There are signs of renewal and recovery in the Indiana economy.  For the first time since the year 2000, employment statewide has posted meaningful growth.  In some areas, notably Bloomington, and Indianapolis, job totals are back to where they were before the recession began.  Monthly state tax receipts have started to exceed expectations, instead of the other way around.  And in a broad spectrum of industries, from construction, to consulting services, to machinery and tools, there are signs of a pickup in business.

But there is a challenge to growth in the Indiana economy that has very little to do with the recession.  It was with us during the 1990’s, when the U.S. economy added nearly 20 million net new jobs, and it was with us when the economic party ended in 2001.  It is shared, to some extent, by most of our Midwest neighbors, although our state’s challenge is larger than most.  It is a challenge that has no quick solutions, yet cannot be safely ignored.

The problem is that Indiana is not fully participating in the national economic growth engine.  We remain a production oriented state with a less skilled, less educated, and less well paid work force in an economy that continues to grow in a different direction. And for the regions outside of Indianapolis the problem is even worse.

The symptoms of this problem are familiar to many of us.  Earnings per job in Indiana is lower than the national average, and the gap has slowly grown over the last thirty years. In the mid-1960’s, our state ranked 17^thamong the fifty states in per capita income, but now we can do no better than 33^rd.  With the exception of manufacturing, whereIndiana wages are at parity with their national counterparts, the average wage of every industry in Indiana is less than the national average.

In some cases the differences are substantial. In 1999, the average job in the banking, insurance and real estate sector paid about $31,800 to each worker in Indiana . Nationally, the average was $39,900. Services industries, including everything from health services to lawn care, paid average wages of $25,700 in Indiana , compared to $31,500 nationally.   Overall,Indiana earnings per job, which as late as 1982 were roughly at parity with the rest of the country, now amount to about 88 cents for each dollar paid the average worker in the national economy.

The decline in earnings per job in the Indianaeconomy, of course, tracks very closely with the decline in manufacturing employment over this same time period.  Those changes, we know, were caused by intense global competition and rapid advances in technology.  The question is, why do Indiana employers outside of manufacturing pay their workers less?

As an economist, I can offer two answers. First, there are important industries that are essentially no-shows in the Indianaeconomy.  Entertainment, tourism, and many categories of financial, technical, and scientific services have very little presence here. 

Secondly, compared to a state like Illinois , orMinnesota , Indiana has very few headquarters.  We are, it is sometimes said, a branch plant state.  The earnings data suggest that jobs in Indiana tend to have less scope and responsibility than similarly titled jobs in other states.

The exception to these observations is theIndianapolis economy.  Indianapolis is the only part of the state that pays wages at parity with the national economy, whose workforce is as well educated as the national average, and whose earnings per job has not eroded over the years relative to the nation.  But that just means that the problem for the rest of the state is even worse than the state statistics show.  How can we address this challenge? I’ll talk about that next week.