AbstractIncome data from the 1960 Census of Population was used to test the hypothesis that the factor markets “work better” adjacent to areas of urban‐industrial development. The medium income of males classified as operatives and males classified as farmers and farm managers were compared. The comparisons were made for counties grouped according to their distance from urban areas. The data show that income differentials between farmers and operatives did not increase as the distance from urban‐industrial areas increased. In most regions of the country the labor market appeared to be operating such that the income differentials could not be attributed to the differential effects of urban‐industrial development. However, the income differential between farmers and operatives was so large that a substantial disequilibrium between agricultural and nonfarm earnings is indicated.