Urbanizing the US: From Agriculture to Manufacturing to Services

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Between 1880 and 1940, the United States experienced two profound changes: a wave of industrialization that reallocated employment away from agriculture and toward manufacturing, and a wave of urbanization. These transformations were closely intertwined: because rural dwellers had high agricultural employment shares and urban dwellers had high manufacturing employment shares during this period, population flows from rural to urban areas accounted for much of the change in employment structure.

How were these changes connected? Were workers leaving rural counties and migrating long distances to superstar industrial cities like Chicago and New York, or were rural counties becoming more urbanized and industrialized internally? In Sprouting Cities: How Rural America Industrialized (NBER Working Paper 30874), Fabian EckertJohn Juneau, and Michael Peters analyze publicly available census files and find that the second narrative better fits the facts.

In the late 19th and early 20th centuries, 240 new, manufacturing-focused cities sprang up in heavily agricultural US counties.

The researchers identify the counties with the highest agricultural employment shares in 1880 that collectively accounted for half the US population. Between 1880 and 1940, 240 new incorporated cities sprang up and the share of the sample counties’ populations living in urban areas rose from 5 to 30 percent. Over the same period, their agricultural employment share fell from 72 to 36 percent. Population agglomeration in new cities, rather than population growth in existing cities, accounted for most of the urbanization the counties experienced. These new cities tended to be factory towns focused heavily on manufacturing, in contrast to existing cities in these counties focused on providing consumer services. The rise of new factory towns simultaneously explains most of the urbanization and industrialization of rural counties.

The changes in rural counties were quantitatively important at the national level. The researchers decompose the change in the national agricultural employment share, which fell from 47 percent in 1880 to 15 percent in 1940, into movement attributable to the migration of workers from rural to urban counties and movement attributable to the internal industrialization of rural counties. Internal industrialization accounted for 63 percent of the national decrease in agricultural employment.

The researchers next turn to international data. They find that in developing countries local industrialization of rural areas has accounted for most of the decline in agricultural employment, as occurred previously in the United States.

—Shakked Noy