What economic models are we seeing for smaller Iowa communities given the increasing migration to urban centers?

Ask an Economist

Given the increasing population migration to more urban centers - and maybe the possible validation of Richard Florida's 'creative cities' theory - what viable economic models are we seeing for smaller, rural Iowa communities, most of which are really struggling to maintain population and economic viability? In other words, is there any hope for these once thriving rural towns and, if so, what does that look like?


It is useful to begin by noting that Nebraska has a higher proportion of its population living in urban areas (73%) than Iowa (64%). The reason is that Nebraska has only 4 metropolitan areas (Lincoln, Grand Island, Sioux City, Omaha), all of which are on the far eastern part of the state. Iowa has 9 metro areas broadly distributed around the state including the two that it shares with Nebraska.

This is critically important because firms in urban areas have significant advantages over firms in thinly populated markets in productivity, infrastructure, proximity to customers, access to financing, and other so-called agglomeration economies. These advantages are long-standing and go well-beyond Florida’s focus on creativity.

In Iowa, almost three-quarters of residents of towns under 2,500 in population work in another town. Moreover, about 90% of the Iowa population lives within a 45 minute commute of an urban labor market. Wages in urban markets exceed those in rural areas by 20% on average. Iowa’s small towns are surviving compared to those in Nebraska because small town Iowans can commute to an urban market.

Research we have done here at Iowa State has shown that job growth in one county leads to population growth in a two county radius. We also found that even in rural areas, agglomeration economies are important for new firm entry. That means that some local labor centers such as Carroll, IA can attract firms and the small towns in a two county radius rely on Carroll for jobs. We have also found that access to high speed internet attracts new firm entry only when the community is within close distance to an urban market. Efforts to bring high speed internet to remote towns will have virtually no impact on job growth.

So what does Iowa need to do to preserve competitive small towns? We need to continue to foster growth in urban markets and make sure that we have good commuting roads from the surrounding small towns.

  • Khan, Romana, Peter F. Orazem and Daniel M. Otto. “Deriving Empirical Definitions of Spatial Labor Markets: The Roles of Competing versus Complementary Growth.” Journal of Regional Science. 41 (November 2001):735-756.
  • Kim, Younjun, and Peter F. Orazem. 2013. “Broadband Internet and Firm Entry: Evidence from Rural Iowa.”
  • Artz, Georgeanne M., Younjun Kim and Peter F. Orazem. 2013. “How Market Structure Affects Firm Entry in Rural and Urban Communities: Evidence from Iowa.”