Topic: Miller College of Business

August 26, 2013

When it comes to personal income, people in some Indiana counties are living in 1984, 1975 or even 1964, says a new report from Ball State University.

The Causes of State Differences in Per Capita Income: How Does Indiana Fare?” by Ball State’s Center for Business and Economic Research (CBER) finds that while the state has enjoyed small annual increases in the average standard of living over the last 50 years, there are stark differences in per capita personal income from one part of the state to another.

“We are not saying that Indiana is a poor place, but in some areas of the state, incomes have clearly not kept up with the national or regional averages,” said Michael Hicks, director of CBER, the research division of the Miller College of Business.

Researchers started by looking at wages in 2010 inflation-adjusted numbers, then assigning each county the year in which its current standard of living was equal to that of the nation as a whole. The state average was at the 1996 national level.

The study found that residents of Marion County had an average personal income in 2010 equivalent to the national average in 1999. Most counties in Indiana had personal income levels that were 20 to 30 years behind the national average. A few lagged even further as LaGrange County income levels were at 1964 levels while Miami and Starke counties were stuck in 1975.

Three counties earned at 2010 national levels (Hancock, Porter, and Warrick counties), while two earned more than the national average (Boone and Hamilton counties).

“The largest difference between the areas with counties that have kept up or surpassed national income averages are associated with educational attainment at the bachelor’s degree and beyond,” Hicks said. “It also is clear that place-based differences play a large role in per capita income.

“Regional attractiveness to residents plays a major role in per capital income across states and counties. There are some places — including the northern suburbs of Indianapolis — where people choose to live because the housing is nicer, neighborhoods are safer and the schools are better. And because of this concentration of highly educated workers, companies populate those areas.”

The study also looks at how Indiana compares to the rest of the nation, finding that it ranked 40th among the states for 2010 per capita income, with the average resident bringing in $34,042 from all income sources. This is a decline from 1980, when Indiana ranked 30th, which was itself a decline from 1950, when Indiana ranked 21st in the nation.

CBER’s research found the per capita income gap in Indiana over the past three decades has a strong human capital dimension, as high wage jobs found in various manufacturing industries evaporated during several recessions. Moreover, a big decline in incomes appears to be associated with lower returns to farming which gathered steam in the 1980s.

Hicks cautiously applauds the goal of boosting Indiana’s per capita incomes adopted by public and private sector organizations.

“Per capita income is a strong measure of standard of living, and its increase will have laudable effects on the states’ citizens,” he said. “However, changes to policies and programs have long and variable lags. It is nearly certain that no policy, no matter how ambitious, effective or wide reaching, will achieve measurable income goals over the term limit of a governor.”

In addition to boosting educational attainment at both the K-12 and college levels, Hicks also recommends more comprehensive “place-based” policies in Indiana, designed to attract and retain high-income households.

“Such policies at the state level should be designed to create conditions in which communities can develop residential attraction practices that suit their particular suite of amenities, local preferences, and budget constraints,” he said. “State-level policies designed to help communities better plan investments and consolidate resource-intensive activities will occur across a wide spectrum of public and private activities, which support residential investment.”