Indiana is in the beginning of labor market restructuring that offers a once in a century opportunity – and risk. Normally, government plays a modest role in these types of changes. But, In the post pandemic world, how well places do will largely be the result of how quickly, and effectively state and local government adjusts. There is both good and bad news for Hoosier policymakers, but first some basic facts.
In January 2020, maybe 140,000 Hoosiers worked from home. These included remote workers and those engaged in home production, like crafts. Today that number is roughly 1.04 million, or just about one in three Hoosier workers. Of these 548,000 work at home full time.
To put these numbers in context, there are now more Hoosiers in remote work than there are in manufacturing and logistics combined. In fact, if it were counted as a single industry, remote work would be the largest employer the state has ever had. Yet, these startling facts understate the growing impact of remote work.
There is a significant income and educational divide in remote work. About 11 percent of high school graduates report performing some remote work. However, more than 48 percent of college graduates work remotely. The income divide is even higher with two-thirds of those earning over $200,000 per year working remotely, while fewer than 8.5 percent of those earning under $35,000 do so. Today, close to half of all Hoosier wages are paid to workers who work remotely at least part of the week.
In the next couple decades, about half of the jobs created nationally will be fully or partially remote. In contrast, the factory and logistics jobs we are trying so hard to attract are in long-term decline. Indiana, most manufacturing-intensive economy in the nation, has fewer factory jobs than we did in 2019. And, despite all the happy cheerleading 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 will be larger and more important than any single industrial sector of our economy. This holds great promise as well as significant risk for Indiana.
Remote work means the decoupling of the geography of work and home. For about half of remote workers, work and home are entirely severed. Workers can live wherever they wish, and simply connect to work through the internet. The other half of remote workers must appear at an office or workplace once a week or more frequently. This extends the commuting radius for many families, allowing far more residential choice.
Again, the size of this needs to be put in context. Twice as many remote jobs have been created in Indiana over the past 20 months than our economic development officials have claimed to have attracted in the past 20 years. No successful place in America is today focused on attracting businesses. The successful places focus on attracting people.
There’s a great deal of high-quality research about the factors that attract and keep families. Natural amenities matter, so cities near mountains, beaches or pleasant weather have some advantage. Still, this advantage is surprisingly modest.
Recreational activities, especially a good mix of restaurants, shopping and entertainment, attract people-but, again, the effect of this is modest. More importantly, nice 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 pollution levels drive population growth. In the past, some of this has been hyper local. The best school district within 30 miles might attract the most new residents to a city. In the world of remote work, it is global. Being a good school district nationally matters. Being good locally is no longer enough.
Lots of things don’t appear to affect remote workers. There’s no evidence that remote workers in footloose 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. So, cost of living isn’t driving their choices.
Fortunately, Indiana has some advantages in attracting and keeping remote workers. We are a compact state, where travel to several urban areas is an easy drive. Access to air travel is superb, and the state’s regulatory stance and investment in broadband has extended it’s access substantially.
There are many parts of Indiana rich in natural amenities, of the type that tens of millions of Americans prefer. It is easy to start a business in Indiana, so adding private sector amenities, like restaurants, bars, theaters and the like is simple. So, Indiana should be well-positioned to take advantage of the explosion of remote work.
A few cities and counties in Indiana have good public services. Their schools are nationally ranked, crime rates are low and blight non-existent. But, there are very few places in Indiana that fit this description. The best illustration lies in our school situation. By population share, Indiana should have about 20 high schools in the top 1,000 nationally. Instead, we have 13 with only nine that are accessible public schools. These are located in only three metropolitan areas.
The paucity of thriving places is understood by most Hoosier policymakers. This is why we’ve had the Regional Cities Initiative and READI grant programs. These policies are effective and needed, however Indiana’s physical infrastructure is not what will lure people to our state. The prime driver of relocation-and this cannot be repeated often enough-is the quality of our education system.
In this most important of regional characteristics, we are increasingly among the weakest places in the nation. The ugly fact is that few families considering relocating due to the flexibility of remote work will even consider Indiana. We have just slipped into the bottom 10 states for educational attainment, and today spend less per student than we did a decade ago.
Indiana takes very seriously efforts to attract manufacturing investment. Yet, factory employment has declined by 25 percent so far this century. Nationwide, there are fewer than 12 million factory workers we might lure to Indiana, down close to five million in the past two decades.
In contrast, today there are 67 million remote workers, 36 million of whom are fully remote. Economic success for states and cities in the 21st century will follow the choices of remote workers. That is a great opportunity. However, we are not yet ready for the new world of remote work, which also makes it our greatest risk.
Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University.
