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George Vlahakis
IU Communications

Matt Kinghorn
Indiana Business Research Center

Last modified: Monday, November 12, 2012

IU Kelley School projections point to a dramatic slowdown in Indiana labor force growth

Nov. 13, 2012

BLOOMINGTON, Ind. -- Indiana is set to see a dramatic slowdown in labor force growth over the next three decades as baby boomers edge into retirement and the decades-long rise in female labor force participation appears to have crested.

That's according to labor force projections released today by the Indiana Business Research Center at Indiana University's Kelley School of Business and produced for the Indiana Department of Workforce Development.

This slowdown started to emerge between 2000 and 2010, when Indiana's labor force grew by roughly 132,000 -- its smallest gain over a decade since the Census Bureau began collecting data on the labor force size in 1940.

Looking ahead, the state's labor force growth is expected to slow to less than 120,000 in the current decade and will be essentially flat between 2020 and 2030 -- a decade during which the boomer cohort and the so-called baby-bust generation will begin to find themselves on opposite sides of the traditional retirement age. Indiana's labor force will likely begin to grow again -- albeit slowly -- after 2030.

This slower pace of change follows a period of dynamic labor force growth during the last half of the 20th century. Fueled by the large baby boom generation and an ever-increasing number of women entering the workplace, the size of Indiana's labor force grew by an average of 310,000 per decade between 1950 and 2000.

By contrast, over the next three decades combined, Indiana's total labor force growth is expected to be just 150,000.

"A rapidly expanding group of retirees coupled with a slowly growing labor force will create several challenges over the next few decades," said Matt Kinghorn, state demographer at the IBRC. "Achieving goals such as increased educational attainment and sustained productivity gains will be crucial to ensuring that living standards continue to improve for all Hoosiers.

"Additionally, many Indiana employers will feel the pinch of a tight labor market," he said. "Firms in growing fields like health care, business operations and information technology will certainly have to compete for labor. But even mature industries that will likely grow slowly or even decline in the next couple of decades, including many manufacturers, could still have trouble maintaining an adequate workforce because they are more dependent on older workers."

"Employers can respond to a tight labor market in a number of ways including aggressive recruitment, investing in productivity gains, developing training programs internally or with partners, increasing the hours worked by existing employees, loosening hiring requirements and raising wages," Kinghorn added.

Labor Force Change by County, 2010 to 2020

Labor Force Change by County, 2010 to 2020

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These shifts are not unique to Indiana but reflect a national trend. According to the Bureau of Labor Statistics, labor force growth around the country slowed to an average annual rate of 0.8 percent last decade compared 1.6 percent annually between 1950 and 2000. Based on their last long-term projections, the BLS expects that labor force growth in the U.S. will slow further to an annual rate of 0.6 percent in this decade and 0.4 percent between 2020 and 2030.

Across Indiana

There are wide disparities in projected labor force change across Indiana's regions. Seven of the state's 16 metro areas are expected to exceed or match Indiana's 0.4 percent average annual rate of growth between 2010 and 2020. Leading the way is the 10-county Indianapolis-Carmel metropolitan area, whose labor force is projected to grow by 1 percent per year in this decade.

Other metros with relatively high projected growth rates through 2020 include Lafayette (0.6 percent per year), the Indiana portion of the Louisville metro area (0.6 percent) and Elkhart-Goshen (0.5 percent). Each of these metro areas will have a lower rate of change between 2020 and 2030.

At the other end of the spectrum, several of Indiana's metro areas with a strong industrial heritage are projected to continue to have a swift labor force decline. Shrinking 0.6 percent per year between 2010 and 2020, the Kokomo area is expected to have the greatest rate of decline among Indiana's metros, followed by Anderson (-0.4 percent per year) and Muncie (-0.3 percent).

In all, six of Indiana's metro areas are projected to experience labor force declines in the current decade. That number jumps to 10 over the course of the 2020s.

As a group, the 46 rural and mid-sized Indiana counties that are not in a metro area are also projected to have labor force losses over the next two decades. Non-metro counties with the steepest expected declines between 2010 and 2020 include Blackford (-1.3 percent per year), Fayette (-1.0 percent), Wabash (-0.9 percent) and Grant (-0.8 percent) counties.

Plenty of rural and mid-sized communities will have growing labor forces in the near term, however. Switzerland (0.9 percent annually), Daviess (0.5 percent), Ripley (0.4 percent) and LaGrange (0.4 percent) counties are non-metro areas that are expected to outpace or match Indiana's labor force growth through 2020.

Overall, there are distinct geographic patterns in projected labor force growth across the state, Kinghorn said. Central Indiana will show strong gains in this decade, spearheaded by suburban counties around Indianapolis. Most counties in the southeastern portion of the state will also add workers, as will many counties linked to the Chicago area, Fort Wayne, Elkhart and Evansville.

Meanwhile, the largest losses are expected throughout the north-central and east-central regions of the state. Furthermore, all western Indiana counties between the Evansville and Chicago metro areas are expected to lose labor force by 2020.

The first statewide, county-level labor force projections produced for the state, these data are available on the Indiana Department of Workforce Development data site.