Dissecting Indiana's decline in personal income.

• Author: Marcus, Morton J.
• Position: Statistical Data Included

The fact that Indiana's share of the U.S. personal income and population has been declining is not news any longer. Even the fact that Indiana's per capita personal income (PCPI), relative to the nation's PCPI, is also in decline has become widely understood.

But, to date, pinpointing the components of that relative decline has not been undertaken. Hop on for a ride through the data. As you fasten your seat belts, remember that we are discussing relative decline. Indiana and the nation have both been making progress. Our search is for the components of personal income and sectors of the economy where Indiana has had its strongest and weakest performance compared to the nation as a whole.

If, however, such a journey seems too laborious, we recommend you flip to the summary and see all revealed in one simple table (see Table 2 on page 6).

Personal Income, Population, and PCPI

In 1969, Indiana enjoyed 2.47 percent of the nation's personal income. At the time we had 2.55 percent of the U.S. population. By the year 2000, our share of personal income had fallen 1.97 percent and our population was but 2.16 percent of the nation (see Figure 1).

[FIGURE 1 OMITTED]

A declining share of the nation's income or population is not a sign of being worse off in absolute terms. During this period Indiana grew in both measures, only at a rate that was slower than the rest of the nation. Thus, the state was in a condition of relative decline.

Personal income divided by population yields per capita personal income (PCPI). When a state's share of the nation's income is less than its share of the nation's population, then its PCPI will be less than the nation's PCPI. Thus in 1969, Indiana's PCPI was $3,714 while the nation's was at $3,846. Setting the U.S. equal to 100, Indiana's relative PCPI index value was at 96.57 or 3.43 percent below the nation's. By 2000, Indiana's PCPI index was 91.13 or 8.87 percent below the U.S. (see Figure 2).

If Indiana had started above the national average in PCPI, we could claim that this was just a case of the rest of the nation catching up with us. That was not a luxury we enjoyed.

As seen in Figure 2, there were five different periods over the span of years from 1969 to 2000. During the first period, 1969 to 1977, Indiana hit 97 percent of the nation three times, slipping down during recessions and fighting back to the 97 percent level. But the next recession knocked Indiana down to 89 percent of the U.S. in 1982. During the third period, Indiana stayed on the canvas through 1991. Then, in the fourth period, Indiana climbed back to 94 percent of the nation, but the recovery was short-lived. By 2000, the Hoosier state was again in a sinking mode, falling to 91 percent.

Figure 1 showed us that the changes in population are fairly regular but that the movements of personal income are what direct the variations of PCPI seen in Figure 2. A closer look at personal income and its components is warranted.

Components of PI

Like Gaul, personal income is divided into three parts:

* Earned income--what we make working for ourselves or others

* Dividends, interest, and rent--the returns on capital we own

* Transfer payments, government payments for unemployment and social security

In 1969, earnings were a larger...