This is the McKinsey Podcast, where we help you make sense out of our world's toughest business challenges.
Welcome to the show.
I'm Lucia Raheli.
And I'm Roberta Fasaro.
There's been over $1 trillion of announced projects.
63% of that trillion dollars worth of projects is within 15 miles of rural communities and counties.
And so you see really interesting opportunities for public-private partnerships.
Also, of course, for building new facilities.
These are very tech-enabled, very clean environments.
That's McKinsey Senior Partner Nora Gardner.
She's talking about the economic promise of building up advanced manufacturing facilities in rural America.
You'll also hear from McKinsey Partner Sarah Tucker-Ray.
She talks about what rural K-12 programs can do now to equip their students for a future in advanced manufacturing.
And now, let's hear from McKinsey Senior Partner Nora Gardner.
Nora, welcome to the podcast.
Great to be with you.
Many folks use both urban and rural very broadly as placeholders for certain characteristics or certain stereotypes.
But in fact, rural America is huge and it's super heterogeneous.
So let's start with some context.
Tell us, why were you interested in rural America first?
This research, I'm really excited about it, and it's very personal for me.
I was born in Lewis County, Tennessee.
It's a combination of farmland and rolling hills, wooded areas just gorgeous natural beauty, four seasons of the year.
It makes you want to be outside. all the time.
And I grew up in rural North Carolina.
And while I live in a city now in Washington DC, just being able to shine a light on and understand rural in a better way was a part of the motivation.
What do we mean by rural America when we talk about it in this research?
Well, rural America is America.
There are rural places in all 50 states in all territories of the U.S.
One in seven Americans, almost 50 million people, live in rural America.
And from a geographic point of view, it's over 70 of the area of America and contributes to about 10 of the economy, more than 2 trillion.
So it's large, important, and dynamic any way you slice it.
On racial makeup.
What is the sort of racial and ethnic breakdown of rural America?
It is diverse and it's gradually becoming more diverse.
Over time, currently about 77% of people living in the population in rural America is white.
That's down from 80% 10 plus years ago.
And we see, during that same period of time, small increases in the Hispanic population, now 9, up from 7.
And the sort of other and mixed race, which is now 5%, up from 4%.
The proportion of Black Americans in rural America has stayed steady at around 8, and Asians make up 1.
So Nora, talk to us about the industries that drive rural America's economy.
You may think about or identify rural with agriculture and farming.
Of course, that is an important driver of the economy.
But in terms of employment, it's only 7% of employment in rural America.
And the top three industries are actually the same as in the broader economy.
Number one is government at 18 percent, manufacturing 13 percent and health care a major employer at 11 percent.
We also see retail and hospitality being very important in terms of employment.
The thing that maybe distinguishes the industries and the employment in rural America versus urban America is that rural tends to be a little more specialized.
The economies tend to rely on and specialize in so-called tradable sectors.
This means sectors that make goods and services that can be sold on to others.
So think agriculture, manufacturing, mining.
And a lot of the growth in non-rural urban America over the past few decades has been in high growth sectors like information technology and professional services, which are less prominent in rural economies.
And the research talks about six community archetypes.
Do you want to walk us through those archetypes and what they mean here?
Three of them are defined by the primary industry that they have in common.
The first is agricultural powerhouses.
These are places where agriculture makes up more than 20% of GDP.
An example that we highlight in the report is Osceola County in Iowa.
More than 6,000 people, high labor force participation.
Think soybean, corn, livestock production.
The second is manufacturing workshops.
And these are counties where manufacturing is more than 30% of GDP.
Within manufacturing workshops, there's basically two subtypes.
Think of the traditional Rust Belt.
So these are what we call de-industrializing areas and counties.
And then there's also what we call reshoring communities and counties, largely in the South.
Think Battery Belt.
And we profile and highlight places like Coffey County Alabama, which makes a lot of parts for the auto industry.
Interesting.
The third that's defined by the industry specialization are resource-rich regions.
These are places where more than 25% of the GDP is related to resource extraction.
This can be mining, quarrying, oil and gas.
In the report.
We highlight Leslie County, Kentucky here, and this is a coal town in eastern Kentucky, in Appalachia.
Then we've got another set of archetypes that are really defined by migration patterns.
So we define a set of counties as migration magnets.
These are places where There's been consistent in-migration for years, places that are hospitality or tourism driven.
Sometimes they're taking advantage of or seeing growth based on being not too far from fast-growing areas.
On the flip side of the migration coin, we also see regions that have consistently been seeing out-migration.
And many of these are in the archetype we call remote regions.
The median household income, $35,000, and labor force participation below 50%.
And then finally, our final archetype we call Middle America.
These are less specialized, so more diverse medium-sized economies, largely doing well and thriving.
We call out here Livingston County, Illinois, in central Illinois.
And Livingston County is the home to two large employers Caterpillar, which of course makes parts for tractors but also for data centers, and Interlake Mecalux, which does warehouse and logistics automation.
So you start to get a sense for the diversity of the economy, the tech-enabled growth and momentum going on in some of these places.
You talked about, for example, the battery belt.
And obviously, I'm thinking of manufacturing given the changing dynamics of tariffs and trade.
Tell us a little bit more about what you think might be poised to happen in these areas and how these areas might change.
Yeah.
We see investments being announced in advanced manufacturing.
And what you want to think of.
There are semiconductors, but also clean tech, biotechnology and places like the battery belt.
There's been over $1 trillion of announced projects.
63% of that trillion dollars worth of projects is within 15 miles of rural communities and counties.
And so you see really interesting opportunities for public-private partnerships.
Also, of course, for building new facilities.
And those are, again, not your father or grandfather or grandmother's factories, right?
These are very tech-enabled, very clean environments.
And then we also need workers and workforces who are ready quickly to help work those factories.
And that...
We actually released a companion report on K-12 and manufacturing and how there's a real opportunity there to get workers ready for really high-paying, fantastic jobs right in their backyard.
Yes, so we will hear from Sarah Tucker-Ray about that very thing after our chat.
Now, help us bring to life what makes a rural area a migration magnet.
One thing we took a look at in the report was how are they providing a great place for residents?
But we also looked at things like economic mobility.
And we define that as the capacity for an individual to do better economically than their parents.
What was interesting here is the agricultural sector.
Powerhouses were the place on nearly all the measures of well-being, where they led among our rural archetypes.
They had lower rates of poverty, higher average incomes, lower unemployment and they benefit from high self-reported mental well-being as well.
On the flip side, remote regions ranked consistently near the bottom.
They face a number of challenges, including higher rates of poverty at around 20, higher unemployment, lower labor force participation, life expectancy only near 75 years and poor health outcomes, both physical and mental health.
Manufacturing workshops demonstrated the highest level of upward mobility, and all of our archetypes in rural for middle income actually experienced greater economic mobility relative to the entire US or their urban counterparts.
That is really surprising, actually.
Yeah, right?
You hear a lot about inequality and you see that with low income levels, but rural America is actually a place where upward mobility for middle income is absolutely still possible.
And, you know, that is due to these are really great places to live and thrive.
They can have a lower cost of living.
You're outside a lot.
You can have a nice mental well-being.
We talked a little bit about education and Talent development in areas where there will be increased manufacturing investment, for example.
What more needs to happen to maximize the opportunities here, to unlock rural America's potential?
In the research, we put forward six strategies.
They focus on basically three areas of investment, the first being businesses and anchor institutions, the second being workers themselves, and then the third being really more basic needs.
And they really intersect with the archetypes in the sense that if there is more of an industry specialization, then investing in those anchor institutions, businesses or certifications for workers in those areas is a real winning strategy to help unlock additional growth and investment.
In some of those archetypes where outcomes are less positive, in particular where there are the greatest gaps, say healthcare, for example.
That's where strategies around really trying to lift outcomes, those very, very important gaps on basic needs, are really, really important.
Yes.
And we encourage folks to read the article, of course, to hear more details about solutions.
Any thoughts on how AI and the disruption it represents to the labor force will affect rural?
It's a really good question.
So our McKinsey Global Institute colleagues course, looked at automation potential of jobs.
And then we see AI as an accelerant of that automation.
What's really unique about AI and Gen AI is that the disruptions are often more profound for white collar work, desk work, information work, etc.
And when I was talking about the distinction between where rural specializes versus where urban specializes.
Rural has been more specialized in slower growth, tradable sectors.
Those are in general being less disrupted, at least early on, by AI.
You still need the engineer.
You still need the real work to be done.
And so we're seeing in rural, I think, more of the tech enablement, tech forward, new manufacturing and less actually, of the wholesale replacement or disruption of roles and jobs.
So again, I think it's a place where we'd actually point to opportunity in rural.
So I find this such an interesting topic in so many ways because it's so at the fore of the media and it's so much a part of the political discourse right now on both sides.
What's so interesting is, on the one hand obviously, these dynamics and demographics have been important in the political sphere.
On the other hand, helping people, these communities, be even better and thrive completely transcends politics.
It's another place where I think we tend to just oversimplify in the black and white and red and blue.
And there's so much more nuance when you look one level deeper.
And at the These are communities.
They're bound to one another and they're trying to make those communities as good as they can be together.
These are really wonderful places, and rural America is America.
So it's been interesting to me just how the reality is quite positive, constructive and really nonpolitical.
It also feels possible that the talent landscape is in such upheaval.
Yes.
And organizations are in such need of talent that all of us need our capabilities to be developed in these new and emerging areas right.
So is there a possibility that, for example, hyperscaler investment in rural communities to advance capabilities in AI and so forth could help these communities leapfrog a little bit in certain areas?
I do think it is possible and it is a place where we will see real human development, skill development.
This is where we're going to figure out how to work together with the agents and the bots to make things happen.
And so yes, I do think we may see some leapfrog opportunities, but it'll go to those places that really help support that skill development and getting to practical jobs that really work quickly.
I think the upheaval point and the sort of scrambling of the talent market is the challenge.
I actually feel like those who are being educated now, I think, will be really channeled in a really good direction.
I think those of us who have been in the workforce for some time and have some new tricks to learn may need support to think about what that is and what that'll be.
The thing that's hard, particularly actually in larger areas, is that workforce development and workforce is a very local game.
In large, diverse economies with many, many skilling providers and many, many employers and a so-called competition for talent, you get both collective action problem and you also get these kind of competitive dynamics that aren't particularly helpful.
It's hard to think about how to solve it in a nationwide sense because there's The incentives aren't aligned across every industry and every skill needed, etc.
Which is why I actually think what may have been a risk or a vulnerability in rural communities who are anchored in a particular industry, may have been a risk or a challenge in the past.
It's a strength and it shows the way forward on some of this workforce development because there's a real need.
It's more clear which skills are needed.
It's more clear where the jobs are going to be.
When you're looking at that on a national patchwork or even in just a large urban suburban economy, it's actually hard to make that market work and hard to know exactly where to focus.
Okay, so suppose I'm a business leader, or a nonprofit leader, for that matter, in a civic or in an educational organization.
You're making a compelling case for rural, but what do I do next?
How should I think about approaching and acting on this opportunity?
Well, we put forward the six strategies.
When this works well, all stakeholders are moving in the same direction, right?
And so there's so many parts to play here.
There's scaling and upscaling.
There's provision of basic needs.
There's giving fuel for entrepreneurs.
There's seed funding, right?
There's making large investments.
There's accelerating those.
There's room for philanthropy, community organizations, etc.
When this works best.
There's this intersection of the archetype and the strategies.
Let's take, for example, how to really stimulate business activity and businesses.
For those archetypes say an agricultural powerhouse or a manufacturing workshop you want to really think about how to invest in local institutions and how to unleash local business communities.
We highlight in the report the example of the Center on Rural Innovation and the their efforts in Independence Oregon.
So small town in Oregon, very tech forward.
So they put together a tech innovation strategy, but it wasn't tech for tech's sake.
It was centered around focus on agriculture, which drives the economy in Independence.
So you think about what they did.
There was a whole host of actions co-working spaces, ag tech meetups, grant opportunities, seed funding for companies, public-private partnerships, attracting community partners and you start to get real momentum.
And the key to that, of course, is the center, kind of focusing on a strategy but also matching it up with the special sauce in independence which is the agriculture community.
Great example.
Nora, last question.
What do you see as a realistic vision for the future of rural America, assuming some of these tailored strategies and partnerships are successfully implemented, and on what timeline?
Well, the opportunity in rural is now In some ways, the stars are aligning, the dollars are there.
We've got to focus that and make the most of this opportunity.
Our perspective and why we wanted to highlight rural is that there's just immense strength, promise and opportunity present in rural communities and we hope to focus and unleash and lift up even more of that.
And we see these archetypes and specialization as a way to help unlock that, lift up what works.
Things are hard these days, but making good on what's right in front of you, making your corner great, is always a good use of time.
Working with those people who are right there.
Collaborating with you in the place where you are is a way through and a way forward.
And so I see this as a way to enable many many, many more people to make their corners fantastic, or even more fantastic.
And, by extension, that can make every part of our country stronger communities, and we can do that for everyone.
And the time for that is now.
Fantastic.
Nora, thanks so much for joining us today.
Thank you.
I really appreciate it.
And now, Advanced Manufacturing in Rural K-12.
Here's Roberta with McKinsey partner, Sarah Tucker-Ray.
Sarah, thanks so much for joining the podcast today.
Thank you for having me.
Sarah, why is now the time to have this discussion, this idea of preparing K-12 students for careers in advanced manufacturing?
So over the past five years, hundreds of billions of dollars in capital investments have flowed into advanced manufacturing in the US, with leading global companies making large commitments.
Our analysis has found that almost two thirds of the trillion dollars in announced advanced manufacturing projects is anticipated to go to facilities within 15 miles of rural communities.
Such business investment could substantially increase demand for qualified manufacturing workers in the US.
We're potentially expecting more than 2 million worker shortfall by 2030.
And part of the promise of these jobs is that not all require a degree beyond high school.
Not all require going to college or even community college.
And that puts the onus on K-12 to be the preparation step for these jobs of the future, making sure that rural communities, rural families, rural workers are prepared for future-oriented, tech-enabled careers where there are real opportunities for wage gains versus what the jobs would have been otherwise.
Sarah, how could employers benefit from kids being educated in advanced manufacturing?
You know the excitement is we expect that manufacturing companies that hire local and better prepared workers could reduce workforce attrition and increase productivity, potentially saving 20000 to 30000 a year per retained employee, which could be worth about 20 billion annually.
So there's also a very clear business case on the employer side for thinking smartly about partnerships with K-12, thinking about how they prepare workers for the jobs that will be created as their investments come to fruition.
Thinking about the cognitive skills required, the skills just required generally for advanced manufacturing.
What specifically can K-12 programs provide or how can they contribute to the solution?
Industry seeks well-prepared, enthusiastic future employees, and K-12 schools aim to expose students to career opportunities, but there's a lack of effective engagement between the two.
We do hear that school leaders have quite a bit of interest in engaging with industry.
We heard the core academic skills thinking about literacy math, critical thinking that these are just as important for advanced manufacturing as they are for anything else.
We're hearing as well.
Industry is asking that schools can adopt evidence-based models like career and technical education courses, dual enrollment programs, youth apprenticeships.
Such models have shown proven results in various school districts across the country.
And aligning then those skill development programs with local industry needs, particularly as you know the investments are coming but the jobs aren't there yet.
This includes thinking about recruiting and hiring pipelines within K-12 schools and offering real-world experience through youth apprenticeships.
Can you share examples of what this looks like on the ground?
So let me tell you about two examples, one in Arizona, one in Texas.
So Arizona's Chandler Unified School District is launching a semiconductor-focused career and technical education, or CTE, high school program in 2025, partnering with industry leaders like Intel and Microchip.
The program features hands-on learning and a semiconductor camp to prepare students for high-wage careers.
This initiative is aiming to boost the local workforce pipeline in the growing semiconductor industry within the state.
Related.
In Texas, the Roscoe Collegiate High School is using a P-TECH model to help students earn industry certifications and associate degrees debt-free, through partnerships with the universities, colleges and industry.
Its nonprofit, Collegiate EduNation, is scaling the model statewide, with 22% of students earning associate degrees and 44% gaining high-demand certifications before graduation.
So a good example of this is in Ohio, where they've created a standardized framework through their competency model to identify and communicate the skill sets needed for manufacturing jobs.
I'm curious Sarah, if there are specific demographic groups for instance, is it more male than female that are taking part or expressing this interest in these kinds of programs?
We're seeing broad interest in these opportunities.
And I think part of that is about the fact that rural students, communities and economies could see more than 30 billion a year in wage increases across jobs created directly and indirectly from this investment.
I think the wage gain opportunity, The ability to learn on the job with a clear career ladder that helps you progress as your skills develop further, and the nature of these jobs as really jobs of the future that feel rooted in technology, rooted in American competitiveness.
I think this is creating excitement for students across the board.
Thinking about how these partnerships develop.
Is it as simple as outreach by an employer to a school system?
How do those partnerships come together?
Or how can they best come together?
How can they best come together?
Exactly.
So I think where we've seen these work industries creating touch points with students throughout their K-12 experience, offering apprenticeships, summer jobs, scholarships for post-secondary degrees and building awareness and interest in throughout someone's time in K-12 really then helps to have the workforce at the scale that you're looking for.
And so I think that step one has been really committing to regular interaction and engagement.
And then I think the second is collaborating on skill development programs so that you also are using the same language, so that K-12 is able to build into curriculum what industry is seeking.
So Sarah, taking all of this into account, what's your vision for the future of rural America if these educational and industrial partnerships are successfully implemented?
I see a really positive vision through better connection of K-12 and advanced manufacturing industry to create enhanced career advancement and social mobility in rural America, improved education and job opportunities which will lead to a more dynamic rural community more broadly.
That in turn is creating revitalized communities.
So influx of high quality jobs and economic growth can make rural communities more attractive places to live and work, to help reverse some of the brain drain that rural has been experiencing over a number of years.
They're able to get their kids to stay and continue to live where they want to and not feel like they have to leave in search of new jobs.
And then finally, I think, a brighter future for youth and employers, creating a steady supply of well-prepared workers for robust economic growth, so that families are able to see that, see the potential ahead and to really live into it with these wage gains.
Sarah, thank you so much for taking the time today.
It's been a great conversation.
Thank you so much.
Thanks for having me.
Thanks so much for listening to the McKinsey Podcast.
I'm Lucia Rahilly.
And I'm Roberta Fasaro.
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