July 26, 2002
The Perfect Storm for Indiana Income?
Those of us who live and work in Indiana have plenty of things to be proud of. Unfortunately, the size of our paychecks doesn't make it to that list. Ever since the recessions of the early 1980's, our status in the earnings-per-job pecking order among states has steadily slipped, to the point where the $1.02 paid to Hoosier workers for every dollar paid nationally in 1979 has tumbled all the way down to just 87 cents in year 2000.
And as if that problem wasn't bad enough, the new decade has brought us an unwelcome recession that has further eroded earnings. The Bureau of Economic Analysis's (BEA) figures on state personal income for the first quarter of 2002 confirmed what state tax collectors already knew -- income growth statewide has stalled out. Over the last year, income received by individuals has averaged a mere 1.2 percent gain, less than what it would take to keep up with inflation over the same period.
We can take some solace in the fact that even the one-two combination of these unfavorable trends still leaves the state economy with plenty of life. And Indiana isn't the only manufacturing state that is stumbling to find its way in the post-industrial age. But the painful strike of a recession at a time when our relative fortunes were already falling has all the makings of a "perfect storm" for Indiana paychecks.
Recessions, of course, are hardly unfamiliar to anyone in the Midwest. Despite the bleeding on Wall Street, the contraction in the national economy, at least, shows every sign of being over and done with. And even though the BEA report gives little indication that we are over the hump in the state economy, news from the first quarter of 2002 is now nearly four months old.
If the June revenue report published by the Indiana State Budget Agency is any guide, there is hope that the continued slide in income for Indiana residents has at least leveled off. For the first time in three months, income tax collections in June actually exceeded projections. And everyone knows that the most effective way to end recessions in the state of Indiana is to get the national economy to grow.
Reversing the slow, steady decline in earnings per job throughout the state is a much more difficult nut to crack. After a decade of near-parity with the rest of the nation in the 1970's, the average wage for Indiana workers has tumbled steadily for two straight decades. Unlike recessionary losses, which can be made up in subsequent years, the declines in Indiana's standard of living relative to the rest of the country have occurred in both good times and bad.
In fact, our relative fortunes sank even faster at the end of the last decade, just as the national economy was soaring to unprecedented heights. After hovering in the neighborhood of 91 cents to the dollar through much of the 1990's, wages fell to 87 cents per U.S. dollar between 1998 and 2000. In contrast, Minnesota's relative earnings have remained roughly at parity over the last 30 years, while Illinois has largely maintained its 10 percent wage premium over this same period.
It's not very difficult to find the smoking gun behind this decline. Our earnings woes began with the upheavals in manufacturing caused by the recessions of the early 1980's, and they haven't stopped since. In the jargon of economics, our state's "industry mix" towards manufacturing, which had produced tremendous wealth and prosperity up until that point, has been a losing hand ever since.
But what to do about it is an entirely different matter. Perhaps the first step is to simply recognize that there is a problem. And hope that the next Michael Dell is setting up shop in a dorm room right now somewhere in Indiana.
About the Author
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