Five hundred reasons Hoosier incomes trail the nation.

• Author: Zehner, Andy

In 2008, Indiana's per capita income of $34,103 was $5,648 below the national average of $39,751. This announcement from the U.S. Bureau of Economic Analysis was hardly news. Indiana has lagged the United States in personal income for years. Incomes rose from 2007 to 2008 in Indiana by 2.7 percent, but by 2.9 percent across the United States.

Personal income is the basis for private consumption and government revenue, so slow growth in personal income inhibits growth in Indiana's economy. It makes other objectives (improved education and infrastructure, debt reduction, moderate tax burden, etc.) harder to attain. Indiana's relative decline in per capita personal income can't continue without consequences for Indiana's public sector financing, private sector competitiveness or Hoosier quality of life.

Indiana's low ranking in per capita personal income is usually attributed to the long-term decline in manufacturing employment. As one newspaper report on the BEA announcement explained: "The loss of 178,000 manufacturing positions since 1999, particularly in steel, automotive and electrical industries, largely has eroded any gains." (1)

This article disputes that common explanation and offers an alternative. Instead of a single cause, there are nearly 500 reasons why Indiana lags the nation in personal income. While more complicated, this alternative view suggests that reversing the decline is possible.

Manufacturing Didn't Cause It

It is true that Indiana PCPI declined over a period when Indiana's manufacturing sector was shedding jobs. But it is wrong to single out manufacturing as the cause of the decline. Complex outcomes seldom are determined by a single cause. If the Indiana Pacers' Danny Granger scored thirty points in a game and the Pacers lost by nine points, it would be correct to say they lost because he didn't score forty. But a serious effort to improve the team would look beyond Granger to see what his teammates did or failed to do. Thirty points is about as much as a single player can contribute, and expecting Granger to do more may be impractical. Indiana needs to take that same broader approach to explaining and reversing its slow growth in per capita personal income.

Decline in manufacturing employment is a national phenomenon, yet many states have passed Indiana on the national ranking for PCPI since 1965 when Indiana last equaled the national rate. Those states improved without expanding their manufacturing sectors. Indeed, the rest of the country has shed manufacturing jobs faster than Indiana while achieving faster growth in incomes. These states have succeeded despite manufacturing losses. Just as the outcome of a basketball game reflects what every player does, Indiana's PCPI performance derives from many factors.

The solution to problems caused by the loss of one industry need not be a recovery of that same industry. Massachusetts' PCPI has stayed high despite losses as great as those Indiana has suffered. Whaling and shipping made Massachusetts a national economic powerhouse in the late 1800s. Those industries declined and Massachusetts sank with them, but rose again in the early 1900s by growth in textile manufacturing. When textiles began moving to the South or overseas, Massachusetts adapted again by capturing a share of the new biotechnology sector. West Virginia, by contrast, has never found anything to replace coal mining as the engine of its economy.

Since most people derive the majority of their income from wages earned at work, comparing wages for occupations, rather than industrial change, is a more pertinent tool for determining where Indiana's PCPI falls below the U.S. level.

Most Jobs Pay Less in Indiana

Hoosier workers earn less than similar workers in other states for hundreds of occupations. Indiana mean wages are lower in nineteen of twenty-two major occupational groups (see Table 1). The only major job types for which Indiana incomes exceed the U.S. rates are construction and extraction jobs, manufacturing production jobs, and the very small farming, fishing and forestry group.

Table 2 shows the relative size of occupational groups in Indiana and the United States. Indiana has relatively more jobs in five groups. These include high-wage health care professions and low-wage food service jobs, as well as installation, maintenance and repair...