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State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
CLOSE TO HOMEINDIANA AND ITS METRO AREAS
Jerry Conover, Carol Rogers & Michael ThompsonIndiana Business Research CenterKelley School of Business, Indiana University
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Indiana Outlook: A long, slow road ahead
• National slowdown challenges Indiana’s efforts to grow
• Our economy has grown more slowly than the nation’s for several years, but the gap is narrowing
• Overall outlook: o a tough year in 2008o slow growth in 2009o more robust growth in 2010
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Key Indiana sectors: Motor Vehicle Mfg.
The nation is losing auto plant jobs at a faster rate than Indiana.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Key Indiana sectors: Construction
• Indiana bucked the national trend last year. • But residential slowdown and tight money have kicked in lately.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Key Indiana sectors:Professional & Business Services
• Sector still growing, but much more slowly in recent months.• Professional, scientific & technical services doing OK.• Management of companies & enterprises not growing.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Households more stressed in other states
HESI = unemployment rate + inflation rate – % change in house prices
•28 states have higher HESI than Indiana
•Indiana housing prices still rising
•Unemployment relatively low here
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Forecast for Indiana: Employment
• Payroll jobs shrink by 32K in 2008, then gain 8K in 2009 and 46K in 2010.
• Non-payroll jobs keep growing through 2010, gaining 28K this year.
Several more months of weak employment before turnaround:
IU Center for Econometric Model Research
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Indiana Forecast: Personal Income Growth
IU Center for Econometric Model Research
Occupational Hazard – DWD Quarterly Briefing June 11, 2008
Indiana is not all the same.
Many regions are adding jobs & lowering unemployment…
…while others are not.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Most, but not all, MSAs will add jobs
IU Center for Econometric Model Research
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Cities will also vary in income growth
IU Center for Econometric Model Research
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Kokomo, Muncie to Lead Sales Growth
economy.com
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Broad slowdown in building permits
economy.com
Occupational Hazard – DWD Quarterly Briefing June 11, 2008
New Job Commitments by International Businesses in Indiana, 2005–2007
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
THE OFT-POSED QUESTION: WHY IS INDIANA’S PER CAPITA
PERSONAL INCOME LOWER THAN THE U.S. AND MANY STATES?
INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT
QUARTERLY ECONOMIC BRIEFING
Indiana Business Research Center
Jerry N. Conover, Ph.D., Director
Carol O. Rogers, Deputy Director
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Indiana’s Per Capita Personal Income Compared to the Midwest
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
What Explains Indiana’s PCPI?
• Hypothesis1: Earnings comprise the largest component of personal income, ergo earnings drive income and as a result, the occupational structure of Indiana’s economy may help explain Indiana’s PCPI performance.
• The Question: how strong is the relationship between average annual earnings for the 22 major occupation categories and the concentration in those occupations?
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Correlation: Average Annual Earnings and the Concentration of Occupations
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Correlation: Earnings and Location Quotient
(1.00)
(0.80)
(0.60)
(0.40)
(0.20)
0.00
0.20
0.40
0.60
0.80
1.00
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Corr
ela
tion
Per
Capit
a P
ers
on
al
Incom
e
Per Capita Personal Income and the Correlation between Occupational Concentration and Average Annual Wage for Major Occupations
Per Capita Personal I ncome 2007, left axis
Correlation between LQ and Avg. Annual Earnings 2007, right axis
Source: Bureau of Economic Analysis; Bureau of Labor Statistics
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Occupational Trends Help Explain Rate of Income Growth
• Hypothesis2: High-wage, high-growth occupations drive larger increases in personal income and faster rates of PCPI growth.
• Question: What is the relative concentration of occupations in higher PCPI states?
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Relationship between Earnings and Occupations for Illinois
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
0.60 0.80 1.00 1.20 1.40 1.60
Avera
ge A
nn
ual E
arn
ings
20
07
Location Quotient 2007
Business and financial
Healthcare practitioners and
Transportation and material
Production
Management
Life, Physical and Social Sciences
Positive relationship between occupation concentration and average annual earnings
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Relationship between Earnings and Occupations for Indiana
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
0.60 0.80 1.00 1.20 1.40 1.60
Avera
ge A
nn
ual E
arn
ing
s 2
00
7
Location Quotient 2007
Production
Healthcare practitioners and technical
Management
Transportation and material moving
Life, Physical and Social Sciences Business and financial
Negative relationship between occupation concentration and average annual earnings
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Indiana Jobs by Occupation
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Growing: Indiana’s higher wage, higher growth occupations
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Concentration and Earnings of Management Occupations in the Midwest
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.6 0.8 1.0 1.2 1.4 1.6Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
Indiana:Increasing
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Concentration and Earnings of Life, Physical and Social Science Occupations in the Midwest
Indiana: Increasing
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.60 0.80 1.00 1.20 1.40 1.60
Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Occupations Driving Indiana’s PCPI Performance
Occupation% Total
Employment
Ave. AnnualEarnings
(2007)
Change inEarnings
(2001-2007)LQ
(2007)
Change inLQ
(2001-07)Production 13.23% $33,090 0.09% 1.26 0.21%Installation, maintenance, and repair 4.63% $40,050 0.03% 1.16 0.11%
Construction and extraction 4.76% $41,850 0.16% 1.14 0.67%Transportation and material moving 8.95% $30,310 -0.32% 1.11 0.37%
Indiana currently has a higher concentration in occupations with slower earnings growth
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Concentration and Earnings of Production Occupations in the Midwest
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.6 0.8 1.0 1.2 1.4 1.6
Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
Indiana:Increasing(and leads the pack)
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Concentration and Earnings of Transportation and material handling Occupations in the Midwest
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.60 0.80 1.00 1.20 1.40 1.60
Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
Indiana
Indiana:Increasing
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Occupation% Total
Employment
Ave. AnnualEarnings
(2007)
Change inEarnings
(2001-2007)LQ
(2007)
Change inLQ
(2001-07)Healthcare practitioners and technical 5.35% $59,310 2.36% 0.97 -0.38%
Architecture and engineering 1.54% $60,150 1.32% 0.88 -1.08%
Business and financial operations 3.10% $55,120 1.64% 0.72 -1.78%
Computer and mathematical 1.42% $61,130 1.10% 0.68 0.40%
Occupations Driving Indiana’s PCPI Performance
While earnings per job are increasing in these key occupations, Indiana has lost concentration in 3 of these 4
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Comparing the Concentration and Earnings of Healthcare practitioners and technical Occupations in the Midwest
Indiana:Decreasing
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.60 0.80 1.00 1.20 1.40 1.60
Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Comparing the Concentration and Earnings of Business and Financial Operations Occupations in the Midwest
Indiana:Decreasing
But earnings growth is slightly above the U.S. and most of the Midwest.
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.60 0.80 1.00 1.20 1.40 1.60
Ch
an
ge in
Avera
ge A
nn
ual E
arn
ings
20
01-
20
07
Location Quotient 2007
I llinois
Indiana
Iowa
Kentucky
Michigan
Minnesota
Missouri
Ohio
Tennessee
Wisconsin
U.S.
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Further Research
This “50,000 foot” analysis shows that Indiana’s occupational mix can explain the wage & salary component of Indiana’s PCPI performance.
Further questions remain:• Does the occupational make-up by industry also account for overall
income differences between states?• What other factors can we determine directly effect PCPI (and
wages)?o labor force participation rateso demographic shifts (e.g. aging and migration)o How does a lower cost of living affect wages?o policy (e.g., taxes, minimum wage)
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Try this at home
• Want to try this at home?
• The following slides provide the tools …
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
The Data
• Per Capita Personal Income is a measure of all forms of income, including dividends, benefits, transfer payments and BEA imputationso Divided by all state residents to create a comparable
statistics• Average Earnings by Occupation only considers gross
salary or wages for those holding jobs at UI-covered establishments
• It is not “fully loaded” with benefits or supplementso It doesn’t include overtime pay
• The two measures are different, but are highly correlated
State Occupational Mix & Personal Income – DWD Quarterly Briefing June 11, 2008
Calculating LQ
The Location Quotient (LQ)
% state employment in given occupational group
% Midwest employment in given occupation group
=
1. LQ score of greater than one (> 1): a higher concentration of a state’s employment relative to other Midwestern states
2. LQ score of less than one (< 1): a lower concentration of a state’s employment relative to other Midwestern states