Health Care and Education & Workforce Development and Manufacturing & Technology

EYE ON THE PIE: It's the money, not the jobs, stupid

April 7, 2008

"It's jobs, jobs, jobs," presidential and gubernatorial candidates shouted last week in Indiana. And the crowds responded in the affirmative, urging the candidates to promise more jobs for more Hoosiers.

OK; jobs are good, but well-paying jobs are better. Since the 1980s, the state has claimed it is interested only in jobs that pay above the average for the area in which they are located. When challenged by the fact that the jobs being acclaimed do not always meet that standard, the bureaucrat du jour says we need jobs for people at all levels in the economic pyramid.

Don't get involved in this nonsense. The question is, "Will the average wage rise as a result of the new jobs?" New jobs can have a wage level below the average, but as long as they replace lower-paying jobs, the average will rise. Example: If the average is $15 and the new job pays $10, but replaces a job paying $5, the average will rise. It is not necessary to bring in jobs paying more than $15 to raise the average. What we need to do is drive out the lower-paying jobs.

The average worker in Indiana made about $51,900 in 2007. While that's a heap of bucks, it is about 15 percent below the national average of $60,800. Worse yet, we are on a path that is moving up only gradually compared to the steeper slope for the nation. Earnings per employed person in the United States grew an annual average of 3.8 percent over the past three years, compared with 2.7 percent in Indiana.

When the personal income numbers came out last week, showing another poor performance by Indiana, some, seeking any straw, said, "It's because our population isn't growing as fast as the nation's, so naturally our total personal income would be slower than the national growth rate as well."

Yes, population in Indiana is growing less rapidly than in the nation (0.67 percent per year versus 0.95 percent, between 2004 and 2007), but it is our slow rate of growth in personal income (4.6 percent versus 6.2 percent) that is of more concern. Put differently, in 2004, Indiana had 2.12 percent of the nation's population, with 1.92 percent of the personal income. In just three years, we slipped to 2.10 percent of the population (not much of a drop) but only 1.83 percent of the personal income.

Our problem is income, not population. Raise the income and we might well see population grow more rapidly. In which sectors is Indiana adding income faster than is the nation? There were five of them from 2004 to 2007: Federal civilian employment, private educational services, forestry, farming and non-durablegoods manufacturing. However, there are 19 sectors where Indiana lagged the nation. They are too numerous to mention here.

Oh, but is that too short a time? Let's go back to 1990 to 2007. Now there are nine sectors doing better in Indiana than in the nation: We add five to the previous five: durable-goods manufacturing, administrative and waste services, health care and social assistance, arts-entertainmentrecreation (gambling), and other services. But we subtract federal civilian employment, to give us nine sectors growing faster in Indiana and 15 failing to meet the national average rate of expansion.

Even if we printed all the detail here, it would not help our eager economic developers. Too many factors are at work to pluck answers out of a data set. All we can derive from data are slashes on the tree bark pointing the way along a faint trail.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
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