Michael Hicks: Indiana population trends troubling
Thursday, March 31, 2016 9:50 AM
MUNCIE – The most recent county population estimates for Indiana tell a blunt tale about the state’s future. It is part of the story that I, and others, have been offering for some time. It bears repeating.
In the decade between 2000 and 2010, a dozen Hoosier counties grew faster than the nation as a whole, while 30 lost population. The remainder grew, but at a slower pace than the nation overall. So, most of Indiana was in absolute or relative population decline.
In last month’s population report, the number of shrinking counties rose to 54, and those growing faster than the nation as a whole rose to 14. That left 24 counties in relative decline. All the growth is happening in urban places, and all the decline is in rural or small town Indiana. It has been this way for half a century, but the pace is accelerating. This population redistribution matters deeply for Indiana’s health through the 21st century.
Cities grow for simple reasons that cannot be duplicated in rural areas no matter how wishful the thinking. Through the forces of agglomeration, each 5.0 percent growth in population causes GDP per worker to rise by roughly 1.0 percent. This leads to higher wages that in turn attract more educated workers to urban areas, which further boost productivity. In cities, workers combine to be more productive overall than the sum of their individual skills. Economists call this phenomenon ‘increasing returns.’
Increasing returns benefit not only urban high-tech knowledge workers, but also barbers, baristas and bartenders. Businesses are wise to this and to another urban advantage: In many cities workers are willing to forgo a higher wage for the benefits of living there.
Thick labor markets offer job security that reduces employee risk. Increasing returns combined with abundant labor make businesses far more profitable, so they invest and grow more in cities than in rural places. That is why all net job growth in Indiana is connected to cities. This holds some pretty clear recommendations for public policy.
Most Midwesterners have a strong familial attachment to rural life. Few of us are more than one generation from a farm or small town, so we must guard against the influence of nostalgia on public policy. We must also admit the fact that rural places are already recipients of far more public spending on a per capita basis than are urban places. This is true with both state and federal expenditures. Indiana suffers growth problems in part because we have habitually underinvested in urban places and in urban people. The Regional Cities Initiative, which Gov. Pence has recently signed into law, is an innovative and thoughtful boost to our urban centers. Still, more will be needed to develop Indiana cities in the years to come.
Finally, I want to stress that an increased attention to urban places doesn’t endanger rural places in Indiana. They are already at risk. The strongest future for rural places in Indiana lies in a solid connection to labor markets in healthy, vibrant and growing regional cities.
Michael J. Hicks, PhD, is director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.