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Indiana's wage gap is growing

March 16, 2009

Today, with our national economic crisis, it is easy to focus on getting jobs. Under such dire conditions as those facing some workers, homeowners and retirees, we can forget that getting back to where we were before all this economic distress may not be an appropriate goal.

Imagine with me that Hershel Hoosier was born in 1942 and retired in 2007 at age 65. Hershel is not an average guy. In fact, by 1969, when he was just 27, he was already earning the average wage for someone working in Indiana. Attaining that average pay level is not ever in reach for many workers and rarely for one so young.

Through the years, Hershel continued to earn the Indiana average wage (including employer-paid benefits) as reported by the U.S. Bureau of Economic Analysis. In 1969, he earned $6,574, which in terms of 2007 buying power was equal to $30,627. By 2007, he was earning $36,908, or $6,281 more in buying power than in 1969. That's an average annual real pay raise of 0.5 percent, just half of the nation's 1.0-percent yearly increase.

Out of the 50 states, Indiana had the fourth-lowest increase in real average wages, both in dollars and in percentages. Massachusetts enjoyed a 1.5-percent average annual growth in average wages, three times as great as Indiana's. Where our gain was below $6,300 in real growth, Connecticut, Massachusetts, New York and New Jersey saw increases greater than $20,000 each.

Yes, by being average in Indiana, Hershel was losing out big time to the average citizens of 46 other states. Back in 1969, the average Hoosier wage was the 13th-highest in the nation. By 2007, it was down to 32nd. This was the second-worst fall in the nation, trailing only West Virginia, which fell 20 places, to 44th.

In 1969, Hershel earned $312, or 1 percent more than the average American worker.

It would not be until 1977 that the average wage in Indiana again exceeded that of the nation. Hershel then had three consecutive good years. After 1979, however, he never matched or exceeded the average national wage level again.

From 1969 to 2007, Hershel earned a total of $1.28 million. His national counterpart earned $1.37 million. That left Hershel 7-percent short of the national average. Is $90,000 the premium one must pay over four decades to live as an average worker in Indiana? Does $2,300 a year make that much difference in a family's quality of life?

Remember that this average of $2,300 can be multiplied by 3 million workers to equal $6.9 billion in wages. Then, too, the difference between average wages in Indiana and in the nation has been diverging faster as the years pass.

In 1977, Hershel had a 1.1-percent advantage over his national counterpart. By 1987, Hershel was 7.0 percent behind. In 1997, he was down 9.3 percent. And in his last year at work, in 2007, Hershel Hoosier trailed the national average wage by 15.9 percent ($6,980). A $7,000 average difference becomes $21 billion when extended to the full work force.

This increasing gap between the average wage in Indiana and in the nation needs to be our focus. This gap is not due to inflation, which has been taken out of these numbers. Rather, it represents the declining relative value of the products and services produced by Hoosier businesses. What we do is becoming of less and less value compared with what is done by labor, management and technology in other states.

The real challenge for Indiana is not the short-term recovery from recession. Our task is to reverse the long-term deterioration of our competitive status within the United States.

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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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