Jobs that were lost from the recession are coming back, but, on average, they pay 23 percent less than they did five years ago.
The trend is especially visible in Indiana, which relies heavily on manufacturing–an industry that was hit particularly hard during the economic downturn.
What that means, according to a report released this week from the U.S. Conference of Mayors, is that the gap between people making salaries at the lower end of the spectrum and those making more than $75,000 is growing.
Dan Strahle says he’s seen that trend firsthand.
He worked as an electrician in Terre Haute for 26 years before becoming the business manager for the local electrical workers union, so over the years he’s seen and experienced the ebbs and flows of the market—some years there’s more work to be done and the pay is better.
But he says in recent years the average salary has dropped dramatically.
“Approximately 45 percent of the household wages in the Terre Haute and Bloomington area are less than $35,000 a year,” Strahle says. “That won’t support the local economy. That’s barely above poverty level.”
In fact, numbers from a U.S. Conference of Mayors report released this week show there are twice as many families in Terre Haute earning less than $35,000 than earning more than $75,000.
That ratio is worse than just about every other metro area in Indiana.
Indiana Business Research Center Director Jerry Conover says one of the reasons is Terre Haute isn’t the home of many business headquarters.
“When you have a headquarters operation, you tend to have more of the high-level executive and professional based jobs there as well as things like research and development and design,” Conover says. “Those kinds of things that pay really well and drive up wages for manufacturing.”
But he says the changing face of manufacturing is the main problem throughout the state.
“A lot of manufacturers look for ways to reduce the cost of production by streamlining processes,” he says. “They can do things as simple as reorganizing the production floor to reduce the distance from going to step A to step B to step C. When they do these kinds of things, not to mention using more efficient equipment, they don’t need as many workers to get the same amount of volume out the door.”
Those jobs that are available require specialized training that many workers don’t have–at least not yet.
The Effects of Income Inequality
As fewer people make medium to higher-income salaries, the middle class shrinks, and Strahle says there’s a ripple effect.
“People making a low wage are barely feeding they’re kids,” he says. “They’re not going to the movies. They’re not going out to the restaurants. They’re not buying automobiles. Whereas somebody making a fair wage is doing all these things and greatly supporting the economy—the local economy and the state economy.”
Conover says the quality of life of a city could also be impacted by large amounts of inequality.
“The quality of life in a place is really driven by what the community as a whole invests in–either in the sense of building new things or new programs, or just in doing things together, and it’s more attractive when everyone is engaged,” Conover says, adding that such investments create “positive energy.”
Research about the other consequences of a large wage gap, such as higher crime rates and decreased life expectancy rates, are mixed.
A recent New York Times article puts it well when it quotes Harvard University social policy professor Christopher Jencks.
Mr. Jencks describes the state of the debate between friends and foes of inequality in these terms: “Can I prove that anything is terrible because of rising inequality? Not by the kind of standards I would require. But can they prove I shouldn’t worry? They can’t do that either.”
That, alone, is enough to spur action. “Something that looks bad is coming at you,” he said. “Saying that we shouldn’t do anything about it until we know for sure would be a bad response.”
Some good news for Terre Haute though, is that the wage gap has remained relatively consistent compared to many of Indiana’s other cities including Evansville, Indianapolis and Kokomo that have seen their wage gaps significantly increase in the last decade.
The Solution to Creating High Wages
Strahle argues the way to solve the problem is to force employers to pay higher wages, instead of lining their own pockets.
“Five rich owners don’t support the economy, it’s the 2,000 people working for them that support the economy, and if you pay them a fair wage, it’s going to happen,” he says.
But Terre Haute Mayor Duke Bennett says it’s more complicated than that. He says Indiana needs to diversify–let go of its traditional manufacturing past and look to future high-tech jobs.
“It seems you lose the old union jobs—the automobile industry; the heavy manufacturing; the steel industry. Those jobs were always there. We counted on those jobs. They brought those median salary jobs up and as you replace those with those on the lower end, of course it’s going to trend downward,” Bennett says. “We really have to focus on bringing in more of those really good paying jobs, whether that’s high tech kind of industry, biotechnology. Wherever those might be, we need to build up that end so we can pull those whole salaries and wages up.”
Cities looking to decrease their wage gaps could also look to Columbus.
According to the U.S. Conference of Mayors report, Columbus’ wage gap dropped 14 percent from 2005 to 2012, which was the most out of any metro area in the country.
Conover says the city has several key companies such as Cummins and other auto manufacturers that help draw in other businesses.
“Columbus is a great example of clustering in an economy, where industries in related fields tend to locate together,” Conover says. “They have workforces that have a lot in common so when somebody is looking for an improved job, they might be able to move across town instead of having to move away.”
When employers want to find workers, there is also a qualified workforce, and when companies need suppliers, those are available too.
The problem is this kind of an environment can be difficult to replicate because it’s based on having a strong economy–or at least a few key, strong businesses–in the first place.
In order to attract those businesses, local leaders say Indiana can focus on two main areas: tax policy and quality of life.
Governor Mike Pence has been a strong proponent of lowering corporate taxes. Earlier this year, for example, he championed bills reducing the state’s business personal property tax, a levy on business equipment.
And while the state is regularly ranked among the states with the best business climates, Conover says state and local leaders also need to make sure they are doing what they can to make their cities livable.
“If the taxes and other business considerations being equal, than a place that has more attractive amenities like parks and sports facilities and cultural things going on is going to be more appealing to locate in than a place that is just a dusty rundown city,” Conover says.
Conover admits that takes time, and in the meantime, Mayor Bennett says he thinks he can speak for most mayors when he says a low-paying job is still a job.
“When we look at economic development and bringing jobs to the community, we’ll take any kind of a job. I think it would be silly to say—no we don’t want that kind of a job because it doesn’t pay enough,” he says.