The Urban-Rural Divide

One of the biggest demographic changes over this century has been the shift away from rural towards urban living. In 1900, about half the population of Canada lived in rural settings and about half of the labour force was involved (directly or indirectly) in agriculture. Currently, only about 11 percent of Canadians live in rural areas (using the Statistics Canada definition, which uses the population cutoff of 1,000 persons to distinguish urban from rural).

For economists, the profound shift in the rural/urban population distribution raises some interesting questions. One of these questions is whether there is any significant difference between urban and rural areas in terms of inhabitants’ living standards.

We can begin an investigation of this question where we always do—with incomes. In 1996, according to Statistics Canada’s Family Expenditure Survey (FAMEX), average household income in urban areas was $52,735, whereas in rural areas, average household income was $42,720. So, right away, we note a $10,000 differential in incomes in favour of those in urban communities. However, income misses so much! Most importantly, it misses possible differences in the cost of living.

For example, there is a clear and unambiguous difference in shelter costs in rural compared to urban areas. Indeed, there is a general pattern in Canada showing a direct (positive) relationship between shelter costs (both for house prices and for the costs of rental accommodation) and the size of community. There are a few exceptions to the pattern (some large cities in Quebec, for example, have lower shelter costs than many smaller cities outside of the province) but the relationship is fairly reliable and certainly holds within each province. Testing this hypothesis with data from the Canada Mortgage and Housing Corporation, we find that in 1996, the (weighted) average monthly rent of a two bedroom apartment in cities with over 500,000 persons was $677; in cities with between 250,000 and 500,000, it was $659; and in cities with a population between 125,000 and 250,000, it was $512. Regrettably, there are no reliable sources of information about rents in small urban and rural areas. However, indirect evidence suggests that the same pattern continues.

So shelter cost should be an important consideration in judging the relative living standards in the different areas. If shelter does indeed cost less in smaller communities, then clearly, a lower income in those areas is not necessarily an indication of a lower standard of living. People in smaller areas would not need as much income and would not have to spend as much on shelter to achieve the same enjoyment of housing. The facts from the latest FAMEX survey (1996) bear this out. Average family spending on shelter was $9,515 per annum in urban areas and $7,157 per annum in rural areas. It is important to note here, as well, that the average family size in rural areas was slightly larger than that in urban areas. For unattached individuals, the average annual spending on shelter was $6,293 in urban areas and $4,506 in rural areas.

There is also a conjecture that food costs are lower in rural areas because of the greater likelihood of home-produced food, and the greater appeal of restaurant food in urban areas. This is also supported by expenditure survey results. FAMEX data shows that urban families spent $6,834 per annum, on average, on food, whereas rural families spent $6,249.

In terms of overall consumption, urban areas dominate, but not to the same extent as for income. For example, in 1996, the average consumption of urban families amounted to $39,039 whereas for rural families, it was $34,529. For unattached individuals, it was $19,170 for urban and $17,217 for rural. So, to the extent that consumption is a better indicator of “true” material living standards than income, the absolute gap between urban and rural areas is only about $5,000 for families and about $2,000 for unattached individuals.

Other indicators of material standard of living should be looked at. One such indicator is the ownership of important household facilities such as automobiles, freezers, dishwashers, air conditioners, colour TVs and home computers. These items contribute to the comfort and convenience of the members of the households.

In 1996, households in rural areas actually owned more key facilities than did those in urban areas, although the margin of advantage was fairly modest. Leaving out cable TV, because it is unavailable in most rural areas, rural residents were more likely to own freezers, electric washing machines, and automobiles, and somewhat less likely to have air conditioning, compact disc players, and home computers than their urban counterparts. Overall, rural folks had a roughly 4 percent advantage over urban dwellers.

Finally, in 1996, there was a slightly higher probability of living in poverty in rural areas, at least for families, using consumption as an indicator. This takes into account a roughly 15 percent lower poverty line for rural areas reflecting lower costs of living. For unattached individuals, the poverty rate in urban and rural areas appears to be about the same.

This rather cursory examination of relevant data suggests that material living standards in rural areas may be somewhat lower than in urban areas, at least from the point of view of consumption levels. This is clearly not the final word, not least because it omits any consideration of “quality of life” and other non-economic factors. But it would be inappropriate to argue on the basis of the data here that people in urban areas in Canada are, in any sense, “better off” than those in rural areas.

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Last Modified: Wednesday, October 20, 1999.