Why Indiana’s Economy Lags

Indiana’s Institute for Working Families conducts research on Indiana’s economy–more specifically, the ways in which the state’s economy is or is not working for low-income Hoosiers who work.

The news, you will not be shocked to discover, is not good.

Recently, the Institute posted a list of 16 reasons why Indiana’s minimum wage should be raised. I encourage you to click through and read them all, but I want to highlight some of the most compelling.

  • There is not one county in Indiana where where working full time at the minimum wage of $7.25 per hour is sufficient to support even a single adult.
  • Waiters and waitresses in Indiana are paid $2.13 per hour by their employers (29% of the minimum wage). The last time they saw a raise was a quarter-century ago (1991), even as the industry has seen strong growth and profitability.
  • In Indiana, the median number of work hours at the minimum wage for a single adult to become self-sufficient is 48 hours per week. The number of hours increases significantly to 108 hours for a single adult with one preschooler and one school-age child. For a family with two adults, a preschooler, and a school-age child, each adult would need to work 64 hours for the family to be self-sufficient.
  • Standard and Poor’s cites rising income inequality as “contributing to weaker tax revenue growth”, making it more difficult for state and local governments to invest in education and infrastructure.
  • Children whose parents work for the minimum wage live below the federal poverty line. Research has found that children being raised in poverty have lower academic achievement, poorer nutrition, fewer job prospects as adults, and worse physical health than their more affluent peers.

The usual objection to raising the minimum wage makes superficial sense: if businesses have to raise what they pay, they will hire fewer workers. Logical as that seems, the evidence from decades of research says otherwise. As the Institute notes,

Two recent meta-analyses of research on minimum wage increases during the 1990s found that “the minimum wage has little or no discernable effect on the employment prospects of low-wage workers.”

There is a reason for this seemingly counter-intuitive result: when the minimum wage goes up, the buying power of low-wage workers also goes up. Unlike wealthier Americans, low-wage workers spend those extra dollars, and that increased spending boosts the economy. Increased buying power translates to increased sales of goods and services; employers who see improved bottom lines hire more workers.

A raise in the minimum wage to 10.10 per hour would affect 637,000 Hoosiers (23.4% of the workforce). That number includes 436,000 who are currently making less than $10.10 and another 201,000 whose wages would be pushed up due to pay scale adjustments. That’s a lot of additional buying power.

And as an added bonus, paying a living wage to hard-working Americans might ameliorate some of the rage and resentment currently fueling our toxic politics.

Just a thought.


At Least We Aren’t Kansas….

States are often referred to as “laboratories of democracy,” a phrase coined by Supreme Court Justice Louis Brandeis. Although we might debate the utility of a federalist system in our shrinking, ever-more-connected world, it is certainly the case that different states pursue different policies and that the experience of, say, State A may have useful lessons for State B.

It is also the case that Governors tend to portray their own states in rosy terms.  In Indiana, the last couple of administrations have certainly “accentuated the positive” and “eliminated the negative.” Scholars and policymakers seeking to evaluate the claims must go beyond the hype and ask inconvenient questions. (It’s wonderful that you brought the XYZ company to Indiana, but doesn’t it pay minimum wage and hire only part-time workers to avoid offering benefits?)

 Which brings me to a recent report issued by Indiana’s Institute for Working Families. (Full disclosure: I am on the Institute’s Advisory Board.)

The Institute’s focus is self-sufficiency for Hoosier families, and it conducts research and advocates policies that are calculated to achieve that goal. Every two years, it issues a report measuring the economic health of Hoosier families. This year’s report (available on its website) does not support the rosy claims made by the Administration, to put it mildly.

Despite an improving unemployment rate, the number of impoverished and low-income Hoosiers is still on the rise, median household income is
still declining and income inequality in Indiana is growing… Hoosier families have steadily lost ground, too often at clips greater than the nation and even our neighbors. The data make it clear that Hoosier families are not the fiscal envy of the nation.

The report is lengthy, thanks to copious documentation, but highlights from an accompanying Infographic tell the story: 1,015,127 Hoosiers are below the poverty level—a record high. Another 1,260, 419 live on the edge of poverty. That brings the total number of low-income Hoosiers to 2,275,546.  Indiana is home to approximately 6, 500,000 people, so slightly over a third of all Hoosier citizens are struggling.

 Since 2007, the number of low-income Hoosiers has increased 20.7%. Indiana’s number of middle and high income residents has fallen by 8.7%.

Median household income in Indiana in 2013 was $47,529—down sharply from 2000, when it was $55, 182.

Indiana’s performance cannot simply be shrugged off as a consequence of the recession. Certainly, the recession was a factor, but between 2007 and 2013, while the country as a whole experienced a 20% increase in the poverty rate, Indiana’s increase was 29.3%.

What accounts for Indiana’s dismal income figures? The Institute’s research suggests a couple of culprits. First of all, there is what the Institute calls “the jobs swap”—during the recession and its aftermath, the state steadily lost jobs in mid-and high-wage industries, while the jobs we added were low wage positions. The numbers tell that story: Indiana added 14,726 low-wage jobs between 2007 and 2013; we lost 35,814 mid-wage jobs and 23,369 high-wage jobs.

And then there was government.

 What was Indiana government doing to address the erosion of Hoosier wage levels? It was cutting public employment, trimming the social safety net–and bragging about how “right to work” and a low minimum wage had made Indiana “competitive.”

 If we are a “laboratory of democracy,” our lab experiment failed.

 On the other hand, I suppose we should be glad we aren’t Kansas…


Ironies of the Season

A former student of mine, Derek Thomas, is a policy analyst at the Institute for Working Families–a local think-tank that focuses on policies affecting (duh!) working families. He has a recent post at the Institute’s website documenting the toll taken on those families by the ongoing sequester.

I couldn’t help feeling a twinge of guilt as I read the catalog of the sequester’s consequences for my fellow Hoosiers, not because I consider myself culpable (I didn’t vote for those responsible, nor did I support the use of this meat-ax approach to budgeting), but because I hadn’t really thought about the sequester in such concrete terms.

Most Americans who share my good fortune–still middle-class, still employed, still able to make my mortgage payments–think of the sequester in terms of policy, assuming we think of it at all. It was stupid and cowardly, evidence of Congressional dysfunction. We haven’t thought about it in terms of Indiana children thrown out of Head Start, or elderly folks who aren’t getting hot Meals from Meals on Wheels, or the landlords and tenants alike who no longer receive housing vouchers both depend upon…let alone the multiple other hardships detailed in Derek’s report.

Worse still, the full impact of the sequester hasn’t yet hit.

While low-income working families are struggling with the consequences of decisions made by people those decisions wouldn’t affect, our news media has focused on the Black Friday near-riots at big-box stores, as shoppers fought each other for the presumed “bargains” on display.

What was really on display was the disconnect between the “still-haves” and the “no-longer-haves.”

Also on display was the evident lack of concern about the latter category by those of us in the former one.


The Real State of the State

A former student of mine is a researcher for Indiana’s Institute for Working Families. (I strongly encourage those of you who are interested in evidence about the status of working Hoosiers to visit and like the Institute’s Facebook page.) He was the lead researcher for the Institute’s recently released report, The Status of Working Families 2011. That report, which he shared with me, is a sobering corrective to the political hype that passes for news these days.

The punditocracy has characterized Indiana as an economic “success story,” as a state that weathered the Great Recession better than most. As the Institute’s report makes clear, that rosy evaluation ignores a number of highly inconvenient facts: the state has 231,500 fewer jobs than before the recession (Indiana is among only 17 states that have continued to experience absolute declines in the labor force since the recession began); our median wage for those with a bachelor’s degree is $0.80 lower than the national average (and a mere 14.6% of Hoosiers even have a bachelor’s degree–we rank 42d in the nation); since 2000, the state has seen a 52% increase in poverty.

These and similar statistics in the report are depressing enough, but I think the most significant analysis centers on wages. Although our political rhetoric regularly conflates job creation and wages, they are two very different indicators of economic health, and both sides of that equation are important. We need more jobs, but not just any jobs. We need jobs that pay a living wage.

So how does Indiana stack up?

  • Indiana workers earn 85% of what workers in the rest of the country earn. We rank 41st in the nation.
  • Since 2000, wages have decreased for workers in both the 50th and 10th percentiles (by 3.4% and 10.6% respectively). This cannot be explained by decreased productivity, because productivity increased by over 14% during that same period.
  • Median household income fell by 13.6%–the second largest decrease in the nation. (Michigan was first.)
  • Median family income also decreased dramatically, falling 29.6%
  • Since 2000, Indiana has experienced a 52% increase in poverty.

The current administration believes that low tax rates and decimated unions will attract jobs to our state. Evidence does not support this belief. Businesses relocate to areas offering–among other things–an educated workforce and consumers with the discretionary income to buy their goods. They relocate to environments offering a high quality of life–parks, public transportation, good schools and a reasonable social safety net. These are the very things that suffer when lawmakers care only about slashing taxes and depressing wages.

There’s a reason businesses aren’t moving in droves to Mississippi.

If we continue to starve public education and local government, if we continue to pursue policies that depress wages and make it more difficult for families to escape poverty–if we continue to emulate states like Mississippi–businesses won’t move here, either.