CBER150_A

Labor Market Forecast: Indiana

The outlook for the Indiana labor market for 2008 is generally optimistic. Our forecasts are in part based on an optimistic outlook for the national economy, but labor market data for Indiana by themselves suggest improvement in the state’s labor market during 2008.

We expect an advance in employment statewide to the relatively high level of the late 1990s after a trough was reached in 2003 or 2004. Several variables besides total employment exhibit this pattern of recovery from a trough during those years.

Attendant upon increasing employment, we predict increases in other measures of labor market activity. In particular, there should be increases in job creation, new hires, separations, and turnover. Earnings will continue to increase at about their current pace.

More pessimistically, we expect the starting salaries commanded by new hires to fall below their long-term trend. Our forecast of net job flows, which ought to be a summary of increases and decreases in jobs, is flat or increasing only very slightly. The net job flows forecast is one in which we have relatively little confidence.

Employment
employment

Employment in Indiana reached a peak during 1999 and subsequently declined during the early years of the new century, reaching a trough during 2003-2004. The years 2005-2006 saw a recovery in the level of employment which we expect to continue in 2007-2008. The trend curve in the graph, which was fitted only on actual employment figures, provides a good summary of the past and what we expect for the future.

We expect statewide employment to attain, and possibly to surpass, its high level of the late 1990s, increasing roughly according to its trend. If our relatively optimistic forecast for the U.S. economy for 2008 proves accurate, above-trend levels of employment might be observed during 2008.

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Net Job Flows
netjobflows

While they fluctuate substantially, net job flows have trended down from around positive 30,000 toward zero. Our (rather uncertain) forecast leaves net job formation at around zero through 2008. This forecast is slightly below the extrapolated trend curve. The forecast suggests that, except for regular seasonal fluctuations, existing businesses will keep their workforces around current levels in 2008.

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Job Creation
jobcreation

Job creation exhibits roughly the same pattern as total employment. A declining trend was arrested during 2003-2004, after which the trend began to increase. Our forecast indicates that the extrapolated trend is a reasonable representation of the level of job creation through 2008. Taken in conjunction with the forecast for net job flows, this suggests that employment growth through 2008 is more likely to arise through the creation of new businesses than through the expansion of existing ones.

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New Hires
newhires

This graph also exhibits the characteristics of the total employment and job creation graphs. The level of new hires fell from 1998 to 2003-2004, after which it began rising. We expect the rising trend to continue through 2008. This forecast is consistent with the job creation forecast.

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Separations
separations

The graph for separations exhibits the same pattern of a decline until 2003-2004 followed by an increasing trend. We forecast that separations will be roughly at their trend through 2008. An increase in employment (predicted earlier) represents an increase in general labor market activity and, hopefully, in general economic activity. As employment increases, so does worker mobility. People become more optimistic and see more opportunities as the economy improves, so some take advantage of such opportunities by changing jobs. Thus, increasing separations are not inconsistent with increasing employment.

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Turnover
turnovers

Turnover comprises both accessions and separations. Thus, one should expect behavior fairly consistent with separations, and the graph confirms this expectation. We expect turnover to increase through 2008 as general labor market conditions improve.

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Average Monthly Earnings
averagemonthlyearnings

Average earnings have been increasing over the entire time period for which we have data. Given that these earnings are not adjusted for inflation, this surely comes as no surprise. Although it is difficult to see in the graph, earnings have been trending upward at a very slightly increasing rate. Our forecast suggests that this trend will continue through 2008.

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Average Monthly New Hire Earnings
avgmontlynewhire

This series has been level or trending slightly upward over the time period for which we have data. Our forecast in this case is fairly pessimistic. Rather than increasing slightly, we predict that the average salary paid to new hires will decrease from late 2006 to late 2008. This forecast suggests that while plenty of jobs will be available, newly hired employees will have to accept a lower monthly pay check, at least initially. This may be attributable to structural change in the state’s economy. Increasingly, workers are compensated for acquired skills that may not be present at initial hiring for younger workers.

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Forecast Summary

This forecast suggests Indiana’s labor force will experience modest growth through 2008. This forecast is consistent with national projections of economic activity. Using a new data series on employment dynamics we have selected the variables we believe are most telling of employment dynamics in the state.

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