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An Assessment of Alternative Measures for Determining Economically Distressed Counties and Areas in the Appalachian Region
Executive Summary
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The Appalachian Regional Commission (ARC) has played a vital role since 1965 in advancing
the well being of people, communities, and institutions in the region. Due to sustained
investments undertaken by ARC and other public and private sector entities, substantial inroads
have been made against the economic instability, poverty, weak human capital, poor
transportation corridors, and limited physical infrastructure that characterized the region at the
time of ARC's inception.
This report responds to a proactive effort by the ARC to explore new avenues for assessing wellbeing.
Despite well-recognized advances, chronic socioeconomic distress persists in various
pockets in the region while other areas face increasing instability stemming from population
shifts and global economic changes. The ARC has sought to develop meaningful indicators to
document distress, with the goal of improving the ability of the federal office of the ARC and its
state partners to target resources effectively to counties facing a diversity of barriers to achieving
economic progress.
The purpose of this report is to offer additional insights on the set of distress indicators and their
respective measures that can prove comprehensive, practical, and valuable in guiding the future
work of the ARC. Our report takes a fresh look at the current indicators employed by the ARC
to classify counties as economically distressed. We outline the strengths and limitations
associated with such indicators and evaluate a series of new indices and data sources that may
promote greater accuracy in terms of monitoring the long-term socioeconomic complexion of
counties in the region. These new indicators include “forward-looking” measures as well as
indicators that tap a wider range of socioeconomic dimensions of distress, beyond the standard
economic indices conventionally employed by the ARC.
Our conclusion is that the ARC should update its current distress indicators to better reflect
twenty-first century socioeconomic conditions. Though improved in recent years, the currentlyused
distress index -- based on the poverty rate, unemployment rate, and per capita market
income -- suffers from various shortcomings. Our analysis reveals that the poverty rate alone
largely drives the variability in the current distress index. Therefore, the current index is not a
valid and transparent measure that fully reflects all the dimensions of distress. Another problem
is the use of the unemployment rate and per capita income. In particular, the unemployment rate
does not capture contemporary labor market weaknesses to the degree that other indicators
would. Finally, in sensitivity analysis, we find that the counties can shift in terms of their distress
designation with only modest changes in how the distress index is calculated.
After a careful analysis of over 50 indicators, we recommend that the ARC reevaluate its
distress indicators in the following ways. First, it should consider the following candidate
indicators in this analysis: (1) population change; (2) educational attainment; (3) income and
earnings; (4) housing market conditions; (5) entrepreneurship and self employment; (6)
improved measures of labor market strength; and (7) the poverty rate. These indicators capture
dimensions of both current and forward-looking distress. Second, the analysis of candidate
indicators should be statistical in nature, relying on regression approaches to determine the
factors that have more power in explaining shifts in distress over time. This analysis should consider variable measurement issues and proper weights for each indicator. The outcome of the
proposed approach would be a small list of three to five variables that would constitute a new
indicator of distress. Finally, the ARC should consider monitoring a secondary grouping of
indicators to provide a broader context for benchmarking. These recommendations are more
fully described in Section 7 of the report.
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