Published: December 10, 2008 02:05 pm      

Criteria for economic development unclear

Economic developers want to bring high paying jobs to their communities. The boards of the development agencies also want high paying jobs. Their consultants have sophisticated models to identify which industries will provide such jobs.

Of course, everyone would be happiest if the firms with new high paying jobs proved to be those already in the area. Then it would not be necessary to have “foreigners” taking advantage of government location incentives. Life would be much simpler if the best match between our town and new jobs rested with folks we knew already.

We want industries that offer high paying jobs. What are industries looking for? One idea is that industries want to be where they get high output per dollar spent on compensation for workers (wages, salaries and benefits).

Recently I ran some numbers from the U.S. Bureau of Economic Analysis and found that Indiana offers $1.72 in output per dollar of compensation. That’s just two percent below the national figure for all types of non-agricultural activities. As for compensation per employee, we pay an average of $37,345 which is 11 percent below the national level.

But those numbers vary greatly by industry. For example, in primary metal manufacturing (aluminum and steel), Indiana offers output per dollar of compensation that is 41 percent below the national average. In addition, our pay per employee in that industry is 17 percent above the figure for the nation as a whole.

Undoubtedly, those more familiar with primary metals can tell us why these numbers seem to make Indiana uncompetitive for new investments in that industry. But that does not mean we don’t want firms from that industry. After all, Indiana’s average pay level in primary metals is 125 percent above the all industry average for the state.

The situation is a little different in petroleum and coal products manufacturing. Indiana’s output per dollar of compensation is $2.93 or 47 percent below the nation. But our workers are paid just eight percent less than the average worker in that industry nationwide. Maybe that’s one reason we see a major investment by BP in Lake County that should raise output per dollar of compensation closer to national levels.

At one time, Indiana communities with a more-than-average educated population talked about bringing in publishing and software firms. Some might ridicule this idea since we are neither New York City nor Silicon Valley. Yet our output per dollar of compensation is only two percent below the national level while our pay is 42 percent below the U.S. average.

How can we increase the value of output in that industry so that wages can rise? Are wages low in publishing and software compared to the rest of the nation because there is not enough competition in the industry locally and employees (talented students and spouses?) are not mobile? This could be an industry we might encourage since average compensation is 16 percent above our state’s average pay level.

Now that Hoosiers finally recognize Indiana as a manufacturing state, it is strange to find that we have almost the same average compensation and the same output per dollar of compensation as the nation. We’re just average compared to our sister states. Nonetheless manufacturing employment provides a 74 percent premium in average pay compared to the average Hoosier job. That explains why communities persist in seeking expansion of their manufacturing sectors in preference to other opportunities.

Morton J. Marcus is an economist, writer and speaker formerly with the Kelley School of Business at Indiana University. He can be reached at mortonjmarcus@yahoo.com