MAY
2014

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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05-22-14

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Indiana's Low Per Capita Income


Indiana's per capita income is only 87 percent of per capita income in the United States as a whole. That ranks us 38th among the 50 states. Two decades ago we ranked 27th, with per capita income at 94 percent of the U.S. figure.

What happened?

Start with some definitions. Per capita income is simply total income earned by people living in Indiana, divided by Indiana population. That's wages and benefits, interest earnings and rents, dividends and entitlement payments per Indiana person. For 2013, Indiana per capita income was $38,812. The U.S. figure was $44,543.

Per capita income is not the typical income of an Indiana household or family, though. Per capita income is a much smaller number than typical income, mostly because population includes children. When children are combined with adults into households, the median (or middle) income was $48,374 during 2008-2012. That's what a typical household actually earns. The U.S. median was $53,046, so Indiana's household income was 91 percent of the U.S. figure.

Why look at per capita income, when household income is the better measure of what people earn? Because we've got per capita income data all the way back to 1929. We can look at the trends of the past 85 years.

Let's do that. The Great Depression hit Indiana hard, and by 1932, the state's per capita income was only 77 percent of the U.S. number. But Indiana recovered fast, and by 1941, its per capita income was slightly higher than the nation's, with a percentage of 101 percent.

The period from 1941 to 1965 was the golden age of Indiana per capita income. During those decades, Indiana averaged 99 percent of U.S. per capita income, and Indiana's income was higher than the U.S. in 11 years.

But 1965 was the last time that Indiana had a per capita income greater than the United States. Indiana's percentage bounced up and down around 95 percent through most of the 1970s, but the double-dip recession of 1979-82 clobbered the Indiana economy. Through most of the 1980s, Indiana made do with per capita income near 90 percent of the U.S. figure.

The state did some catching up in the early 1990s, moving up to 94 percent in 1994. Then the state began a two-decade decline. From 1994 to 2001 Indiana fell to 91 percent of U.S. per capita income. Then it dropped some more, to 85 percent of the U.S. by 2007. That was the lowest percentage since 1934.

Often in the past, recessions triggered declines in Indiana's percentage. The drop from 1994 to 2007, though, mostly took place during expansions. Indiana didn't fully share in the income growth experienced by the rest of the country. We can find clues about the reasons by looking at income composition and growth by industry.

Indiana's share of manufacturing in the state's total income is the highest in the U.S. In 2013, 15 percent of the state's income came from manufacturing wages, benefits and profits. The U.S. share was 7 percent. Back in 1994, Indiana's manufacturing percentage was even higher, at 22 percent of total income.

In the U.S. overall, as well as in Indiana, manufacturing income grew at less than half the rate of total income during the 1990s and 2000s. Manufacturing jobs disappeared, and as the No. 1 manufacturing-dependent state, Indiana's income growth slowed down.

Indiana's growth also was limited by the kind of employment the state didn't have. In the 1990s, income grew rapidly in information industries like telecommunications and data processing. During the whole period, income grew rapidly in finance and insurance, and in professional, scientific and technical services. Indiana had an 8.1 percent of its income from those three sectors in 2013. The U.S. had 14.4 percent. The state has a big share of its employment in industries that have had slow income growth and a small share of employment in industries with rapid income growth.

Indiana has recovered a bit faster than the U.S. since the Great Recession, to 87 percent of U.S. per capita income in 2013. Manufacturing has recovered - some - and the state has added to its share of professional, scientific and technical services income. Will these positive trends be enough to raise Indiana's per capita income back to the U.S. level? Hard to say, but we've got a long way to go.


 

 

Writer: Larry DeBoer
Editor: Olivia Maddox