith, Keynes, the great
As a Ph.D. student at Stanford, Goldberg did research on
the trade war between the United States and Japan, looking at the countries’ auto industries and strategic trade policies. “There are many parallels to what’s happening now,”
she says. Her research work gradually moved into development economics as she saw the dependence of low-income
countries on trade for economic survival.
Today, she is a leading researcher in trade and development economics, with a series of faculty appointments at
Columbia University, Princeton University, and Yale, interrupted by her tenure from 2018 to 2020 as chief economist
of the World Bank. There, she was active in the Bank’s
efforts to improve the measurement of human capital in
developing countries as well as research into the use of
satellite data to measure economic activity, among other
areas. She was editor-in-chief of the American Economic
Review from 2011 to 2016.
David A. Price interviewed Goldberg by videoconference
in January 2022.

that Africa can play the same role in the future that China
or Vietnam or Korea played in the past. The conditions for
such export-led growth are not there anymore. I cannot
imagine the United States opening its borders these days to
an influx of imports from low-wage countries in Africa. So I
don’t think this model is viable anymore.

additional co-authors and examined the long-term trajectory
of people who had been exposed to this intervention, and
they found extremely large effects.
Early on, randomized control trials were very limited in
scope. That has changed. These days, randomized control
trials tend to be much more ambitious.



EF: What have been the biggest advances in development
economics since the years of the Washington Consensus?

EF: You have experimented with using alternative
measures of economic growth for developing countries,
such as satellite measurement of nighttime lighting. Why
is this interesting to you?

Goldberg: I think the main advances have been more on
the micro side. Early on, development was much more
macro-oriented, focusing on models and theories of structural transformation, starting with the seminal work of
Arthur Lewis in the 1950s. Of course, this work is incredibly
important and still very relevant. But in the last two decades,
people have realized that the micro foundations of growth
are equally important, especially in the context of developing countries. So there has been a lot of work on the role of
human capital in developing countries, on the role of institutions, on the role of gender. That’s one aspect of progress.
The other aspect is that there has been a realization that
it doesn’t just matter what policies you adopt, but also how
they are implemented. Careful implementation is key for
success. So there has been a lot of work in trying to figure
out which policies work and why they work. And that has
led to the rise of randomized control trials, in which the
field of development has played a key role. Development led
the charge for what people call the credibility revolution in
I see these two aspects as the main contributions of recent
work in development. At this point, the field is very general.
It stretches across every area of economics and every
subfield within economics.
EF: What is an example of the use of randomized control
trials in development economics?
Goldberg: One example is a famous paper in 2004 by
Michael Kremer and Ted Miguel on deworming, which was
shown to have long-term effects on people’s health and on
economic outcomes. It was one of the first papers in development economics to use a randomized control trial. The
main insight of this paper is that in the case of many health
interventions, one needs to randomize across groups —
across schools, in this case — and not just within groups
(that is, within schools). Why? Because there are externalities: When one deworms some students, other students in
the same school also benefit. This was an insight that ex post
may seem obvious, but at the time was not.
Many years after the completion of the randomized
control trial, Kremer and Miguel went back with some

Goldberg: First, let me emphasize that I am an advocate of
these measures, but as a supplement to traditional methods,
not as a substitute. To give you one example, in work we
published in the Journal of Economic Perspectives, we talk
about the vegetation index, which is based on satellite data.
Of course, no one would ever think of replacing the systems
of national accounts with the vegetation index. But for some
countries, especially in Africa, we show that the vegetation
index can capture small-holder agricultural activity, which
is very important for these countries. So if you combine that
index with traditional data, you can get a more accurate
measure of GDP and of growth. So sometimes this data can
complement existing measures.
A second big advantage is low cost.
Third, such data come in high frequency. If you think of
a census of population, it’s every 10 years. The data are, of
course, more current if you’re using mobile phone activity or
nighttime lights to estimate economic activity in a particular area.
Another advantage, finally, is that in some settings, where
we may not trust the authorities, satellite data offer an
additional way of checking the official data. A good example is the Billion Prices Project. In most cases, the inflation
measures you would get out of this data would be similar to
what you would get from the official data. But in the case
of Argentina, people got a very different estimate of inflation based on this data in the past. So this is a good way of
providing an additional check.
Of course, the main disadvantage of all these data is
that they’re not collected for the purpose of measuring
economic activity. With the system of national accounts
and the data sets that are collected by statistical agencies,
statisticians put considerable effort into making sure that
the data are representative of the whole population. This
new data is not necessarily representative of the whole
population, and this is something we need to keep in mind.
My first choice would be to promote the collection of better
data through statistical agencies in low-income countries
and better training of statisticians in these countries. But
this is not always possible.
econ focus

• first quarter • 2022 23

EF: While you were at the World
Bank, you and several co-authors
developed a new way to compare the
formation of human capital in different countries. Why does this matter?
Goldberg: Human capital, generally
speaking, refers to resources embedded
in people. Broadly, we associate human
capital with the knowledge, skills,
and health that form an individual’s
potential to contribute to an economy.
In the common definition used in the
academic literature in economics, we
tend to focus on education.
Human capital is important because
people are one of the most important
resources of a country. There has been
a lot of work that shows that human
capital is positively associated with
growth. The question of causality —
what causes what — is always a tricky
one, but there is substantial supporting evidence that investing in human
capital leads to higher growth. So these
are some of the reasons to take human
capital seriously.
While I was at the World Bank, we
put a lot of emphasis on human capital.
The main reason is that policymakers
tend to prioritize investments in physical infrastructure — roads and bridges.
It’s quite striking that in many countries, policymakers are willing to invest
very heavily in physical infrastructure,
but not in human infrastructure.
Of course, roads and bridges are
important. From a policymaker’s point
of view, they also have the advantage
that the results are visible in the short
run or medium run. You can see the
bridge, you can see the road, you use
them, and then you value the politician who’s behind it. Investments in
human capital take many years to bear
fruit. Because of that, we thought it
was important to promote this agenda
and to provide incentives to policymakers to invest in human capital,
because left on their own, they would
not do that; the political incentives are
not there.

econ focus

• first quarter • 2022

Pinelopi (Penny)
Koujianou Goldberg
■ present position

Elihu Professor of Economics, Yale University
■ selected past positions

Chief Economist, World Bank Group, 20182020; William K. Lanman, Jr. Professor of
Economics, Yale University, 2010-2017;
Professor of Economics, Princeton University,
2007-2010; editor-in-chief, American
Economic Review, 2011-2016
■ selected additional affiliations

President, Econometric Society; Faculty
Research Associate, National Bureau of
Economic Research; Distinguished Fellow,
Centre for Economic Policy Research;
Member, National Academy of Sciences;
Member, American Academy of Arts and
■ education

Ph.D. (1992), Stanford University; Diplom
in Economics (1986), University of Freiburg,

EF: You and your co-authors said
it’s important to go beyond looking
at years of schooling when making
these kinds of comparisons. Why?
Goldberg: Years of schooling is the
standard measure of education. The
reason people have traditionally used
it is because it’s easier to obtain than
any other measure. It’s also comparable across countries. But there has been
a lot of recent work by the World Bank,
UNESCO, Lant Pritchett, and others
that argued that in many countries,
we saw increasing enrollment rates in
primary school and increasing years of
schooling, yet we saw no improvements
in education. There are some examples
in the World Development Report of
the World Bank in 2018. For instance,
in India, kids in grade three could
not do a two-digit subtraction, like 47
minus 18. Or they could not read a very
simple sentence.
So there was anecdotal evidence
suggesting that kids were going to

school, but they were not learning basic
skills like reading or writing or simple
arithmetic. Then what’s the point of
going to school?
In our further work, we showed that
this didn’t apply only to a few isolated
countries. It’s a global phenomenon.
Many institutions have called it a
learning crisis.
EF: What do you think has been
going on here?
Goldberg: There has been a lot of
evidence on what has not worked in
education. There is little evidence
of what has worked. Let me start by
ruling out one hypothesis that has
been suggested. The first thing that
comes to mind when you talk about
increasing enrollment is that this may
generate selection effects — that is, if
you increase enrollment rates, some
marginal students may enter the system,
and those students will not do well in
tests. I think that in general, this is a
very valid comment, especially if you
apply it to secondary education. But
at the primary school level, we are
talking about very basic skills, reading and writing. And the whole point of
going to the primary school is that you
learn these basic skills. It’s not rocket
science; you don’t need to be a genius
to know how to read a sentence. So if
the additional students who enter the
primary schools do not improve, even
if they were marginal by some metric
of ability, that would be a failure of the
educational system, because these are
very basic skills. In addition, in many
settings, we can show that the outcomes
are not driven by selection effects.
So what is going on? In some countries, there is evidence that in many
schools, there is absenteeism — on the
part of the teachers and on the part of
the students, partly because there’s no
accountability. Teachers may not show
up for whatever reason. Or students
may not show up because, in some
cases, the parents do not value education; they enroll the kids in school, but
then the kids miss many days.

Another factor is that in many
had indeed arrived there. Most capipopulation. On top of that, in low-inlow-income settings, teachers and
tals of low-income countries are not
come settings, obesity is much lower.
books target the top students but not
as isolated as people think; many of
These two factors alone could explain
the average student. So the teaching
these cities are global cities. They are
a lot of the difference.
methods and the books are great if you
connected to the rest of the world. So
In addition, many epidemiologists
are a student who is going to continue
it was surprising that the deaths were
talk about what they call “trained
onward to secondary school or get a
so low.
immunity” for low-income coununiversity education. But for the averAnother reaction was that this was
tries. The idea is that people in those
age student who needs very basic skills, all measurement error. And, again, that
countries are exposed to disease all
the system fails them. Some
the time, so their immune
people have suggested tracksystems have learned how to
“The differences in [COVID-19] deaths are huge
ing as a better method to
cope. An alternative interpreaddress this issue.
tation is that there has been
— orders of magnitude apart. Just to give you one
One thing that has not
selection; the ones who have
striking example, in the United States right now, the
worked to improve the qualmanaged to survive the varideaths per million are around 2,500. In Nigeria, the
ity of education is spending
ous diseases they’ve been
on buildings or computers. I
number is 14; in India, it’s 340. And it’s not easy to
exposed to have very strong
mention that because donors
immune systems.
hide deaths. Yes, there is measurement error, but
are often eager to help and
It seems that all these
still, there is a big difference between low-income
they send money in. And this
factors have contributed. It’s
countries and richer ones.”
money is invested in textstill the case that the poorer
books, beautiful buildings,
the country, the lower the
laptop computers. But a lot
per capita COVID-19 deaths so
of work has shown that none of these
comes back to the issue that people tend far. We’ll see whether this holds in the
has helped much to increase the qualto dismiss data coming from developing
ity of education. The lesson is that
countries. It’s clear that measurement
simply throwing money at the proberror exists and is important in the case EF: In research that was published
lem does not solve it. This is a case
of COVID-19 in many countries, espein 2020 in the Quarterly Journal of
where randomized control trials have
cially in low-income settings. But the
Economics, you looked at the effects
helped because you can often use
differences in deaths are huge — orders
of the 2018 Trump tariffs. You found
randomization to see which intervenof magnitude apart. Just to give you one that between those tariffs and the
tions are effective and which are not
striking example, in the United States
retaliatory tariffs of other countries,
— and the results may not be what was
right now, the deaths per million are
such as China, there was a substananticipated.
around 2,500. In Nigeria, the number is
tial redistribution from U.S. buyers
14; in India, it’s 340. And it’s not easy to
of foreign goods in favor of U.S.
hide deaths. Yes, there is measurement
producers and to the government. Is
error — probably deaths and hospitalthis what you expected to see?
EF: In work with Tristan Reed, you
izations are much higher in low-income
have found that COVID-19 deaths
countries than the statistics show — but
Goldberg: To a certain extent, what we
per capita were actually much lower
still, there is a big difference between
didn’t expect to see is that U.S. buyers
in poorer countries than in richer
low-income countries and richer ones.
would be hurt. This is because the
ones. This seems surprising. What
I think there are three reasons at
United States is a powerful country;
work. We pointed out two of them in
to a certain extent, everyone thought
this initial working paper. First, every- that China would eat some of the tariff.
Goldberg: Tristan and I presented
one agrees that two of the risk factors
What our work showed, and others’ as
this research at a Brookings conferfor a serious reaction to COVID-19
well, is that the tariffs were completely
ence in June 2020 with great trepleading to hospitalization and death
paid by the U.S. importing side. The
idation, because that was near the
are age and obesity. The age distriother effect that some people didn’t
beginning of the pandemic. Most
bution in many low-income counexpect is that the part of the economy
people’s reaction was that this result
tries is very different from that in the
that was hurt the most by the tariffs
was just because poor countries are
United States. To mention a striking
was people in Republican counties,
not connected, so COVID-19 had
case, in Niger, the median age is 15;
and this is because of the retaliation by
not arrived there yet. But there was
there, COVID-19 would probably not
China; they targeted mainly agriculanecdotal evidence that COVID-19
have very severe health effects on the
tural commodities.
econ focus

• first quarter • 2022 25

We have a follow-up paper where
we look at how third countries were
affected by the tariffs. What we show is
that many countries benefited from the
tariffs; trade seems to have been reallocated from the United States and China
toward other countries. What did not
happen is reshoring of economic activity back to the United States.
EF: What are you working on now?

low-income countries, they’re important not just for the women who live
there, but also highly important for the
country as a whole for growth.
EF: Based on your experience at the
World Bank, do you think institutions outside of academia — such as
the World Bank or the Fed — benefit from having their own research

tends to hone precisely those qualities
that are important in policy: You have
to be creative, you have to be able to
question assumptions, you have to be
able to formulate hypotheses and test
them, you have to be able to abandon
hypotheses that were proven wrong.
EF: And from the researcher’s point
of view, what is different about doing
economic research in an institution
outside of academia?

Goldberg: I have three different lines
of research. One is my follow-up work
Goldberg: I already mentioned they’re
on the U.S.-China trade war. As I
much closer to policy and to applied
mentioned, we focus in our new paper
Goldberg: I think they benefit greatly
questions. For many people, this is
on bystander countries or third counfrom their research departments. And
fascinating. Another big difference, I
tries. One interesting finding of
think, is that you operate on
this work is that we find that
a different time horizon. In
“Research in [policy] institutions tends to be a
the trade war didn’t simply
academia, we can take our
reallocate the exports of these
time, we can spend five years
little different from the research in academia.
countries toward the United
on the project, we can revise
It tends to focus on policy-relevant questions.
States and China, as you might
the paper multiple times if
People who are close to policy tend to have a
expect. It also increased global
we want. Research departexports. So, to a certain extent,
ments in policy institutions
much better sense, at least in the short run, of
it led to net trade creation,
are not given five years to
what the important questions are. So in terms of
which is surprising. We don’t
complete a project. So there
coming up with and framing questions, they're
expect a trade war to actuis more time pressure, and
often ahead of academia.”
ally lead to more trade. But it
that has pluses and minuses.
seems that happened in this
On one hand, your work is
case, maybe because countries
much more topical and reledecided to invest more in trade capacthese research departments also benefit vant. On the other hand, sometimes
ity, or perhaps because there are scale
both academia and the world at large.
you are under pressure to put out work
economies. We think it’s an interesting
The reason is that the research in such
that is not completed.
institutions tends to be a little differAnother difference — which, in my
Then I have a line of work on inforent from the research in academia. It
opinion, is often exaggerated — is freemality in developing countries. By
tends to focus on policy-relevant quesdom of speech. I agree to a certain
informality, I mean the part of the
tions. People who are close to policy
extent with Paul Romer that when
economy that’s invisible to governtend to have a much better sense, at
you work in the private sector or in a
ments. And often, this informal sector
least in the short run, of what the
policy institution, you cannot say whatemerges in response to labor market
important questions are. So in terms
ever you want. But the fact is, neither
regulations and restrictions. We look
of coming up with and framing quescan you in academia. In academia,
at the case of Brazil in particular. We
tions, they’re often ahead of academia.
of course you can write whatever
developed a framework that helps us
I think that’s an important service that
you want, and you can put it on your
understand the emergence of inforresearch departments in these instituwebsite. Most academics, however,
mality, and we ask the question of how
tions provide.
want to be published. And if you want
trade policy affects various outcomes in
An additional reason research depart- to get published, you are constrained
the presence of informality.
ments are good for the institutions is
by the conventions and norms of your
And then I have a new line of
that they offer a way to attract the best
field. And most academics internalresearch — new for me — on gender
talent. If you want to attract talented,
ize those norms. So yes, there are
in developing countries. This line of
creative people, you have to give them
constraints in both settings. But if
research that was inspired by my time
some freedom to think independently.
you’re in a good policy institution,
at the World Bank in which I saw how
Finally, structured thinking is
there is a lot of freedom to do interestimportant these gender issues are. In
important in policymaking. Research
ing and important work. EF

econ focus

• first quarter • 2022

b y s i e r r a l at h a m

Housing the Workforce in the Rural Fifth District


lthough real estate is often less
costly in rural areas than in urban
areas, many low- and middle-income households in rural areas struggle
with housing expense. There are multiple reasons why rural households end
up financially constrained by housing
costs. First, incomes tend to be lower in
rural areas. Second, there are limited
available units — multifamily or single
family — in rural areas for reasons that
reflect the unique challenges of the
rural housing landscape.
Although these challenges to finding
affordable, quality housing tend to cut
across the rural Fifth District, there
are also differences that arise from the
diversity of rural areas. Rural communities possess unique assets that they
can use to leverage policy and marketbased tools to resolve housing shortages. Depending on local constraints,
communities may choose to preserve
or repurpose existing properties or
create new units to make housing more
Typically, the terms “affordable
housing” and “workforce housing”
are used to refer to housing that is
affordable to low- and middle-income
households, respectively. This article uses the term “low- to middle-income housing” to refer to both — that
is, all housing affordable to low- to
middle-income households earning
up to 120 percent of the area median
income (AMI).
When housing practitioners think
about the affordability of housing
expense, they consider households to
be “cost burdened” if rent or ownership
costs account for more than 30 percent
of gross income. For example, for a
household earning $48,000 per year, or
$4,000 per month, a home that costs up

to $1,200 per month
Housing Cost Burden, by County
would be considered affordable at
Share of housing cost burdened households
that income level
(because $1,200 is
30 percent of
$4,000). If the household lives in a unit
that costs more
than $1,200 per
month, they would
be considered housing cost burdened.
This includes households that willingly
spend more than
30 percent of their
income on housing.
Housing cost burden
can be distinct from
housing instability,
which can include
households facing
SOURCE: U.S. Census Bureau 2015-2019 American Community Survey 5-year estimates
eviction or experiencing homelessness.
In the Fifth District, rural housecost burdened. For rural households
holds are only slightly less likely to
earning less than 60 percent AMI, the
be housing cost burdened than urban
share that are housing cost burdened
households. Twenty-five percent of
jumps to more than half.
rural households at all income levels
Nationally, in rural areas, the
are housing cost burdened, versus
share of renters who are housing cost
28 percent of urban households.
burdened has consistently been greater
Within rural parts of the Fifth
than the share of owners who are. This
District, the share of housing cost
trend holds true for the Fifth District,
burdened households is greatwhere 45 percent of rural renters are
est in areas along the coasts of
cost burdened versus 25 percent of
Maryland and the Carolinas and is
homeowners with a mortgage.
less pronounced in the Appalachian
region. (See map.)
Housing cost burden is often thought HOUSING MARKETS
of in urban contexts where property
values and rent costs are relatively
Trends in the age and type of residenhigh. In rural areas, lower incomes are
tial properties influence the quality of
often the driving forces behind housing housing stock, while homeownership
cost burden levels.
rates, vacancy rates, and select demoFocusing on low- to middle-income
graphic characteristics influence the
households, about 38 percent of
overall supply. Rural housing markets
Fifth District rural households earning
tend to differ from urban ones along all
120 percent AMI or less are housing
of these dimensions.

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econ focus

• first quarter • 2022 27


Months' Housing Supply for Low- to Middle-Income Households in Rural
Areas of the Fifth District

out of their family home, but the trend
toward aging in place has increased
competition for starter homes and
limited opportunities for first-time
homebuyers. Eighteen percent of rural
Fifth District residents are over the age
of 65 versus only 14 percent of urban
Together, these trends constrain
the supply of high-quality low- to
middle-income housing in rural parts
of the Fifth District.




Affordable at 120% AMI

Affordable at 60% AMI

SOURCE: CoreLogic and author's calculations
NOTE: All homes affordable to households earning 60 percent AMI are, by definition, affordable to households earning
120 percent AMI. Because of this overlap, the two series track each other closely.

The housing stock in rural areas
tends to be older than in urban areas.
Aging housing stock poses housing
quality concerns, which can affect residents’ health, comfort, and utility bills.
In the Fifth District, 48 percent of
units in rural areas were constructed
prior to 1980 versus 44 percent in
urban areas. In particular, Virginia
and West Virginia have a larger share
of housing units constructed prior to
1950 in rural areas compared to urban
areas. Single-family and manufactured homes make up a larger share
of the rural housing stock nationwide,
while apartment buildings represent a
greater share of units in urban areas.
In rural parts of the Fifth District,
single-family and manufactured
homes account for most of the housing
stock (71 and 17 percent, respectively).
Apartments account for only 12
percent of rural housing stock (versus
25 percent in urban areas), in part
because it is more difficult to finance
and construct multifamily properties in
less dense communities. Because apartment units make up such a small share
of rural housing, rural renters are more
likely to rent a single-family or mobile
home than renters in urban areas.

econ focus

• fourth quarter • 2021

Homeownership rates are higher
in rural areas than urban areas, both
nationally and in the Fifth District. In
the Fifth District, 69 percent of rural
households own their homes versus
65 percent of households in urban areas.
The tendency toward homeownership
means there are fewer units available to
rent for low- and middle-income households for whom homeownership may be
out of reach.
Vacancy rates also tend to be higher
in rural areas. In destination locations,
vacation homes make up a large share
of vacancies; in other areas, unused
or abandoned buildings account for a
large share. These conditions constrain
housing supply and put upward pressure on prices in the ownership
market. In line with national trends,
housing vacancy rates differ between
urban and rural parts of the Fifth
District. Nineteen percent of residential
units in rural areas are vacant versus
11 percent in urban areas. Compared
to urban areas, smaller shares of rural
units are vacant because they are either
for rent or for sale.
Lastly, rural areas are characterized
by an aging population. Senior populations have historically chosen to move

In the ownership market, the tightness of a housing market is commonly
measured by the number of months of
housing supply, which is measured as the
ratio of new and existing homes on the
market to homes sold in a given month.
Focusing on homes affordable to lowto middle-income households, rural
areas tend to have a greater supply of
housing in any given month than urban
areas. But the low- to middle-income
housing market has been tightening in
both urban and rural areas over time. In
rural parts of the Fifth District between
January 2015 and September 2020, the
months’ supply of homes affordable to
households earning 120 percent AMI
and 60 percent AMI declined from
around seven months to three months.
(See chart.) This decline is attributable to several factors: a decline in the
number of homes for sale — the result
of less housing being built, homeowners
becoming less willing to sell their homes
during a pandemic, and an increase in
home prices that has outpaced income
growth — and an increase in demand
due to low mortgage rates.
Among rural areas in Fifth District
states, Virginia and North Carolina
tend to have the shortest supply of lowto middle-income homes for purchase.
On average, between January and
September 2020, rural parts of Virginia
had 3.5 months of supply for households earning 120 percent AMI, and
rural parts of North Carolina had 3.6
months. Rural parts of Maryland, West

Affordable Rental Housing Stock in Rural Areas
Virginia, and South Carolina all had
between 4.0 and 4.2 months of housing
While renter households are in the
minority in rural parts of the Fifth
District, they are disproportionately represented in the ranks of lowto middle-income households. Some
41 percent of households earning 60
percent AMI or less and 28 percent of
households earning 60 percent to 120
percent AMI are renters, compared to
only 14 percent of those earning more
than 120 percent AMI. The shortage of
low- to middle-income rental units can
be measured by comparing the number
of rental households at each income
level to the number of housing units
that would be affordable at that income
level, minus those units rented by
household in higher income categories.
While there appear to be enough rental
units for renters earning 120 percent
AMI, there are only enough affordable
rental units for four-fifths of households
earning 60 percent AMI throughout
rural parts of the Fifth District. This
means that at least one-fifth of low-income households are most likely housing cost burdened, although some may
also be experiencing housing instability.
Considering that the Fifth District
spans five states and the District of
Columbia, available low- to middle-income rental housing in more localized markets may be better or worse
depending on rental market and household income characteristics. There is
a cluster of areas with relatively high
shortages in affordable rental housing
in eastern North Carolina and several
other locations scattered throughout
the Fifth District. (See map.)
Several public financing programs
assist with development costs for new
rental housing affordable to low-income households. In rural counties

Ratio of affordable rental housing stock to households earning 60 percent

throughout the
of area median income
Fifth District, Low
Income Housing
Tax Credits, or
LIHTCs, are the
most common
source of housing
assistance, accounting for more than
50 percent of all
units receiving any
type of public assistance in Virginia
and Maryland
and more than 30
percent in West
Virginia and the
Carolinas. USDA–
Rural Development
(RD) Section 515
loans subsidized the
SOURCE: U.S. Census Bureau 2015-2019 American Community Survey Public Use Microdata
development of more
Sample (PUMS) and author's calculations
NOTE: Map shows the amount of rental housing affordable to households earning 60 percent
than 20 percent
AMI in public use microdata areas (PUMAs) as defined by the U.S. Census Bureau. In order to
of all units receivprotect survey respondent privacy, rural PUMAs may consist of multiple counties.
ing public assistance in Maryland,
North Carolina, and Virginia. More
and the need for capital expenditures
than 20 percent of assisted units in
exceeds the amount included in the
West Virginia and the Carolinas were
federal budget. For existing units, the
public housing, meaning the property
median waitlist time is nine months
is owned and maintained by public
but can be as long as five years in highfunding.
need areas.
While LIHTCs, USDA-RD Section
Also, with the exception of public
515 loans, and public housing have
housing, affordable properties that
been powerful tools for creating dediwere developed using public assistance
cated affordable rental housing in the
have a time limit on how long they are
past, they are not sufficient mecharequired to remain affordable — usually
nisms for meeting demand in most
15-30 years. Once that time limit has
markets. For LIHTCs, only about
been reached, they can be converted to
one in every four developments that
market-rate units, meaning they lose
apply receive funding due to resource
their affordability. In rural parts of the
constraints. Funding for the USDA-RD
Fifth District, for example, nearly 7,700
Section 515 program has been declinunits built using LIHTCs or Section
ing over time, and the loans that are
515 loans (or 11 percent of all LIHTC
issued cover only about 20 percent of
and Section 515 units) are at risk of
property development costs on averlosing their affordability by 2030 unless
age. The remaining funds are typianother financing mechanism is used
cally covered through complementary
to preserve them.
public funding programs or through
Both for-profit and nonprofit real
debt financing from lending instituestate developers can play a role in
tions. Nationally, the number of public
developing new low- to middle-income
housing units has declined over time
housing in rural areas. In some areas,
as units have been taken out of service
market-rate homes may be affordable
due to deterioration or demolition,
to middle-income households. In other
econ focus

• fourth quarter • 2021 29


places, developers rely on grant funding, philanthropic funding, and public
donations that allow them to sell homes
to income-eligible buyers at below-market prices. In many cases, homes sold
at below-market value are equipped
with resale formulas — contract terms
that limit the future resale price of the
home — to allow homeowners to accrue
equity without sacrificing the long-term
affordability of the property.
In the Fifth District, Georgetown
County Habitat for Humanity in South
Carolina is developing an affordable
homeownership community. The county
gifted 30 acres of county-owned land to
the project, zeroing out the cost of land.
Habitat also received a HOME grant
from the U.S. Department of Housing
and Urban Development to cover 80
percent of the development cost for the
homes and sought the remaining 20
percent of financing from lending institutions. Households earning 30 percent
to 80 percent of AMI will be eligible
to purchase the homes; buyers will be
provided a mortgage at zero interest
with no down payment.
Preserving existing low- to middle-income housing will help sustain the
supply and quality of it into the
future. Creating financing opportunities to repair and rehabilitate homes
helps keep utility costs down for residents, improve health conditions, and
extend the useful life of the structure. Homeowners with limited financial resources who live in aging properties are especially at risk of living
in homes that have fallen into disrepair over time. Nonprofit organizations, such as Rebuilding Together
and Habitat for Humanity, local
government programs, and federal
programs, such as USDA-RD Section
504 and the Department of Energy’s
Weatherization Assistance Program,
provide affordable home repair loans,
grants, and direct services to low-income households, seniors, and residents with disabilities.

econ focus

• first quarter • 2022

Because all affordable home repair
programs are subject to resource
constraints, many of them limit eligibility to a subset of low- to middle-income households. For example, Section
504 serves homeowners earning 50
percent AMI or less and offers loans
of up to $20,000 per home. Other
programs prioritize households that
include seniors, children, or persons
with disabilities. As a result, not all lowto middle-income households will be
eligible for these programs. Rebuilding
Together Kent County, located on
Maryland’s rural Eastern Shore, is an
example of a program that rehabilitates
homes for low-income homeowners.
After performing a home assessment,
Rebuilding Together Kent County coordinates home repairs to improve the
health and safety of the home and home
modifications as needed for seniors
and persons with disabilities to reduce
the risk of falls or injury. In 2020, the
organization served 21 unique households, all of whom had incomes below
80 percent AMI. The majority of households served reported improved physical and mental health as a result of the
program, and 40 percent reported that
their home increased in value.
One mechanism for preserving lowto middle-income housing in the long
term is community land trusts (CLTs),
through which nonprofit, community-based organizations purchase
and retain ownership of the land on
which housing is built. Residents who
purchase homes located on CLT land
benefit from establishing equity, and
resale formulas guarantee that the
homes will continue to be affordable to
low- to middle-income owners in the
future (though this dampens appreciation). In many cases, CLTs continually
support residents in ways that range
from homebuyer education classes to
ongoing financial and maintenance
counseling, resulting in lower rates of
mortgage delinquency and foreclosure.
For example, Piedmont Community

Land Trust (PCLT) is a Fifth District
CLT that serves Charlottesville, Va.,
and the surrounding rural counties.
PCLT creates homeownership opportunities for households earning 80
percent AMI or less by purchasing land
and holding it in trust while the homeowner purchases the home on the land.
The homeowner and PCLT enter into
a 90-year ground lease on the land,
which renews automatically. Removing
the cost of land from the purchase
price reduces monthly payments for
the homeowner by anywhere from 20
percent to 40 percent. PCLT works in
partnership with a community development financial institution that
administers down payment assistance
to eligible homebuyers.
Although CLTs have been around
since the 1960s, many communities lack
knowledge about how they operate and,
as a result, are hesitant to adopt policies
to encourage their establishment. Even
with the support of the local community, creating a new CLT can be challenging as it requires coalition building,
financial resources, and organizational
capacity. Acquiring land can be difficult or expensive, particularly in counties where land is priced at a premium.
Lastly, CLTs are not a suitable mechanism for resolving all low- to middle-income housing shortages because they
often limit eligibility to a subset of lowto middle-income households, such
as households with incomes below 80
percent AMI.
Underutilized or vacant properties in
rural areas provide an opportunity to
create low- to middle-income housing
and simultaneously prevent or resolve
Many small towns have vacant
commercial or industrial properties that
could be rehabilitated by a developer.
Finding a developer willing to undertake property acquisition and redevelopment costs might be difficult for some
rural jurisdictions, and in some cases

current owners might be unwilling to
sell their properties. Local governments
and community-based organizations
can facilitate this process by brokering
relationships between property owners
and developers and minimizing permitting and redevelopment costs for viable
adaptive reuse projects.
Graham, N.C., is home to an example of an industrial property that was
redeveloped into affordable housing
in 2017. Prior to the building’s redevelopment, the Oneida Mill Lofts had
lived a previous life as a textile mill
before sitting vacant for two decades.
Today, the property consists of 133
one- and two-bedroom units affordable
to households earning up to 60 percent
AMI. The development team took care
to preserve the historic character of
the building during redevelopment.
Communities with a significant
network of vacant and abandoned
properties might benefit from establishing a land bank, which is an entity
that systematically acquires properties and prepares them for sale or lease.
In addition to converting previously
unused property to low- to middle-income housing, land banks are a strategy
for improving public safety, increasing
property values of adjacent properties,
and expanding the jurisdiction’s tax
base. Within the Fifth District, Virginia,
West Virginia, and Maryland have legislation enabling land banks. CLTs may
complement land banks if the land bank
agrees to sell remediated land to the
CLT to redevelop.
Acquiring vacant and underutilized
properties can be challenging. For a
land bank to assume control of a vacant
property, either the owner has to willingly transfer the property or the
property needs to be foreclosed upon,
usually due to a tax foreclosure. After
either of these events occur, the land
bank may need to overcome a number
of legal obstacles to assume ownership
of the property, such as issues related
to property right law, tax foreclosure
law, or titling defects. After obtaining
new land, the land bank may need to
finance remediation activities and may

experience funding limitations.
Roanoke, Va., established a land
bank in 2019 with the goal of converting abandoned and derelict properties
into affordable housing. After properties have gone through the tax delinquency process, the city will turn
them over to a partner organization,
Total Action for Progress (TAP). TAP
will then work with other nonprofits,
such as Habitat for Humanity, to renovate or construct new affordable housing on the site.
Several public programs exist to
provide direct rental subsidies to
low-income households. Housing
choice vouchers (HCVs) and USDA-RD
Section 521 (which subsidizes rent in
some USDA-RD Section 515 properties)
are two types of direct rental subsidies
in rural spaces. In addition to these,
local nonprofit and public entities can
create public-private partnerships with
local employers to develop dedicated
housing affordable to low- to middle-income households, as has been done in
urban communities with constrained
rental housing markets.
HCVs and USDA-RD Section 521 do
not reach all income-eligible households due to funding limitations. Due
to limited availability, the median
waitlist length for HCVs is one and a
half years nationally and up to seven
years in high-need areas. Only households earning 50 percent AMI or
less are eligible for HCVs. By definition, USDA-RD Section 521 serves
only Section 514, 515, or 516 properties, which meet the needs of only
a fraction of low- to middle-income
Public and nonprofit organizations can help working families afford
housing by creating programs to help
cover the upfront costs associated
with purchasing a home. For many
low- to middle-income households,
these costs are a greater barrier than
monthly mortgage payments. Down
payment assistance (DPA) and closing

cost assistance programs can provide
either grants or low-interest loans and
are usually intended to help low- to
middle-income first-time homebuyers.
In the Fifth District, state-level organizations in North Carolina and South
Carolina offer DPA programs for qualifying households, whereas other local
jurisdictions use these programs to
allow public employees to live locally.
Maryland, Virginia, and West Virginia
go a step further to provide funding to help with closing costs. These
state-level organizations also provide
low-cost mortgages to qualifying
As evidenced by the persistence of
housing cost burdens and measured
housing shortages, rural areas have
unmet low- to middle-income housing
needs. Local housing market conditions, including demographics, housing stock quality, and other assets,
vary and therefore point toward
different policy solutions. At the same
time, many available policy solutions
are designed for low-income households but not middle-income ones.
This reflects what the Richmond Fed
has been hearing from businesses in
rural areas: that local housing shortages have made it challenging to attract
and retain workers, especially low- to
middle-income workers.
In addition to longstanding housing challenges in rural communities,
the pandemic-driven migration of
households from more densely populated areas has increased demand
for housing in rural markets, reducing the amount of time homes spend
on the market and putting upward
pressure on prices. Rural areas that
have lost population in recent years
may welcome additional residents
as contributors to their tax base and
community. At the same time, this
recent trend heightens the need for
new low- to middle-income housing solutions in rural communities
throughout the Fifth District. EF
econ focus

• first quarter • 2022 31

b y k a r t i k at h r e ya

Our Work on Rural Economies


ural areas and small towns come in many varietothers will discuss economic development issues.
ies. Some are affluent; some are poor. Some are
To try to make progress on more specific areas of
home to major universities and hospitals; some
concern, our District Dialogues series brings experts and
are isolated. About a quarter of the population of the
leaders together either in person or virtually for discusFifth District lives in rural counties. And on average,
sions of topics such as K-12 education and adult workforce
across many measures, rural America has been having
training. For instance, a program in March 2021 on digital
a harder time than the cities — in terms of employment,
access brought together Richmond Fed economists, policyeducational attainment, and health. As a regional Fed,
makers, and funders to consider ways of making broadband
it is in our mission to help wherever we can to promote
more available in rural communities; teachers shared their
economic vitality in our District. So, starting in early
perspectives on virtual learning during a pandemic.
2018, the Richmond Fed stepped up its efforts
Another Richmond Fed program, Investment
to learn about rural and small-town economies
gives community and economic
The team meets
and to seek ways in which outcomes could be
development organizations a venue where
on a regular basis
improved and potential unleashed. I’d like to
they can pitch project ideas to funders, along
give you an update on what we’re doing.
the lines of the television show “Shark Tank.”
(usually monthly)
As you might expect, much of this work takes
Launched in 2019, the program includes
to talk about
us into the field. The Bank’s president, Tom
an advance review of project ideas by the
what they’ve
Barkin, has made over 70 trips to rural areas and
Richmond Fed’s Supervision, Regulation, and
been hearing and
small towns to meet with leaders in both the
Credit staff to determine whether the proposals
public and private sectors to hear their points
would likely qualify their funders for positive
what issues seem
of view. Also spending a lot of time on the road
recognition in their Community Reinvestment
to be emerging.
are members of the Bank’s research department,
Act records — possibly giving those projects a
That discussion,
especially our regional executives and commuboost in the eyes of potential funders. (The idea
nity development field managers, who engage
for Investment Connection came to us from one
in turn, helps us
local governments, businesses, and nonprofits.
of our fellow Reserve Banks; it was originated
figure out what
Many of these trips are part of our Community
by the Kansas City Fed in 2011.)
we can do to lend
Conversations series, which takes Tom and our
The information we bring back from all of
research staff on the road to communities across
these activities then feeds back into our research
a hand.
the Fifth District to gather input from local leadand publications — and the cycle starts again.
ers and residents. The team meets on a reguIf you’d like to learn more, many of our past
lar basis (usually monthly) to talk about what they’ve been
programs are available for viewing on our website. We also
hearing and what issues seem to be emerging. That discusdetail some of the success stories that we learn about in
sion, in turn, helps us figure out what we can do to lend
our Rural Spotlight publication series, which is part of our
a hand through research, events that highlight issues and
Regional Matters blog. For example, a recent Rural Spotlight
foster discussions, and other programs.
looked at the experiences of the Goodwill Industries of the
Several events anchor our rural and small-town efforts.
Valleys GoodCare Program, which seeks to mitigate the
In October 2021, we held our second annual Rural America
shortage of health care workers in its mostly rural and smallWeek, in which we brought together community leaders,
town service areas in Virginia by offering free education and
representatives of financial institutions and foundations,
supports to individuals who aspire to enter the field.
and Richmond Fed leaders and staff. We hosted a series of
And you can keep up with what we’re doing on rural
sessions to discuss development projects that are potentially
and small towns through the pages of this magazine — not
eligible for Community Reinvestment Act funding, highjust in this special issue, but in all of its issues. It’s also a
lighted success stories of small-town and rural social and
great place to keep up with the Fed’s activities on topics
economic progress, and heard the perspectives of educators.
like inflation, employment, and financial stability. If you
(Last year’s was virtual; we hope this year’s will include
aren’t already a regular reader, I hope you’ll join us as a
in-person events.) On March 30, soon after this issue comes
subscriber. EF
out, we will present our third Investing in Rural America
Kartik Athreya is executive vice president and director of
conference, this time in Greensboro, N.C., where experts
research at the Federal Reserve Bank of Richmond.
from nonprofits and academia, community leaders, and

econ focus

• first quarter • 2022

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In 2008, Congress passed the largest expansion of federal education aid
to veterans since the original G.I. Bill following World War II. Some 82,000
service members signed up for the benefit within the first two months. Today,
however, fewer than half of eligible veterans are using the benefit, and there
are signs that the earnings of those who have used it are lower than expected.
Policymakers are considering whether such benefits might be better tailored
to fit the needs of the current economy.

In January, the Fed issued a report on the implications of launching a central
bank digital currency. Such a move would allow the general public to maintain
digital accounts directly at the Fed. The Fed cited a number of benefits, such
as convenience, as well as possible risks to the financial system, such as the
disruption of banking and financial markets.

When presidential candidate John F. Kennedy campaigned in West Virginia
and saw living conditions there, he became convinced of the need for
government aid in Appalachia. He created the President’s Appalachian
Regional Commission, a body of state governors and cabinet-level officials, in
1963 to address the region’s economic problems. In 1965, Congress continued
his work by creating the Appalachian Regional Commission, which helped
connect the region to the national highway system and has funded thousands
of economic development programs.

The George Mason University economist, columnist, and author on inflation,
the study of progress, spotting talent, and being spotted.
to read more and subscribe

Federal Reserve Bank
of Richmond
P.O. Box 27622
Richmond, VA 23261
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To subscribe or make subscription changes, please email us at or call 800-322-0565.

District Dialogues is Back!
The Richmond Fed’s District Dialogues returned
in 2022 — it’s a forum that gives community
members a unique opportunity to engage with
experts about issues facing the Fifth District.
Our February session explored how the
future of work is changing human capital
decisions, what skills will be needed in the
economy of tomorrow, and what this means
for the region and country as a whole.

Keep an eye on our social media
and website for more details on the
upcoming sessions.


AUGUST: The Economic Impact of an Aging America

NOVEMBER: The Economic Outlook for Youth
in America

MAY: A Conversation on Racial Wealth Disparities