Indiana is at the beginning of a labor market restructuring that offers a unique opportunity and risk in a century. Normally, the government plays a modest role in these types of changes. But, in the post-pandemic world, the quality of places will largely depend on how quickly and effectively states and local governments adapt. There’s both good and bad news for Hoosier policymakers, but first, some basic facts.
As of January 2020, perhaps 140,000 Hoosiers were working from home. These included remote workers and people engaged in home production, such as crafts. Today, that number is about 1.04 million, or roughly one in three Hoosier workers. Of these, 548,000 work from home full-time.
To put those numbers into context, there are now more Hoosiers in remote work than there are in manufacturing and logistics combined. In fact, if considered a single industry, remote work would be the biggest employer the state has ever had. Yet these startling facts underestimate the growing impact of remote work.
There is a significant income and education divide in remote work. About 11% of high school graduates report doing remote work. However, more than 48% of university graduates work remotely. The income gap is even higher, with two-thirds of those earning more than $200,000 a year working remotely, while less than 8.5% of those earning less than $35,000 do so. Today, nearly half of all Hoosier salaries are paid to workers who work remotely at least part of the week.
Over the next two decades, about half of the jobs created nationwide will be fully or partially remote. In contrast, the factory and logistics jobs we are trying to attract are in long-term decline. Indiana, the nation’s most manufacturing economy, has fewer factory jobs than in 2019. And, for all the cheering cheers about 2022’s economic development successes, there are fewer factory jobs in the state today than there were last May.
Remote work is here to stay, and over the next few decades it will be bigger and more important than any industrial sector in our economy. This is very promising as well as significant risk for Indiana.
Remote work means decoupling the geography of work and home. For about half of remote workers, work and home are entirely separate. Workers can live wherever they want and simply connect to work via the Internet. The other half of teleworkers must come to the office or workplace once a week or more frequently. This extends the commuting radius for many families, allowing for a much more residential choice.
Again, the size of this needs to be put into context. Twice as many remote jobs have been created in Indiana in the past 20 months as our economic development officials claimed to have attracted in the past 20 years. No prosperous place in America today focuses on attracting business. Successful places focus on attracting people.
There is a lot of high-quality research on the factors that attract and retain families. Natural amenities are important, so cities near mountains, beaches, or pleasant weather have some advantage. Yet this benefit is surprisingly modest.
Recreational activities, especially a good mix of dining, shopping and entertainment, draw people in – but, again, the effect of this is modest. More importantly, good restaurants, bars and the like tend to follow the movement of people. They are, in economic jargon, endogenous.
The big factors that attract people are high quality public services. High quality local schools, low crime rates and low levels of pollution drive population growth. In the past, some of these activities were hyper local. The best school district within 30 miles could attract the most new residents to a city. In the world of remote work, it’s global. Being a good school district is nationally important. Being good locally is no longer enough.
A lot of things don’t seem to affect remote workers. There is no evidence that remote workers in mobile industries care about the effectiveness of local economic development efforts. But, they are willing to pay a premium to live in places with good schools and low crime. Thus, the cost of living does not determine their choices.
Fortunately, Indiana has some advantages for attracting and retaining remote workers. We are a compact state with easy access to several urban areas by car. Access to air travel is superb, and the state’s regulatory position and investment in broadband has greatly expanded its access.
There are many parts of Indiana rich in natural amenities, the type that tens of millions of Americans prefer. Starting a business in Indiana is easy, so adding private sector amenities, such as restaurants, bars, theaters, and more, is simple. Thus, Indiana should be well positioned to take advantage of the remote work explosion.
A few cities and counties in Indiana have good public services. Their schools are nationally ranked, crime rates are low and plague non-existent. But, there are very few places in Indiana that fit that description. The best illustration of this is our school situation. In terms of population share, Indiana is expected to have about 20 high schools in the top 1,000 nationally. Instead, we have 13 with only nine being accessible public schools. These are located in only three metropolitan areas.
The scarcity of prosperous places is understood by most Hoosier policy makers. This is why we have set up the Regional Cities and READI scholarship programs. These policies are effective and necessary, but Indiana’s physical infrastructure is not what will attract people to our state. The main driver of offshoring — and we cannot repeat this enough — is the quality of our education system.
In this most important regional characteristic, we are increasingly among the weakest places in the country. The fact is, few families considering relocating due to the flexibility of remote work will even consider Indiana. We just slipped into the bottom 10 states in terms of educational attainment and spend less per student today than we did ten years ago.
Indiana takes efforts to attract manufacturing investment very seriously. Yet factory employment has fallen by 25% so far this century. Nationally, there are fewer than 12 million factory workers we could attract to Indiana, down from nearly five million over the past two decades.
On the other hand, there are today 67 million teleworkers, including 36 million in telework. The economic success of states and cities in the 21st century will follow the choices of remote workers. It’s a great opportunity. However, we are not yet ready for the new world of remote work, which also makes it our greatest risk.
Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics at Ball State University’s Miller College of Business. Contact him at cberdirector@bsu.edu.
