This paper examines the relationship between the quality of local labor force and variation in regional poverty outcomes among Michigan areas. A regional poverty model is derived from the household production model for that purpose. The US Census 2000 data on small geographical areas of Michigan (Census Block Groups) is used for the analysis. It is found that the difference in regional poverty is explained primarily by differences in quality and quantity of labor available to a household. Second, heterogeneity of the model is detected with respect to a degree of urbanization. Also, the relation between average income and regional poverty is found to be nonlinear and distribution of income playing a major role in explanation poverty. Higher poverty rates in rural areas tend to persist over time.