Rural Competitiveness: Results of the 1996 Rural Manufacturing Survey

by H. Frederick Gale, David A. McGranahan, Ruy Teixeira, and Elizabeth

Greenberg. Food and Rural Economics Division, Economic Research Service,

U.S. Department of Agriculture. Agricultural Economic Report No. 776.

Abstract

Establishments in metropolitan and nonmetropolitan locations are surprisingly

similar in their adoption of new technologies, worker skill requirements, use of

government programs and technical assistance, exports, and sources of financing, according to the results of a nationwide survey of 3,909 manufacturing

businesses. The most widespread concern of both metro and nonmetro businesses appears to be with quality of labor. Survey respondents report rapidly increasing skill requirements, and many report problems finding qualified workers.

Quality of local labor is the most frequently cited problem associated with nonmetro business locations. Access to credit, transportation, and telecommunications infrastructure is a problem of secondary importance for both metro and

nonmetro respondents. Rural communities face a considerable challenge in supplying workers with needed skills. The fastest-growing skill

requirementscomputer, interpersonal/teamwork, and problem-solving

skillsare not central to traditional academic instruction.

Keywords: Rural manufacturing, sample survey, worker skills, manufacturing

location, credit availability, technology adoption

1800 M Street

Washington, DC 20036-5831 March 1999
Acknowledgments

The authors thank the many colleagues who provided helpful suggestions and

guidance in the development of the survey. Deborah Tootle played a central role

in planning and overseeing the development and testing of the survey instrument. We also appreciate the expert help of Don Dillman and staff at the Social

and Economic Sciences Research Center at Washington State University who

carried out the survey and helped us refine the questionnaire along the way. We

are particularly grateful to Renee Shatos Petrie, the SESRC project Study

Director, for the extraordinary skill, care and patience that she brought to the

project and to the very skillful, persevering interviewers. We spent a very useful

day with Eileen Appelbaum (Economic Policy Institute), Peter Capelli

(University of Pennsylvania), and Paul Osterman (Massachusetts Institute of

Technology) as they helped us refine questions on technology and work organization. David Barkley (Clemson University), Meric Gertler (University of

Toronto), and Deborah Markley (then at Purdue University) spent a day sharing

their insights on questions relating to finance, access to resources, and other survey topics. Stu Rosenfeld (Regional Technology Strategies) and Fawn Evenson

(Footwear Industries of America) reviewed the questionnaire and suggested a

number of helpful improvements. We also thank the following manufacturing

associations for graciously consulting with us: American Apparel Manufacturers

Association, American Bearing Manufacturers, American Ceramics Society,

American Electronics Association, American Gear Manufacturers Association,

American Iron and Steel Institute, Chemical Fabrics and Film Association,

Equipment Manufacturing Institute, The Fertilizer Institute, Hardwood and

Plywood Manufacturers Association, National Frozen Foods Association, and

Packaging Machinery Manufacturers, Inc. The survey was funded in part by the

Economic Research Service and in part by the Rural Community Development

Mission Area, when Robert Nash was its Undersecretary. Linda Ghelfi, Robert

Gibbs, Mark Nord, and Leslie Whitener provided comments that greatly

improved this manuscript. David Banker, Bob Dubman, and Hisham El-Osta

provided valuable insight about analysis of survey statistics. Finally, we thank

the respondents who took time from their busy schedules to complete the telephone interviews and written questionnaires. We hope this study adequately

reflects their views about what manufacturing businesses need to be competitive.

ii / ERS-USDA Rural Competitiveness/AIB-776
Contents

Summary .........................................................................................................iv

Introduction ......................................................................................................1

Establishment Attributes ..................................................................................4

Production Methods.....................................................................................4

Work Force Characteristics..........................................................................4

Advanced Technology and New Management Practices.................................6

Worker Skill Requirements..............................................................................8

Government Business Assistance...................................................................11

Impact of Location .........................................................................................12

Suppliers and Markets ...............................................................................12

Telecommunications..................................................................................13

Problems Associated with Rural Business Locations................................13

Raising Capital...............................................................................................16

Financing Capital Improvements...............................................................16

Locally Available Expertise and Capital ...................................................19

Conclusions....................................................................................................20

References......................................................................................................21

Appendix: Technical Documentation.............................................................22

The Survey Process....................................................................................22

Sample Weights .........................................................................................22

Computation of Sample Statistics..............................................................23

Rural Competitiveness/AIB-776 ERS-USDA / iii
Summary

Difficulty finding qualified employees is the most common problem reported by

rural manufacturing establishments. In 1996, 60 percent of nonmetro manufacturers reported problems finding qualified applicants for production jobs, and

more than 70 percent said quality of local labor was a problem affecting their

business' ability to compete. Nonmetro manufacturers were more likely to cite

labor quality than any of 20 other potential barriers to competitiveness, including tax rates, environmental regulations, access to business services, training,

transportation infrastructure, and labor cost. Manufacturers reported inadequate

worker skills as the most important barrier to implementing new technologies

and management practices. 

The availability of qualified workers and its implications for rural manufacturers' ability to compete in national and global markets are among the issues

explored in this 1996 survey of nonmetro and metro manufacturers. The survey

looks at indicators of nonmetro establishments' success in a changing business

environment. In evaluating rural manufacturers' ability to compete, the survey

also explores manufacturers' use of business assistance programs, implementation of advanced technology, use of training programs, and sources of capital.

Most nonmetro manufacturers reported rising skill requirements in the mid1990's, with interpersonal/teamwork, computer, and problem-solving skills

growing the fastest. However, both rural and urban manufacturers noted that the

skill most lacking among job applicants was a reliable and acceptable work attitude. Thirty-one percent of nonmetro manufacturers reported a major problem

finding job applicants with this characteristic, and 25 percent reported it as a

minor problem. This was also the leading skill problem for metro employers.

Nonmetro and metro manufacturers also provided similar responses about what

role government business assistance, such as tax breaks, direct subsidies, or loan

programs, played in their businesses. Seventy percent of manufacturers indicated that at least one type of government assistance played a role in their operations. No one program, however, was noted as playing a significant role for

either rural or urban manufacturers. Just 19 percent of rural manufacturers said

government tax breaks were very important to their businesses, an attitude

echoed by urban businesses. Eight percent of nonmetro establishments reported

government worker training and technology assistance programs were very

important to operations.

Nonmetro manufacturers, however, do lag behind metro businesses in some

important areas. They were less likely to use several types of advanced technologies and were less likely than urban manufacturers to have research and

development units on site. Rural manufacturers noted several problems associated with their locations that were not as frequently highlighted by urban establishments. Forty-five percent of rural manufacturers said they had problems

with access to training for employees, while just 29 percent of urban establishments reported such a problem. Thirty-seven percent of nonmetro establishments reported having some problems with access to major customers. Rural

manufacturers were about twice as likely as urban establishments to report haviv / ERS-USDA Rural Competitiveness/AIB-776
ing problems with access to interstates and highways. Forty-eight percent of

rural manufacturers also believed the company's ability to recruit managers and

professionals was affected, at least to some extent, by the establishment's location.

These findings stem from the 1996 Rural Manufacturing Survey, conducted by

USDA's Economic Research Service (ERS) in cooperation with Washington

State University. Interviews were conducted with 2,844 manufacturing establishments in nonmetro areas of the United States and with 1,065 metropolitan

manufacturers. All establishments employed 10 or more people in manufacturing.

Rural Competitiveness/AIB-776 ERS-USDA / v 
Rural Competitiveness / AIB-776 ERS-USDA / 1

Manufacturing businesses are an important part of the

economic base of many rural areas, providing nearly 17

percent of nonmetropolitan jobs in the United States.

Income from manufacturing exceeds 30 percent of total

income in 506 of the 2,276 nonmetro counties in the

United States (Cook and Mizer). Although service

industries are becoming more important in America's

economic landscape, manufacturing jobs are among the

highest paid rural jobs and manufacturing plants have

important backward linkages that can generate additional economic activity within a community. Bernat

finds that growth in manufacturing output and productivity often translates to regional economic growth. 

A number of new trends have raised concerns about

whether rural manufacturers can remain competitive.

Manufacturers are increasingly adopting computerized

automated production technologies and new management practices. Are rural businesses likewise adopting

these new practices? These new technologies and management practices are changing the skill requirements

for manufacturing workers. Can rural areas supply

workers with the skills necessary to keep rural manufacturers competitive? What characteristics of rural

locations are barriers to rural competitiveness? What

do businesses say about the adequacy of the pool of

labor available to them, access to credit, services, local

infrastructure, and schools? Globalization of industry

means the ability to compete in world markets is crucial to business success and job creation. Are rural

businesses at a disadvantage in the export market?

What types of establishments are exporting? Are

Government business assistance programs properly targeted? Do they assist the types of businesses that need

help?

USDAs Economic Research Service (ERS), in cooperation with Washington State University, conducted the

1996 Rural Manufacturing Survey (RMS) to address

such questions. This nationwide survey of manufacturing establishments contains information on basic plant

and company characteristics, use of technology and

management practices, worker training, barriers to

competitiveness, and problems related to obtaining capital for expansion or modernization. Interviews were

conducted with 2,844 manufacturing establishments in

nonmetropolitan areas of the United States and 1,065

establishments in metropolitan areas. Respondents are

representative of establishments with 10 or more

employees in all manufacturing industries.1 This unique

source of information on rural businesses is a vitally

important tool for rural policymakers in the U.S.

Department of Agriculture, Congress, other Federal

agencies, and State and local governments. Numerous

Federal, State, and local government programs are targeted to help rural businesses stay competitive. While

considerable resources are devoted to such programs,

researchers, rural development practitioners, and policymakers have few hard facts about the characteristics

of rural businesses and what they need to compete in

the national and global economies. The information

available on these topics is often oriented toward urban

businesses and may not be relevant in the rural setting. 

This report summarizes the results of the 1996 Rural

Manufacturing Survey and provides technical documentation of how the survey was performed and the

computation of sample statistics. More in-depth analyRural Competitiveness 

Results of the 1996 Rural Manufacturing Survey

H. Frederick Gale, Jr., David A. McGranahan,

Ruy Teixeira, and Elizabeth Greenberg

Introduction 

1See the appendix for details on the survey design and statistical

issues.
2 / ERS-USDA Rural Competitiveness / AIB-776

ses are available in a series of issue-oriented Economic

Research Service reports. 

The RMS addresses the issue of rural business competitiveness by asking respondents to rate the importance

of various problems that may affect their ability to

compete. Responses to other questions provide basic

information on the establishment, its products, and its

work force that permits analysts to study the relationship between competitiveness and plant characteristics.

The survey asked about five broad factors that affect

business competitiveness. 

 New technology, new management practices, and

"lean" just-in-time manufacturing are believed to

raise productivity and efficiency of firms. The RMS

permits an investigation of the degree to which new

technologies and practices are used by rural versus

urban establishments, and whether adopters differ

from nonadopters. New technologies and flexible

manufacturing methods place new demands on

workers by requiring them to do multiple tasks, take

on increased decision-making responsibility, and

work in teams. 

 The demands of new technologies and management

practices have given rise to concerns about the skills

and aptitudes of U.S. workers. The RMS permits

investigation of the increase in skill requirements,

whether workers have the skills employers are looking for, and what firms are doing to improve worker

skills. 

 Most communities cannot prosper unless they provide a business environment where firms can compete successfully. The cost and quality of labor, land

costs, regulation, tax rates, and access to business

services, markets, infrastructure, and capital are factors that can affect a business' ability to compete at a

particular location (Blair and Premus). The RMS

provides a rare glimpse at the perceptions businesses

have about what characteristics of their communities

hinder their competitiveness. This information will

guide policymakers and economic development officials as they consider how to attract new firms and

retain old ones in rural communities. 

 Federal, State, and local governments have implemented a number of loan, training, and assistance 

Rural Manufacturing Survey: In-depth studies

The following special reports in the Rural Manufacturing Study series published by USDA/ERS (available at

http://www.econ.ag.gov/epubs/pdf/aib/736/) also are noted in the references:

Fred Gale. Is There a Rural-Urban Technology Gap?

Ruy Teixeira. Rural and Urban Manufacturing Workers: Similar Problems, Similar Challenges.

David McGranahan. Local Problems Facing Manufacturers.

Elizabeth Greenberg and Richard Reeder. Who Benefits from Business Assistance Programs?

Other studies that used the Rural Manufacturing Survey data:

Fred Gale. “Value-Added Manufacturing Has Strong Local Linkages.”

“Most Value-Added Manufacturing Firms Have Access to Needed Capital.”

“Rural Manufacturers in the Export Market.”

“How Skill Demands Are Related to Flexible Manufacturing Technology and Management Practices.”

“Manufacturing Employers Report Widespread Problems with Labor Quality.”

Chin Lee, G. Schluter, and F. Gale. “Most Jobs Created by Exports are in Medium- and High-Skill Occupations.”

David McGranahan. “Can Manufacturing Reverse Rural Great Plains Depopulation?”

“The Geography of Technology Adoption.”

“Manufacturing Sector in Black Counties Weakens in Era of New Technology.”

“Advanced Technology Means Better Pay and Benefits for Workers.”

R. Teixeira and D. McGranahan. “Rural Employer Demand and Worker Skills.”
programs, tax breaks, and enterprise zones, to assist

businesses and promote economic development. The

RMS asked respondents to evaluate the importance

of six types of programs to business operations, and

thereby provides an opportunity to evaluate these

programs. 

 Access to capital is a key to business success and

many government programs are designed to provide

fair and equal access to business loans. The RMS

provides information about reasons for capital investments, sources of funds, and problems encountered

in raising capital.

In this report, responses by nonmetro and metro establishments to each question in the survey are tabulated.

Statistics were computed using sample weights

described in the appendix, which also provides details

about the survey design and the computation of statistics. The number of observations varies from table to

table. Many questions were not asked of all respondents. For example, only those who reported using outside technical assistance were asked about sources of

assistance. Also, some respondents did not answer every

question they were asked. The number of sample observations upon which the statistics are based is shown as

"N=" in the notes at the bottom of each table. The reader should keep in mind that nonmetro establishments

were over-sampled in order to assure a sufficient number of observations for analysis. The proportion of nonmetro establishments in the sample is much higher than

their share of establishments nationwide, and statistics

for metro respondents are less reliable than those for

nonmetro respondent (see Appendix: Technical

Documentation).

Rural Competitiveness / AIB-776 ERS-USDA / 3
4 / ERS-USDA Rural Competitiveness / AIB-776

Production Methods

Nonmetro establishments are somewhat more likely

than metro establishments to employ large batch

assembly line methods of producing "large numbers of

the same product," while metro plants are more likely

to custom-produce individual units or to produce small

batches of a distinct product (table 1). About 20 percent

used "other" methods, which respondents usually identified in written comments as a combination of the

other three methods. 

Most respondents seem to have been actively seeking

improvements in their operations to respond to markets

and lower costs. Three-fourths of establishments said

that they had added new products or substantially

improved product quality. Nearly half said that they

had substantially lowered their costs of production.

Responses of metro and nonmetro establishments were

similar, but nonmetro plants were slightly less likely to

report having added new products and improved product design.

Work Force Characteristics

Nonmetro establishments reported an average of 190

employees in 1995, slightly less than the metro average

of 202 (table 2). However, the tendency has been for

nonmetro plants to expand employment, while metro

plants appear to be shrinking employment. The average

number of jobs reported in 1992 was 182 (8 less than

the 1995 average) for nonmetro plants and 231 (29

more than the 1995 average) for metro plants. These

results are consistent with regional employment data,

which show a modest shift of manufacturing jobs from

urban to rural areas. The work force in nonmetro plants

is more heavily composed of production labor than in

metro plants. Metro plants have more professional,

technical, and clerical and other workers. About 10-11

percent of workers are in managerial positions in both

metro and nonmetro plants. More than 9 in 10 production workers are permanent full-time employees in both

metro and nonmetro establishments. 

Establishment Attributes 

Three-fourths of nonmetro and metro establishments reported they had 

added products or substantially improved product quality. Nonmetro 

establishments were more likely than metro manufacturers to report 

having added employees from 1992 to 1995. They also paid lower average 

hourly wages and had a lower percentage of workers in professional, 

technical, and management positions.

Table 1Production methods and product changes by manufacturing establishments

Characteristic Nonmetro Metro

Percent

How products are generally made:

Custom produce or make single units for each customer 29* 33*

Produce small batches or limited numbers of a distinct product 17* 23*

Produce large numbers of the same product 34* 24*

Other methods1 20 20

Changes to product line in previous 3 years:

Dropped products 44 47

Added new products 77* 83*

Substantially improved product design 62* 67*

Substantially improved product quality 75 77

Substantially lowered cost of production 47 47

* = Nonmetro-metro difference is statistically significant at 0.05 level.

1Most respondents described "other methods" as a combination of custom, small batch, and large batch production.

Source: ERS Rural Manufacturing Survey, 1996. N=2,764 nonmetro, 1,059 metro.
Rural Competitiveness / AIB-776 ERS-USDA / 5

Nonmetro plants tend to pay lower wages than metro

plants, and 1992-95 wage growth was slower in nonmetro plants. Nonmetro plants paid an average of $8.88

per hour to production workers in 1995, up from $7.86

in 1992. Metro plants paid an average of $10.43 in

1995 and $9.18 in 1992. The most common benefits

provided to production workers were paid sick or vacation leave and contributions toward health insurance.

Most establishments also provided a pension or retirement plan. The percentage of plants covered by a collective bargaining agreement was 14-15 percent for

both metro and nonmetro plants. The availability of

benefits was similar in metro and nonmetro plants, but

nonmetro plants were slightly less likely to offer health

insurance contributions and paid leave. 

Workers with a minority racial or ethnic background

made up an average of 41 percent of the production

labor in metro plants, compared with only 20 percent in

nonmetro plants. Nonmetro plants had a slightly higher

percentage of women in their work force. Nonmetro

establishments reported an average of 18 percent of

production workers with less than a high school degree.

An average of 71 percent had completed high school,

but did not attend college, and 11 percent had completed at least 1 year of college. On average, nonmetro

establishments reported a larger share of workers with

a high school degree than did metro establishments, but

metro establishments had a slightly higher proportion

of workers with college training.

Table 2Work force characteristics of manufacturing establishments

Characteristic Unit Nonmetro Metro

Average employees, 1995 Number 190* 202*

Average employees, 1992 Number 182* 231*

Management (including financial and legal officers) Percent 10 11

Professional and technical (engineers, scientists, computer 

specialists, draftsmen, lawyers) Percent 6* 11*

Production workers, including foremen Percent 75* 66*

Other workers (sales, clerical, administrative support) Percent 9* 12*

Production workers:

Permanent full-time Percent 93 92

Permanent part-time Percent 4 3

Temporary Percent 3 5

Number of production workers varies seasonally by at least

20 percent Percent 17 15

Average hourly wage, production workers, 1995 Dollars 8.88* 10.43*

Average hourly wage, production workers, 1992 Dollars 7.86* 9.18*

Benefits provided to production workers:

Pension or retirement plan Percent 63 61

Contribution toward employee group health insurance Percent 87* 92*

Profit-sharing/stock purchase plan Percent 39 39

Paid sick leave or vacation leave Percent 91* 93*

Covered by a collective bargaining agreement Percent 14 15

Production workers with minority ethnic/racial background Percent 20* 41*

Production workers who are women Percent 31 27

Highest level of education achieved by production workers:

Less than high school degree Percent 18* 23*

High school degree and less than 1 year college Percent 71* 65*

One or more years of college Percent 11* 13*

* = Nonmetro-metro difference is statistically significant at 0.05 level.

Source: ERS Rural Manufacturing Survey, 1996. N=2,764 nonmetro, 1,059 metro.
6 / ERS-USDA Rural Competitiveness / AIB-776

Advanced technology and new management practices

are often cited as key determinants of manufacturing

competitiveness. Nonmetro plants were somewhat less

likely to use four of five advanced technologies asked

about on the survey (table 3). In particular, use of computer-assisted design technologies and use of local area

computer networks were 9 percentage points higher for

metro than nonmetro establishments. Several of the

technologies are used by a smaller percentage of workers in nonmetro plants. 

Nonmetro plants compared much more favorably with

metro plants in their use of advanced management

practices. Nonmetro plants were more likely to report

using two of five management practices, and nonmetrometro rates of use were equal for the other three. The

percentage of production workers involved in the practices was the same in metro and nonmetro plants.

Nonmetro establishments were less likely than their

metro counterparts to include a research and development unit, reflecting the tendency for R&D functions to

be concentrated in urban areas. A little more than half

of both metro and nonmetro establishments reported

having used outside expertise for implementing new

technologies or management practices in the previous 3

years. 

The most important sources of technical assistance

were the firms or establishments with which the plants

do business. Customers or suppliers and other locations

or branches of the same firm were the most important

sources of expertise, followed by machinery, equipment, or software vendors (table 4). Public/university

technology assistance programs were less frequently

cited, but half of respondents rated these as either "very

important" or "somewhat important." Nonmetro plants

placed more importance on other branches of their

firm, competitors, and public/university programs,

while metro plants placed greater importance on consultants.

Advanced Technology and 

New Management Practices 

Both nonmetro and metro establishments cited lack of worker skills 

as the biggest problem when implementing new technologies 

or management practices.

Table 3Use of advanced technologies and management practices by manufacturing establishments

Plants reporting usage Production workers using1

Type of technology/practice Nonmetro Metro Nonmetro Metro

Percent Percent

Type of technology

Numerically or computer-controlled machines 51 53 22* 28*

Programmable controllers 47* 44* 19* 23*

Computer-assisted design or engineering (CAD) 45* 54* 12 14

A local area computer network 33* 42* 20* 28*

CAD linked to computer-assisted machining (CAD-CAM) 21* 25* 15 16

Type of management practice

Job rotation 59* 53* 60 57

Self-directed or self-managed work teams 49 47 60 61

Employee problem-solving groups or quality circles 49* 45* 59 58

TQM or total quality management 45 43 68 69

Statistical process control 37 38 41 41

Establishment includes a research and development unit 22* 30* NA NA

Establishment used outside technical assistance 55 53 NA NA

* = Nonmetro-metro difference is statistically significant at 0.05 level. NA = not applicable. 

1Percent is only for establishments that report using the technology.

Source: ERS Rural Manufacturing Survey, 1996. N=2743 nonmetro, 1043 metro.
Rural Competitiveness / AIB-776 ERS-USDA / 7 

Table 4Importance of outside expertise concerning new technologies and 

management practices used by manufacturing establishments

Nonmetro Metro

Very Somewhat Very Somewhat

Source of expertise important important important important

Percent Percent

Customers or suppliers 50 38 46 42

Other locations or branches of the firm 49* 31* 45* 30*

Machinery, equipment, or software vendors 41 43 42 44

Private or nonprofit consultants 21* 39* 28* 39*

Partners 17 15 15 15

Competitors 14* 36* 9* 38*

Public, vocational, or university technology 

assistance programs 16* 38* 11* 28*

State or national industry associations 13 35 10 37

Note: "Not Important" responses are not shown.

* = Nonmetro-metro responses are significantly different at 0.05 level.

Source: ERS Rural Manufacturing Survey, 1996. Applies only to those using technical assistance. 

N=1,495 nonmetro, 559 metro.

Table 5Problems encountered by manufacturing establishments implementing 

new technologies and management practices

Nonmetro Metro

Very Somewhat Not Very Somewhat Not

Problem important important important important important important

Percent Percent

Adequacy of worker skills 31 44 24 33 45 21

Employee turnover 20* 38* 41* 12* 41* 46*

Time and cost of implementation 19* 46* 33* 24* 47* 27*

Obtaining sufficient capital 15* 32* 50* 19* 33* 46*

Availability of adequate technical assistance 11 40 48 10 39 50

Getting resources from headquarters1 7 37 56 6 40 53

* = Nonmetro-metro responses are significantly different at 0.05 level.

1Branch plants of multiunit firms only. "Don't know" responses are not shown.

Source: ERS Rural Manufacturing Survey, 1996. N=2,742 nonmetro, 1,054 metro.

"Adequacy of worker skills" was clearly the biggest

problem reported by manufacturing establishments

when implementing new technologies or management

practices. Over 30 percent of both metro and nonmetro

respondents cited that factor as a major problem (table

5). Employee turnover and the time and cost of implementation were major problems for about 20 percent of

nonmetro plants. "Availability of adequate technical

assistance" and "obtaining sufficient capital" were rated

as major problems by relatively few respondents, but 

about 40 percent cited these as minor problems.

Employee turnover was cited more often by nonmetro

plants than by metro plants as a major problem.

Nonmetro plants were less likely than metro plants to

cite "time and cost of implementation" and "obtaining

sufficient capital" as major problems.2

2Gale (1997) and McGranahan (1998b) provide more detailed

analysis of technology and management practice adoption. 
8 / ERS-USDA Rural Competitiveness / AIB-776

The increasing sophistication and technical nature of

many tasks in manufacturing work suggest increasing

levels of skill needed for production jobs. Accordingly,

most manufacturing establishments reported increasing

requirements in computer, problem-solving, and other

technical skills (table 6). Another skill requirement that

has risen rapidly (faster than any except computer

skills) is interpersonal/teamwork skills, a reflection of

the prevalence of new forms of work force organization

that require work in teams and on multiple tasks. Needs

for basic academic skills (reading and math) have

increased at a slower rate. More than half of respondents reported that reading and math skill requirements

stayed the same. Changes in skill requirements for

metro and nonmetro establishments were similar, but a

larger percentage of metro plants reported that computer skills required of employees had "increased a lot."

Nonmetro plants reported somewhat greater increases

in reading and math skills required of employees.

The survey responses suggest that the supply of qualified workers has not kept up with employers' demand.

Over 60 percent of establishments reported difficulty

finding qualified applicants for production worker jobs,

and over 40 percent had difficulty finding qualified

applicants for management work (table 7). For about

half of respondents, problems finding qualified applicants for production jobs had increased in the previous

3 years. Problems finding qualified workers were identical for metro and nonmetro plants. On average, both

metro and nonmetro respondents said three out of four

production workers were fully proficient at their jobs,

which means that about one-fourth were not fully proficient. A little less than half of establishments paid for

formal training for production workers. Most also said

that formal training had increased in the previous 3

years, responses consistent with manufacturers' growing problems with finding skilled workers. 

Apparently, the skill most lacking in manufacturing

employers' pool of job applicants is "a reliable and

acceptable work attitude" (table 8). Thirty-one percent

of nonmetro respondents reported a major problem

finding job applicants with this characteristic, and 25

Worker Skill Requirements 

About 50 percent of manufacturing establishments reported they found it 

increasingly difficult to find qualified workers for production jobs.

Table 6Change in production worker skill requirements 

reported by manufacturing establishments, last 3 years

Nonmetro Metro

Increased Increased Stayed Increased Increased Stayed

Problem a lot a little the same a lot a little the same

Percent Percent

Interpersonal/teamwork skills 32 29 37 33 28 36

Computer skills 32* 32* 32* 40* 29* 27*

Problem-solving skills 29 32 37 28 33 36

Technical skills, other than

computer 17 38 42 17 37 43

Basic math skills 16* 32* 50* 14* 29* 54*

Basic reading skills 13* 26* 60* 14* 21* 62*

* = Nonmetro-metro responses are significantly different at 0.05 level. "Don't know" responses not shown.

Source: ERS Rural Manufacturing Survey, 1996. N=2,625 nonmetro, 1,021 metro.
Rural Competitiveness / AIB-776 ERS-USDA / 9

percent reported it as a minor problem. This was also

the leading problem for metro employers. Employers

rated problem-solving and other technical skills next in

importance, followed by computer and

interpersonal/teamwork skills. Basic academic skills

were less serious problems, but most employers reported either a major or minor problem finding job applicants with adequate math and reading skills. Metro and

nonmetro responses were very similar. Compared with

metro establishments, nonmetro establishments were

more likely to report problems with interpersonal/teamwork skills and less likely to report problems with

basic reading skills. Other metro-nonmetro comparisons were not statistically different.

Table 7Worker proficiency and training reported by manufacturing establishments

Characteristic Nonmetro Metro

Percent

Have had problems finding qualified applicants for:

Management or professional jobs 42 43

Production jobs 62 61

During the past 3 years, problems finding qualified

applicants for production jobs have:

Increased 50 50

Stayed the same 41 42

Decreased 9 8

Average percent of production workers fully proficient at their current job 75 75

Establishment currently pays for formal training for

production workers 48 46

In the last 3 years, formal training for production workers has:1

Increased a lot 32 31

Increased a little 39 44

Stayed the same 26 23

Decreased 2 2

1Includes only respondents who report providing formal training. N=1,288 nonmetro, 475 metro.

Source: ERS Rural Manufacturing Survey, 1996. N=2,700 nonmetro, 1,006 metro, except where noted.

Table 8Problems finding qualified job applicants for production jobs with specific skills

Nonmetro Metro

Major Minor Major Minor

Type of skill problem problem problem problem

Percent Percent

A reliable and acceptable work attitude 31 25 28 25

Problem-solving skills 22 29 21 29

Technical skills, other than computer 21 25 24 24

Computer skills 16 23 15 26

Interpersonal/teamwork skills 15* 33* 12* 30*

Basic math skills 12 30 14 28

Basic reading skills 5* 27* 8* 26*

* = Nonmetro-metro responses are significantly different at 0.05 level.

1Includes respondents who said they had no overall problems finding qualified production workers. "Don't know" responses not

shown (usually less than 1 percent). N=2,700 nonmetro, 1,006 metro.

Source: ERS Rural Manufacturing Survey, 1996.
10 / ERS-USDA Rural Competitiveness / AIB-776

The most important reason for increasing training for

production workers was a "heightened concern about

product quality," cited as very important by 78 percent

of nonmetro respondents (table 9). Improved productivity was the second-leading reason, while adoption of

new equipment and management practices was cited

less often. The reported lower quality of today's pool of

job applicants was cited as important or very important

by 71 percent of nonmetro respondents, but other reasons were cited more frequently. Nonmetro respondents

placed slightly more importance on product quality and

less importance on adoption of new equipment than

metro respondents. 

Most establishments relied on internal programs for

training (table 10). Machinery, equipment, and software

vendors were also cited frequently as important sources

of training, followed by higher education institutions,

other branches of the firm, and private training firms

and consultants. Nonmetro establishments placed more

importance on internal programs, educational institutions, and other branches of the firm than did metro

establishments. Metro establishments placed more

importance on private training sources, while the

importance of machinery, equipment, or software vendors was not statistically different for metro and nonmetro establishments.3

Table 9Reasons for increasing training for production workers

Nonmetro Metro

Very Somewhat Very Somewhat

Reason important important important important

Percent Percent

A heightened concern about product quality 78* 19* 74* 21*

To improve productivity 70 26 67 27

Adoption of new types of equipment 48* 39* 53* 28*

Adoption of new management practices 44 39 41 40

New employees are less skilled than new employees hired

in previous years 37 34 36 31

* = Significant difference between nonmetro and metro responses at the 0.05 level. 

Includes only respondents who increased formal training. N=924 nonmetro, 358 metro. 

"Not important" responses are not shown.

Source: ERS Rural Manufacturing Survey, 1996.

Table 10Importance of various training sources for production workers reported by manufacturing establishments

Nonmetro Metro

Very Somewhat Very Somewhat

Source of training important important important important

Percent Percent

Programs within the establishment 59* 34* 57* 32*

Machinery, equipment, or software vendors 34 46 37 41

Vo-tech institutions, colleges, and universities 28* 46* 22* 44*

Other branches of the firm 28* 40* 26* 33*

Private training firms and consultants 16* 38* 17* 43*

* = Significant difference between nonmetro and metro responses at the 0.05 level. 

Includes only respondents who reported providing formal training. "Not important" responses are not shown. N=1,287 nonmetro,

478 metro.

Source: ERS Rural Manufacturing Survey, 1996.

3For more analysis of worker skills problems, see Teixeira and

McGranahan (1998), and Gale (1998c).
Rural Competitiveness / AIB-776 ERS-USDA / 11 

Government Business Assistance

Tax breaks by State or local governments were the most commonly used form 

of government assistance to both rural and metro manufacturers. But nearly 

one-third of the respondents thought that none of the six programs listed in the 

survey was important.

Governments at various levels (Federal, State, local)

assist businesses in a variety of ways: through tax

breaks, direct subsidies, loan programs, provision of

training or technical assistance programs, governmentbacked industrial parks, and enterprise zones. "Tax

breaks by State or local government" were the most

commonly used form of government business assistance, cited as "very important" by 19 percent, and

"somewhat important" by 27 percent of nonmetro

establishments (table 11). However, a majority of

respondents (55 percent) said tax breaks were not

important to their businesses. Government-assisted

training and technology programs were considered

"somewhat important" by about one-fifth, and "very

important" by 8 percent of manufacturing establishments. 

Government-assisted industrial parks or enterprise

zones were "very important" to 7 percent and "somewhat important" to 14 percent. Loan programs, including direct government loans, loans insured or guaranteed by the government, and revolving loan funds,

were cited least often. Overall, nearly 70 percent of

respondents attached some importance to at least one

of the six types of government assistance they were

asked about. Twenty-eight percent cited at least one of

the six government programs as "very important," and

about half reported at least one to be "somewhat important." A sizeable minority of 31 percent did not cite

any of the programs as important. Nonmetro and metro

establishments' assessments of the importance of government programs were quite similar. Nonmetro establishments were slightly more likely to place importance

on worker-training/technology-assistance programs,

direct loans, and revolving loan funds. Metro and nonmetro responses regarding the importance of tax

breaks, industrial parks/enterprise zones, and insured or

guaranteed loans were not statistically different.4

Table 11Importance of government or government-sponsored programs to business operations in last 3 years 

Nonmetro Metro

Very Somewhat Very Somewhat

Type of program important important important important

Percent Percent

Tax breaks by State or local government 19 27 18 27

Government-assisted worker-training programs

or technology assistance programs 8* 21* 6* 19*

Government-assisted industrial parks or

enterprise zones 7 14 6 13

Direct loans from a government agency 7* 8* 5* 5*

Government insurance or guarantee for loans 5 8 6 7

Revolving loan funds run by a nonprofit organization 4* 6* 2* 4*

One or more of the above programs 28 52 26 49

* = Significant difference between nonmetro and metro responses at the 0.05 level. 

"Not Important" responses are not shown.

Source: ERS Rural Manufacturing Survey, 1996. N=2,658 nonmetro, 1,026 metro.

4Greenberg and Reeder (1998) provide more detailed analysis of

government program use.
12 / ERS-USDA Rural Competitiveness / AIB-776

Suppliers and Markets

The increasingly prevalent "lean" approach to manufacturing emphasizes close relationships with suppliers,

short production runs, and just-in-time inventory management to reduce costs of holding inventory. A potential disadvantage for rural locations is their relative isolation from other firms. On average, nonmetro manufacturing plants bought only 31 percent of materials,

parts, and inputs in their local area (within a 1-hour

drive), while metro plants purchased 41 percent of their

materials and inputs locally (table 12). The percentage

of sales made within the establishment's local area was

also slightly higher for metro establishments, again

suggesting stronger local connections for metro plants,

but the difference was rather small (8 percentage

points). However, 48 percent of both nonmetro and

metro plants used just-in-time inventory management,

and 49 percent of nonmetro plants had a customer that

used just-in-time, suggesting that isolation of rural

locations may be less important than one might think.

The share of shipments exported overseas was only

slightly higher (2 percentage points) for metro than for

nonmetro plants. 

Nonmetro establishments were slightly more likely

than metro plants to use outside marketing expertise

(table 12). The most common sources of marketing

expertise were other branches or locations of multiunit

firms (table 13). Industry groups were of secondary

importance, and public or university programs were

"very important" to 3 percent and "somewhat important" to 19 percent of nonmetro establishments that

used outside marketing assistance. Sources of marketing assistance were similar for metro and nonmetro 

establishments, except that nonmetro establishments

placed less importance on local industry groups.5

Impact of Location 

Rural manufacturers were more likely than metro manufacturers to go outside 

their local area to buy materials and make sales. Quality of local labor was the 

most frequently cited of 21 possible location-related problems among both nonmetro 

and metro manufacturers. Access to other firms, training, and transportation 

were other problems most often reported by rural manufacturers. Lack of knowledge 

and costs, rather than adequate infrastructure, were the biggest barriers to 

implementing telecommunications technologies by rural manufacturers.

Table 12Supplier and market information for manufacturing establishments

Characteristic Nonmetro Metro

Percent

Percentage of raw materials, parts and other inputs obtained locally 31* 41*

Major machinery and equipment suppliers custom tailor their 

products to fit the establishment's needs 57* 53*

Establishments using just-in-time inventory and production system 48 48

Establishments acting as a supplier to other establishments using a

just-in-time system 49 48

Destination of 1995 final shipments:

Within a one hour drive 21* 29*

Elsewhere in the United States 71* 60*

Outside the United States 8* 10*

Establishments using marketing assistance from outside the establishment 42* 37*

* = Significant difference between nonmetro and metro responses at the 0.05 level.

5For more analysis of local purchases by food and forest-related

value-added manufacturers, see Gale (1998a). Gale (1998d) provides detailed analysis of rural manufactured exports.
Rural Competitiveness / AIB-776 ERS-USDA / 13 

Telecommunications

Communication with customers, suppliers, and headquarters is believed to be an important ingredient to

success in manufacturing today, an industry in which

quick turnaround times, lean inventories, and rapidly

changing markets are common. Nonmetro plants

appeared to be somewhat less likely than metro plants

to make regular use of computer linkages to other locations and other firms, modems, and the Internet (table

14). Nearly all plants used fax machines. Satellite communications were used by only 8 percent of nonmetro

plants and 5 percent of metro plants. Nonmetro establishments were more likely than metro establishments

to use satellite communications, but they were less

likely to use the other telecommunications technologies.

The most important barrier to telecommunications use

was "lack of knowledge," identified as a major problem

by 18 percent and as a minor problem by 49 percent of

nonmetro respondents (table 15). Many rural America

experts argue that inadequacy of telecommunications

infrastructure is a key barrier to rural telecommunications use, but nonmetro survey respondents reported

that "lack of access to adequate telecommunications

infrastructure" was less of a problem than lack of

knowledge and cost of equipment or software. In fact,

more than half said infrastructure access was not an

important problem. Respondents cited the cost of using

telecommunications more often than infrastructure

access as "somewhat important." Knowledge and costs

appeared to be higher barriers to telecommunications

use by manufacturing plants than infrastructure. 

Nonmetro establishments did place higher importance

on infrastructure as a telecommunications barrier than

did metro establishments, while cost of equipment and

software was cited less frequently by nonmetro establishments.

Nonmetro establishments obtained less assistance and

expertise locally than metro establishments, but lack of

local assistance seems to be a relatively minor problem

for most manufacturers. For more analysis of telecommunications, see Gale (1997).

Table 13Sources of marketing assistance used by manufacturing establishments

Nonmetro Metro

Very Somewhat Very Somewhat

Source of expertise important important important important

Percent Percent

Another location or branch of the firm1 68 18 63 19

State or national industry associations 9 43 8 40

Local industry groups 7* 31* 7* 41*

Public or university programs 3 19 3 15

* = Significant difference between nonmetro and metro responses at the 0.05 level.

1Applies only to multiunit firms. N=663 nonmetro, 182 metro. 

Answered only by establishments reporting use of outside marketing assistance. 

Table 14Use of telecommunications technologies by manufacturing establishments

Type of technology Nonmetro Metro

Percent

Fax machines 98* 99*

Computer links to other locations in the same company1 72* 76*

Modems 64* 74*

Computer links to other companies 27* 31*

Internet 24* 35*

Satellite communications 8* 5*

1Applies only to establishments in multiunit firms.

* = Significant difference between nonmetro and metro responses at the 0.05 level.
14 / ERS-USDA Rural Competitiveness / AIB-776

Table 15Problems limiting use of telecommunications by manufacturing establishments

Nonmetro Metro

Major Minor Major Minor

Limiting factor problem problem problem problem

Percent

Lack of knowledge 18 49 21 48

Cost of equipment and software 16* 44* 18* 48*

Lack of access to adequate telecommunications

infrastructure 11* 34* 6* 29*

Cost of using telecommunications 8 41 7 45

"Not a problem" responses are not shown. N=2,703 nonmetro, 1,040 metro.

* = Significant difference between nonmetro and metro responses at the 0.05 level.

Source: ERS Rural Manufacturing Survey, 1996.

Problems Associated with Rural

Business Locations

There have been many studies of the factors affecting

business location decisions, and many disadvantages of

rural locations have been identified: labor problems,

lack of infrastructure, lack of access to other businesses

and services, and, in some areas, tax rates and environmental regulations that discourage business activity.

When asked about the importance of 21 possible location-related problems that limit their ability to compete,

nonmetro manufacturers cited quality of local labor

most frequently (table 16). More than a third said labor

quality was a major problem, and 41 percent said it

was a minor problem. Quality of local labor (along

with State and local tax rates) was also the problem

most frequently cited by metro respondents. Most nonmetro respondents also identified State and local tax

rates and environmental regulations as either major or

minor problems. Tax rates were a major concern for

more metro than nonmetro respondents. Another

important rural problem was the "attractiveness of area

to managers and professionals," which was cited more

often by nonmetro than metro respondents. Nonmetro
respondents were more likely to report problems with

access to other firms, access to training programs, and

transportation infrastructure, but these tended to be

minor problems in comparison with labor quality,

taxes, and environmental regulations. Nonmetro plants

were less likely than metro plants to report problems

with cost-related factors, including tax rates, labor

costs, and land and facilities costs. Metro and nonmetro

respondents, however, reported labor quality and environmental regulations as problems with equal frequency. Also, similar percentages of metro and nonmetro

respondents rated access to financial institutions and

local labor relations as relatively minor problems.6

Rural Competitiveness / AIB-776 ERS-USDA / 15 

Table 16Factors related to the establishment's location that limit its ability to compete1

Nonmetro Metro

Major Minor Major Minor

Factor problem problem problem problem

Percent

Quality of local labor 34 41 33 39

State and local tax rates 23* 42* 31* 42*

Environmental regulations 22 36 23 35

Attractiveness of area to managers and professionals 15* 33* 8* 23*

Quality of primary and secondary schools 10* 26* 8* 24*

Access to training courses 9* 36* 6* 23*

Local cost of labor 7* 29* 12* 34*

Access to airport facilities and services 9* 35* 2* 14*

Cost of facilities and land 8* 30* 18* 36*

Water and sewer systems 8* 23* 6* 19*

Access to material suppliers 7* 33* 3* 25*

Access to Interstates and major highways 7* 20* 3* 12*

Access to major customers 6* 31* 6* 25*

Local roads and bridges 6* 25* 4* 17*

Railroad access 6* 14* 2* 8*

Access to machinery and equipment suppliers 5* 29* 2* 20*

Access to information about markets 5* 29* 6* 25*

Access to financial institutions 4 20 5 17

Prevailing local labor-management relations 4 23 3 21

Police and fire protection 2* 16* 2* 9*

Access to legal and other business services 1* 19* 1* 11*

1 "Not a problem" responses are not shown. N=2,715 nonmetro, 1,040 metro.

* = Significant difference between nonmetro and metro responses at the 0.05 level.

Source: ERS Rural Manufacturing Survey, 1996. 

6McGranahan (1998a, 1998b) provides more in-depth analysis of

local competitiveness problems.
16 / ERS-USDA Rural Competitiveness / AIB-776

Financing Capital Improvements

About three out of four nonmetro manufacturing establishments had a business or financial plan, slightly less

than the proportion of metro establishments (table 17).

About half of those who had a plan reported using outside experts to develop it. For plants that are part of

multiunit firms, the most important source of expertise

was other locations (headquarters, for example), used

by two-thirds of multiunit respondents (table 18). After

"other locations," banks or other financial institutions

and private or nonprofit corporations were the most

important sources, identified as "very important" by

one in five nonmetro respondents. Respondents apparently did not rely heavily on any other particular source

of expertise. For each of the other six sources of expertise they were asked about, most nonmetro respondents

said they were "not important." Nonmetro establishments were less likely than metro establishments to use

assistance from banks, private companies, or nonprofRaising Capital

Fifty-seven percent of nonmetro manufacturers reported a major expansion 

or modernization during 1992-1995, with nearly two-thirds of those companies 

using funds borrowed from a bank or savings and loan. Capital seems to be 

equally available for both metro and nonmetro manufacturers.

Table 17Financing of capital investments by manufacturing businesses

Factor Nonmetro Metro

Percent

Establishment has a business or financial plan 76* 79*

Used outside experts when developing plan1 49* 46*

Planned or initiated major expansion or modernization

in the last 3 years 57* 53*

Capital improvement plans were curtailed2 16 16

Used internal sources of financing:2

Retained earnings were used 63 67

Financing was obtained from elsewhere in the firm3 57 55

Borrowed funds were used2 67 65

Percentage of borrowed funds long-term (over 3 years) 69 69

Borrowed funds were acquired from:4

Financial firm (bank, savings and loan) 93 90

Individuals and families 21 25

Other firms (such as insurance company) 4 4

Issued bonds 4 3

New equity investments were used2 10* 13*

A government program had a role in financing capital improvements2 18* 15*

* = Significant difference between nonmetro and metro responses at the 0.05 level.

1Applies only to those having a financial plan. N=1,536 nonmetro, 820 metro.

2Applies only to those that planned expansion/modernization. 

N=1,515 nonmetro, 552 metro. 

3Multiunit firms that planned an expansion/modernization only.

N=630 nonmetro, 189 metro.

4Applies only to those that used borrowed funds to finance expansion/modernization. 

N=948 nonmetro, 342 metro. 

Percentage of respondents who reported using source are reported. 

Source: ERS Rural Manufacturing Survey, 1996.
Rural Competitiveness / AIB-776 ERS-USDA / 17 

its, but they were more likely to use assistance from

public or university programs.

Fifty-seven percent of nonmetro respondents reported

having planned or initiated a major expansion or modernization in the previous 3 years, a slightly higher

share than the 53 percent of metro establishments

(table 17). Improving quality control was the most

important reason for undertaking an expansion or modernization (table 19); 80 percent of respondents cited

improved quality control either "somewhat important"

or "very important." That was followed by expansion

of production capacity and changes in the product line.

Replacement of old or damaged equipment and technology adoption were cited less frequently.

Respondents cited compliance with new regulations the

least frequently of the six reasons listed in the questionnaire, but nearly a fifth of plants said compliance

was a "very important" reason for their expansion or

modernization. While nonmetro and metro plants noted

similar reasons for capital improvements, metro plants

were more likely to report expansion of production

capacity as "very important."

Most respondents who had made capital improvements

reported having used at least some internally generated

funds to finance their expansions or modernizations

(table 17). Sixty-three percent of nonmetro respondents

reported using retained earnings, and 57 percent of

those in multiunit firms used financing from elsewhere

in their firm. Two out of three reported using borrowed

funds, and 69 percent of those respondents used longterm debt. Over 90 percent reported borrowing from a

bank or savings and loan and about 20 percent reported

borrowing from individuals or families. Few respondents reported issuing bonds or borrowing from other

Table 18Sources of outside expertise used in developing business or financial plans

by manufacturing establishments

Nonmetro Metro

Very Somewhat Very Somewhat

Source of expertise important important important important

Percent

Other locations of the firm1 66 21 69 18

Bank or other financial institution 20* 29* 21* 35*

Private or nonprofit corporation 20* 26* 26* 30*

Partners 16 17 17 17

Competitors 11 31 8 29

State or national industry association 6 25 5 23

Public, college, or university programs 6* 20* 4* 12*

* = Significant difference between nonmetro and metro responses at the 0.05 level.

"Not Important" responses are not shown. 

1Includes only establishments in multiunit firms. 

Includes only establishments reporting using assistance to develop a business or financial plan. 

N=999 nonmetro, 378 metro.

Source: ERS Rural Manufacturing Survey, 1996.
Table 19Reasons for investing in capital improvements by manufacturing establishments

Nonmetro Metro

Very Somewhat Very Somewhat

Reason for investment important important important important

Percent

Improve quality control 47 34 46 35

Expand production capacity 79 16 77 16

Change or add to the product line 45 27 46 29

Replace old or damaged equipment 38 28 36 30

Adopt new technology or management practice 35 32 38 31

Comply with new regulations 19 27 18 26

* = Significant difference between nonmetro and metro responses at the 0.05 level. "Not important" responses are not shown.

Includes only establishments reporting a major expansion or modernization within the past 3 years. N=1,534 nonmetro, 558

metro.

18 / ERS-USDA Rural Competitiveness / AIB-776

firms. Only 10 percent of nonmetro respondents created new equity investments (such as stocks) to raise

capital, and 18 percent said that a government program

had some role in financing their investment. Metro and

nonmetro respondents' sources of financing were similar, except that nonmetro establishments were more

likely to use government programs to obtain financing

and less likely to use new equity investments.

Financing problems did not affect capital investment

plans for most respondents. Of those who reported having undergone an expansion or modernization, only 16

percent of both metro and nonmetro respondents

reported that problems caused them to curtail their

plans for capital improvements (table 17). Of the four

problems asked about, "uncertain or changing product

market situation" was cited as a major problem most

often (table 20). "Difficulty arranging outside financing" was a major problem for 11 percent of both metro

and nonmetro respondents, and was the second leading

major problem overall. However, it was cited less often

as a minor problem. A significant minority of firms

seemed to have difficulty acquiring financing, but this

did not seem to be a problem for most manufacturing

plants. The similarity of the metro and nonmetro

responses suggests that capital is equally available to

metro and nonmetro manufacturing establishments.7

Table 20Problems encountered in carrying out capital investment plans by manufacturing businesses

Nonmetro Metro

Very Somewhat Very Somewhat

Problems important important important important

Percent

Uncertain or changing product market situation 12 38 15 33

Difficulty arranging outside financing 11 28 11 25

Difficulty acquiring support from headquarters1 9* 46* 8* 29*

Underestimated financial costs 8 35 7 34

* = Significant difference between nonmetro and metro responses at the 0.05 level. "Not important" responses are not shown. 

Includes only establishments reporting a major expansion or modernization within the past 3 years. N=1,512 nonmetro, 551

metro.

1Includes only establishments in multiunit firms. 

Source: ERS Rural Manufacturing Survey, 1996.

7Milkove, McGranahan, and Sullivan (forthcoming) and Gale

(1998b) provide more detailed analysis of finance and capital

issues.
Rural Competitiveness / AIB-776 ERS-USDA / 19 

Locally Available Expertise and Capital 

One of the disadvantages of rural business locations is

lack of contact with other businesses and lack of access

to information and expertise in relatively remote rural

areas. The survey asked respondents to state what part

of financing, worker training, financial planning, technical and marketing assistance was obtained in their

local area, defined as "within a 1-hour drive." As

expected, nonmetro establishments reported obtaining a

lower proportion of assistance and expertise locally

than did metro establishments, but the nonmetro-metro

difference in the proportion of financing obtained locally was not statistically significant. 

Financial capital seemed to be available locally to most

nonmetro establishments56 percent said they

obtained "all or almost all" financing for capital investments locally (table 21). However, one in three reported obtaining "little or none" locally. Worker training

was also generally available in the local area, as most

nonmetro respondents reported obtaining "all or almost

all" or "over half" locally. Business financial planning

expertise was somewhat less available locally, and

technical and marketing expertise generally were not

obtained in a nonmetro establishment's local area.

While nonmetro establishments seemed to obtain less

assistance and expertise locally, responses to other

questions about problems with training, financing, and

technology adoption barriers suggest that lack of local

assistance is a relatively minor problem associated with

rural location.

Table 21Expertise and assistance obtained locally by manufacturing establishments1

Nonmetro Metro

All or More Less Little All or More Less Little

almost than than or almost than than or 

Type of assistance all half half none all half half none

Percent

Financing for capital investments in last three years2 56 5 6 33 61 6 5 27

Worker training source outside the establishment3 45* 23* 16* 16* 61* 19* 9* 11*

Business financial planning expertise4 38* 13* 13* 36* 49* 15* 10* 25*

Expertise concerning new technologies

and management practices5 16* 17* 29* 37* 33* 19* 24* 24*

Marketing assistance6 15* 8* 15* 62* 18* 9* 20* 52*

* = Significant difference between nonmetro and metro responses at the 0.05 level. 

1Locally = within a 1-hour drive. 

2Establishments reporting an expansion/modernization. N=1,478 nonmetro, 527 metro. 

3Establishments reporting outside training. N=1293 nonmetro, 477 metro. 

4Establishments reporting using outside expertise to develop a business or financial plan. N=999 nonmetro, 377 metro.

5Establishments reporting technical assistance. N=1,495 nonmetro, 556 metro. 

6Establishments reporting marketing assistance. N=1,128 nonmetro, 372 metro.

Source: ERS Rural Manufacturing Survey, 1996. 
This report provides a statistical profile of rural manufacturing businesses and includes much information not

previously available. The results confirm that rural

manufacturers employ a lower percentage of workers

in higher-skill nonproduction jobs and that they pay

lower wages. Businesses at nonmetro locations tend to

perceive fewer problems with cost-related factors, but

more problems with access to other firms and infrastructure. In many respects, however, metro and nonmetro businesses are surprisingly similar. They generally reported similar problems with implementing new

technologies, skill requirements, worker quality, use of

government programs and technical assistance, and

sources of financing. 

The most widespread concern of both metro and nonmetro manufacturing plants appears to be the quality of

labor available. Both metro and nonmetro respondents

reported rapidly increasing skill requirements in interpersonal/teamwork skills, computer, problem-solving,

and other technical skills. About half said that problems

finding qualified job applicants have increased, and

quality of local labor was the most frequently cited

problem associated with nonmetro business locations.

The adequacy of worker skills was the biggest problem

encountered by manufacturers when implementing new

technologies and management practices.

Many rural development efforts are aimed at improving

access to credit, transportation and telecommunications

infrastructure, and technical assistance. In this survey,

however, both rural and urban businesses tend to report

these as being relatively minor problems. 

Infrastructure, training and technical assistance, and tax

breaks are important selling points in industrial recruitment efforts, so individual communities have incentives to provide them. The low level of concern with

these problems may reflect the success of past policy

efforts. In any case, perceived problems with these factors have lower priority with most businesses than do

those with labor quality. We should also remember that

this survey covered only manufacturing businesses.

Businesses in other economic sectors may give different responses.

Both rural and urban communities face the difficult

challenge of supplying workers with adequate skills to

preserve their manufacturing job base. New technologies and management practices give workers multiple

tasks, increase decision-making responsibility, and

require them to work in teams. These developments

have increased skill requirements, but the needed skills

include many that are not emphasized in traditional

academic preparation. Among the skills most sought by

employers are a reliable and acceptable work attitude,

interpersonal and teamwork skills, problem-solving,

computer, and technical skills. How to develop these

skills will be the subject of further investigation and

considerable debate.

20 / ERS-USDA Rural Competitiveness / AIB-776

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Education and Training in the New Economy. Ames:

Iowa State University Press, 1998.

Rural Competitiveness / AIB-776 ERS-USDA / 21 

References
22 / ERS-USDA Rural Competitiveness / AIB-776

The Survey Process

The Rural Manufacturing Survey (RMS) is a stratified

random sample of all U.S. manufacturing establishments with 10 or more employees. The sample was

drawn from a list purchased from a private vendor,

Survey Sampling, Inc., of Westport, Connecticut. The

sampling frame included all establishments in Standard

Industrial Classification (SIC) Division D, with the

exception of SIC 2711 (newspaper publishing). The

Social and Economic Sciences Research Center at

Washington State University (WSU) attempted to contact a sample of 8,800 establishments during the summer of 1996. The initial step was a verification interview, in which establishments were called to ascertain

whether they were manufacturers with at least 10

employees and, if so, who in the business should be

interviewed. These people were then asked to participate in the survey through a letter from the U.S.

Department of Agriculture Under Secretary for

Research, Education, and Economics.

In the initial screening call to the establishment, the

interviewer stated that the questions asked in the study

required knowledge of "the types of technology used in

manufacturing, management practices, the education,

training and pay of production workers, problems in

hiring and problems in access to capital for expansion

or modernization." The interviewer asked who, at that

location, was most knowledgeable about this broad

range of issues. The person named was the target

respondent, and their phone number and address were

taken. About two-thirds of target respondents were

either a head of the organization or the general/plant

manager (app. table 1). In branch plants, more than half

of target respondents were heads of production, while

in headquarter establishments the largest number of

respondents were heads of the organization. Human

resources directors and financial and administrative

officers responded in a significant number of establishments.

The data were collected in a half-hour phone interview.8

At least partial interviews were completed for 3,909

establishments (3,418 by phone; 491 by mail or fax).

The 4,891 establishments not contacted included 2,235

determined to be ineligible and 115 eligible cases that

refused to participate. Eligibility could not be determined for the remaining 2,656. WSU estimates that

about 5,600 of the sampled cases were eligible for the

study. The estimated response rate is 68 percent. 

Stratification of the RMS sample is based on metrononmetro location, nonmetro west-nonwest, and three

employment size classes. The nine strata are shown in

appendix table 2. The goal of the survey was to obtain

reliable information on nonmetro establishments as well

as a small sample of metro establishments for comparison. Nonmetro plants were more likely to be included

in the sample than metro plants (about 7.5 percent vs.

0.7 percent). Also oversampled were large plants and

nonmetro plants in the West. The sample includes nearly one-third of large plants in the nonmetro West.9

In their comments given at the end of the interview,

many respondents said they were not able to answer all

of the questions accurately, either because the range of

questions was too broad for one person to answer or

because they did not have records at hand to provide

detailed information. Consequently, information is frequently missing for several variables, including costs,

shipments, wages, and employees, especially values for

1992. 

Sample Weights

Statistics obtained from a stratified sample do not

reflect the population unless a weighting scheme is

used to correct for the stratification in the sample. For

example, the average number of technologies used

computed from the unweighted sample will be affected

by the disproportionate number of large establishments

(which tend to use more technologies than others).

Weights were calculated so that the weighted survey

statistics will fairly represent all U.S. manufacturing

establishments with 10 or more employees.10 Let Nh

Appendix:

Technical Documentation

8Potential respondents not reached by phone or lacking time were

sent a printed version of the questionnaire, which they could return

by fax or mail. The interview was conducted with the most senior

manager available at the location.

9Although the sample was drawn in 1996, the population numbers

in appendix table 2 are from Bureau of the Census, 1993 County

Business Patterns, which was the most up-to-date information available at the time.

10For description of analysis of stratified survey data, see Levy and

Lemeshow.
Rural Competitiveness / AIB-776 ERS-USDA / 23 

represent the population in stratum h, nh the sample size 

in stratum h, qh the sampling rate in stratum h. The

sample weights are:

WEIGHT is equal to the inverse of the probability of

being included in the sample, and the weights sum to

the estimated population size, N. 

Computation of Sample Statistics

Mean employment can be estimated by taking a weighted average of means across strata. The mean for a stratified random sample can be computed as,

is the mean for stratum h, and L is the number of strata.11 This is simply a weighted average of the

stratum means and is equivalent to computing an overall mean using WEIGHT. The overall mean computed

in this manner is 104 employees. The mean for metro

strata is 103, and, for nonmetro strata, the mean is 110.

The estimated total employment for the population represented by the sample is simply . Appendix table

3 shows that the nonmetro establishments represent

employment of about 4.2 million, and metro establishments in the sample represent about 15.4 million jobs.12 

Reliability of the estimates can be judged using the

standard errors, which are basically complex weighted

averages of the standard errors of the various strata. 

The standard error of the mean is computed by

is the standard error for stratum h. 

The term (Nh-nh)/Nh is the finite population correction

(FPC) factor and can be expressed more intuitively as

1-(nh/Nh). When the sample is a large proportion of the

population, this term becomes smaller and deflates the

sample variance. The FPC takes on values ranging from

0.998 to 0.996 for the three metro strata, but is as low

as 0.679 for nonmetro strata. The standard errors can

also be computed for metro and nonmetro subgroups.

The nonmetro mean employment per establishment is

measured with much greater precision (standard deviation of 2) than the metro mean (standard deviation of

8). A 95-percent confidence interval for nonmetro

employment per establishment runs from approximately

100 to 108. The standard error of total employment, 

is 90,800 for nonmetro total

employment and 1.2 million for the metro total.

A 95-percent confidence interval for total nonmetro

employment estimated from the RMS is from 4.01 to

4.36 million (appendix table 3). Note that the Census

Bureau estimate from the Annual Survey of

Manufacturers (4.04 million) for 1994 falls within this

interval, although it is near the lower bound. The

Bureau of Economic Analysis (BEA) estimate for the

same year is slightly above the upper bound, at 4.4 million. A 95-percent confidence interval for metro

employment estimated from the RMS runs from 13.1 to

17.7 million. The Census Bureau estimate for 1994 falls

below the lower bound of the confidence interval, but

the BEA estimate falls within the interval. We can be

fairly confident about the representativeness of nonmetro results since the RMS estimate falls between two

other estimates. The metro estimate is consistent with

the BEA estimate, although it is higher than the Census

number.

x

N

N

x

h

h

L

= h





 



 =

∑

1

,

where sh

2

where xh

WEIGHT

N

n q

where n WEIGHT N

h

h

h h

h

h

h

= =

= =

∑

1

1

9

,

,

11See Levy and Lemeshow, chapter 6, for more details.

12The intent of the RMS was not to estimate the number of jobs in

nonmetro manufacturing, since those estimates can be obtained

from other sources. Comparisons with other estimates are made

here to judge the representativeness of the sample. If the RMS data

produce estimates comparable to those obtained from other sources,

we can have greater confidence in the data.

se x

N

N

s

n

N n

N h

h

h

h h

h h

L ∧

=

= 



 



 



 





 −



 



 



 



( ) ∑  1 2

2

1

1

2

se (x) is N se ( x ),

∧ ∧

N xh

x
24 / ERS-USDA Rural Competitiveness / AIB-776

Appendix table 1People contacted as survey respondents

Branch

Position in plant plants Others Total

Percent

Head of:

Organization (owner, CEO, VP) 43.2 6.2 30.7

Production (General or Plant Manager) 26.2 57.0 36.6

Human Resources (Personnel Director) 9.3 17.9 12.2

Finance/Administration (CFO, Office Administrator) 9.6 5.4 8.2

Department

Production (Foreman, Engineer) 1.0 3.0 1.7

Human Resources 2.9 4.3 3.4

Finance (Bookkeeper, accountant) 1.3 0.5 1.0

Other or missing 6.3 5.9 6.2

Total 100 100 100

Number of cases 2,591 1,315 3,906

Source: ERS Rural Manufacturing Survey, 1996.

Most of the questions on the RMS are yes-no questions,

thus most analysis will be of proportions, py = Ny/N

(often converted to percent), whereNy is the number of

establishments having the characteristic y. The estimate 

is found as a weighted average of the stratum 

values, analogous to the formula for 

The standard error is computed by

characteristic y computed for stratum h. 

Using these formulas, as an example, we computed the

percentage of establishments reporting use of computerassisted design or engineering (Q17 on the RMS questionnaire). As was the case with employment, the means

are found by taking weighted averages of stratum

means. The nonmetro mean is 44.8 percent, while the

metro mean is 53.8 percent. Standard errors within strata are fairly large, due to the small number of observations within each stratum. The metro and nonmetro

means are measured with more precision, however. A

95-percent confidence interval for the nonmetro percentage ranges from 42.8 to 46.8 percent. The t-value

for a test of the difference between metro and nonmetro

percentages is equal to 6.1, indicating a statistically significant difference.

py

∧

( )

se p NN

p p

n

N n

N y h

hy hy

h

h h

h h

L

p

hy

∧ −

=

= −

−





























 ∑  ( )

$ $

$

1 1

1

2

1

1

2

where is the proportion with

p nn hy hy h

∧

= / ,

x.
Appendix table 2Number of establishments by strata, Rural Manufacturing Survey

Stratum: Stratum: Establishments Sampling rate

Geography Plant size Sample1 Population2

Region Employment Number Number Percent

Metro 10-49 365 97,920 0.4

Metro 50-249 503 41,788 1.2

Metro 250 or more 197 10,215 1.9

Nonmetro-West 10-49 172 2,815 6.1

Nonmetro-West 50-249 135 978 13.8

Nonmetro-West 250 or more 63 196 32.1

Nonmetro-Nonwest 10-49 851 19,776 4.3

Nonmetro-Nonwest 50-249 997 10,613 9.4

Nonmetro-Nonwest 250 or more 626 3,654 17.1

Metro total NA 1,065 149,923 0.7

Nonmetro total NA 2,844 38,032 7.5

Overall total NA 3,909 187,955 2.1

1Completed usable interviews. 2Estimated from U.S. Department of Commerce, County Business Patterns.

Source: ERS Rural Manufacturing Survey, 1996.

Appendix table 3Comparison of RMS total manufacturing employment with other estimates

Item Nonmetro Metro

Million Million

RMS estimate, 1995 4.2 15.4

95-percent confidence interval (4.01, 4.36) (13.06, 17.74)

BEA, 1995 4.44 14.79

Census, 1994 4.04 12.87

Source: ERS Rural Manufacturing Survey; ERS analysis of Bureau of Economic Analysis unpublished data;

U.S. Department of Commerce, Bureau of the Census, Annual Survey of Manufacturers, unpublished tabulation.

Rural Competitiveness / AIB-776 ERS-USDA / 25