Indiana's unemployment rate has been lower than the national average for four years, and the state's economy hums along, but a looming problem could limit economic growth — many workers will soon retire, and not enough people are in line to replace them.
A new report by the Indiana Business Research Center's InContext found that Indiana, which added an average of 280,000 workers every decade between 1950 and 2010, will only gain a projected 34,000 workers between 2020 and 2050.
Indiana's workforce boomed from 1.57 million in 1950 to 3.12 million in 2000 as more women started working, and as the Baby Boom generation came of age, said Indiana Business Research Center Senior Demographic Analyst Matt Kinghorn, the author of the report. But now boomers are nearing retirement, and labor force participation rates likely peaked around the year 2000.
"According to the projections, Indiana’s labor force will have a relatively healthy gain of 120,000 workers between 2010 and 2020," Kinghorn wrote in the report. "The state’s labor force will likely decline in the next decade, however, as more and more boomers retire. Indiana’s workforce will begin to expand again — albeit slowly — during the 2030s and 2040s."
People aren't having as many kids as previous generations; the United States had a record low fertility rate in 2016. People also aren't moving to Indiana as much as they used to, such as when there was a large influx of Hispanic residents between 1990 and now.
"As with fertility rates, however, the Great Recession triggered a period of lower levels of migration to the state that is still in effect today," Kinghorn wrote. "Indiana had an average annual net in-migration of 17,500 residents during the 1990s, and this measure stood at 9,200 residents per year in the 2000s. Between 2010 and 2017, however, the net inflow to the state has dropped to 1,900 residents per year, which is another factor working against stronger labor force growth."
Employers have suggested ways to address looming workforce shortages, including by fighting "brain drain" — trying to retain more Indiana natives with college degrees. The Indiana Manufacturers Association has even been pitching the idea of waiving state income taxes for five years for high-skilled individuals who move to Indiana to fill jobs in in-demand industries.
Northwest Indiana currently has a workforce of about 396,200 workers and job seekers. By 2045, the Indiana Business Research Center projects it will be about 369,900, if current trends continue. The report predicts that eight metro areas across the state with a "strong industrial heritage" will experience such declines.
In the Gary metro area, the workforce is projected to shrink by 0.3 percent between 2015 and 2025, by 0.3 percent between 2025 and 2035, and stay flat between 2035 and 2045 as de-industrialization continues to take a toll. The workforce in the Michigan City-LaPorte metro is expected to drop by 0.5 percent between 2015 and 2025, by 0.6 percent between 2025 and 2035, and by 0.2 percent between 2035 and 2045.
A major impact of the ongoing decline in the workforce in Indiana will be that far more retirees will be economically dependent on fewer workers.
"Indiana’s economic dependency ratio — the size of the population not in the labor force relative to the population that is in it — will climb over the next 35 years," Kinghorn wrote. "In 2010, there were 99 Hoosiers not in the labor force for every 100 residents in the labor force. This mark should peak at 114 per 100 workers by 2040.
Kinghorn said Indiana's dependency ratio has been higher than that, but in the past, children made up more of the dependents.
"However, in the future, retirees — with accompanying higher health care costs — will hold a larger share of the population outside of the labor force," Kinghorn wrote.