Channeling 2026 economic momentum to advance prosperity in Indiana

Executive Director, Indiana Business Research Center, Kelley School of Business, Indiana University

Indiana's economy has led the Midwest since the pandemic. Between 2019 and 2025, real gross domestic product (GDP) grew 14% in Indiana, compared with 10.1% in Kentucky, 9.2% in Michigan, 8.9% in Ohio and 6.5% in Illinois. Indiana also maintained this advantage over the past year. Between 2024 and 2025, real GDP increased 2.5% in Indiana, compared with 1.7% in Ohio, 1.6% in Illinois, 1.2% in Michigan and 1% in Kentucky.¹ Measured by economic output, Indiana outperformed each of its neighboring states during both the post-pandemic recovery and the most recent year.

Population and labor force trends reinforce this conclusion. Between 2019 and 2025, Indiana's population increased 3.1%, exceeding growth in Kentucky (2.4%), Ohio (0.9%) and Michigan (0.5%), while Illinois lost population during the same period.² Indiana's labor force expanded 3.4%, outpacing Kentucky (2.5%), Ohio (1.3%), Michigan (1.2%) and Illinois (0.7%).³ Population growth suggests that Indiana has become a more attractive place to live and work. Labor force growth is especially significant because both population aging and rising retirements continue to constrain labor supply growth across much of the Midwest.⁴ Indiana has attracted both residents and workers while neighboring states have struggled to do the same.

Economic momentum, however, is not the same as economic prosperity. Growth in GDP, population and employment measures expansion of the aggregate economy rather than improvements in individual economic well-being. Prosperity depends on the economic value workers produce in one hour of labor and the hourly wage that value supports. Indiana has demonstrated that it can grow faster than its neighboring states, but whether that growth has translated into greater prosperity for individual Hoosiers is a separate question. Answering that question requires a measure that directly reflects the economic value the average worker generates in a fixed amount of time.

Why average hourly earnings best measure prosperity

Prosperity depends on productivity. Productivity measures the economic value an average worker generates during one hour in the workplace. Workers who generate more economic value in one hour earn higher hourly wages because employers can profitably pay more for that hour of labor. Over time, productivity growth increases business profits, household income and government tax revenue. Although many factors influence wages in the short run, empirical research consistently identifies productivity as the principal driver of long-run growth in average hourly earnings.⁵

Average hourly earnings measure the market price of one hour of labor. By contrast, personal income includes total wages paid, investment earnings, government transfer payments and other income sources that are not directly tied to current labor market productivity. Average hourly earnings therefore provide a more direct measure of the economic value workers generate during a fixed amount of time.

Economic development advances prosperity by increasing productivity. GDP growth, employment, business investment and population growth all contribute to that objective, but none directly measure whether workers generate greater economic value during an hour on the job. Average hourly earnings do. Economic growth generates greater prosperity if average hourly earnings also rise.

Table 1: Comparative average hourly earnings in Indiana

Note: The table shows the average hourly earnings of total private employees. Annual growth represents the cumulative annual growth rate (CAGR) for the period. Lake County-Porter County-Jasper County is the Indiana portion of the Chicago metropolitan area.
Source: U.S. Bureau of Labor Statistics

What average hourly earnings reveal

Comparison of average hourly earnings in Table 1 reveals three principal findings. First, Indiana recently strengthened its wage performance relative to the nation. Second, long-run growth in average hourly earnings continues to trail the national average. Third, differences in wage growth are substantially larger across Indiana metropolitan areas than across neighboring states.

Comparison with the nation illustrates the first two findings. Between April 2025 and April 2026, average hourly earnings increased 3.8% in Indiana, compared with 3.6% nationally. Over the longer period from April 2019 to April 2026, however, average hourly earnings grew at an annualized rate of 3.8% in Indiana, compared with 4.3% nationally. Indiana recently outperformed the nation in wage growth, but its longer-term growth continues to lag.

Comparison with neighboring states reinforces this conclusion. Between April 2025 and April 2026, Indiana ranked second behind only Illinois in growth of average hourly earnings. Over the full 2019-to-2026 period, Indiana outperformed Illinois, tied Michigan and trailed Ohio and Kentucky in annualized wage growth. Table 1 therefore suggests that Indiana has improved its recent performance while continuing to face longer-term challenges in raising hourly wages and advancing prosperity.

The largest differences emerge within Indiana rather than across neighboring states. The variance across metropolitan areas in the state was high. Between April 2025 and April 2026, average hourly earnings grew 10.6% in Kokomo, 8.2% in Lafayette, 7.2% in Elkhart-Goshen, 5.5% in Muncie and 4.4% in South Bend. Over the full 2019-to-2026 period, Elkhart-Goshen led the state with annualized growth of 5.4%, followed by Kokomo (5.1%), Fort Wayne (4.9%), Lake-Porter-Jasper (4.6%) and Michigan City (4.5%). Each exceeded the state and national averages.

Other metropolitan areas followed a different trajectory. Average hourly earnings declined between April 2025 and April 2026 in Michigan City (-6.6%), Bloomington (-3.5%), Indianapolis (-0.7%), Columbus (-0.5%) and Terre Haute (-0.4%). The gap between 10.6% growth in Kokomo and a decline of 6.6% in Michigan City greatly exceeded the difference between Indiana and any neighboring state.

This metropolitan comparison raises the central question of the analysis: Why have some Indiana labor markets generated much faster growth in average hourly earnings than others? Answering that question provides important insight into how Indiana can accelerate prosperity across the state.

Why prosperity advanced faster in some Indiana metropolitan areas

Comparison of Indiana metropolitan areas suggests that prosperity advanced fastest where employers increased productivity. Although the highest-performing metropolitan areas did not all specialize in the same industries, they shared three characteristics: significant capital investment, concentrations of tradable industries and growing demand for technically skilled workers. Together, these characteristics consistently accompanied the strongest growth in average hourly earnings.

The first characteristic is capital investment. Kokomo benefited from multibillion-dollar investments in electric vehicle battery manufacturing.⁶ Lafayette attracted one of the nation's largest semiconductor investments through SK hynix and Purdue University.⁷ Fort Wayne continued to expand advanced manufacturing and defense production.⁸ South Bend strengthened its manufacturing base through continued investment in recreational vehicle production and related suppliers.^9,10 Indianapolis attracted major investments in life sciences, pharmaceutical manufacturing and research infrastructure.¹¹ Although each metropolitan area followed a different path, all expanded the productive capacity of their economies, enabling workers to generate greater economic value and support higher hourly wages.

The second characteristic is a concentration in tradable industries. Tradable industries sell goods and services outside the local economy, bringing new income into a region rather than recirculating existing local spending. Electric vehicle batteries, semiconductors, pharmaceuticals, medical technologies, recreational vehicles and advanced manufactured products all compete in national and global markets. As these industries expand, they increase demand for workers who generate high economic value and support higher hourly wages. The strongest-performing metropolitan areas therefore shared an economic structure that rewarded productivity rather than simply employment growth.

The third characteristic is investment in human capital. Expansion of advanced manufacturing, semiconductors, life sciences and other high-value industries increased demand for technically skilled workers. Employers responded by competing more aggressively for qualified workers, placing upward pressure on hourly wages. Apprenticeships, engineering education, university research and other workforce investments strengthen the supply of workers capable of succeeding in these industries. Productivity and talent therefore reinforce one another over time.

Indianapolis illustrates that investment and prosperity do not always move together on the same timetable. The metropolitan area experienced comparatively weak recent growth in average hourly earnings despite attracting extraordinary investment in life sciences, research and advanced manufacturing. Much of that investment remains under construction or in the early stages of expansion. Capital investment often precedes broad labor market effects because firms require time to build facilities, expand production and develop supply chains. Recent wage performance may therefore reflect the timing of investment rather than its long-run economic effects.

Bloomington illustrates a different challenge. The metropolitan area possesses exceptional research capacity, a highly educated workforce, established life sciences companies and Indiana's largest research university. These assets should place Bloomington among the state's strongest-performing labor markets. Yet recent growth in average hourly earnings has lagged much of Indiana. Comparison with the state's highest-performing metropolitan areas suggests that Bloomington's challenge is less about producing talent and more about retaining it. Indiana University generates a continuous pipeline of highly educated graduates capable of creating substantial economic value, but advancing prosperity requires sufficient innovative private-sector employers to retain those graduates and employ them in high-productivity occupations. Expanding high-productivity private employment would retain graduates and accelerate growth in average hourly earnings.

The comparison of Indiana metropolitan areas points to a broader conclusion. Prosperity advances fastest where communities combine productive capital investment, competitive tradable industries, expanding private-sector employment and skilled workers. Manufacturing explains part of the story, but not the story itself. Productivity is the common thread. Metropolitan areas that consistently increase productivity generate faster growth in average hourly earnings and, over time, become more prosperous.

Aligning economic development with prosperity

As mentioned, capital investment, tradable industries and skilled workers drive fast wage growth in Indiana’s top-performing metropolitan areas. Indiana's recent economic development strategy increasingly aligns with these drivers. Rather than relying on a single initiative, the state has adopted complementary strategies that strengthen local innovation, deepen regional comparative advantages and increase worker productivity.

READI, BioHeartland, Power Up Indiana and IN AI illustrate this alignment. READI provides competitive grants that encourage neighboring communities to invest jointly in infrastructure, housing, quality of place, innovation and workforce development. By requiring regional collaboration, the program strengthens the conditions that attract private investment and support long-term economic growth.¹² BioHeartland builds on Central Indiana's comparative advantage in the human, animal and plant sciences by coordinating research institutions, industry, entrepreneurship and workforce development. Leveraging $1 billion in industry-specific resources promised by the state, the initiative seeks to accelerate business formation and growth in industries capable of generating high economic value.^13,14 Power Up Indiana addresses a different constraint by reimbursing employers that invest in technical training for incumbent workers. Reimbursement is tied to the advancement of existing employees into higher-skill positions that pay higher wages, directly linking public investment to higher worker productivity and higher earnings.¹⁵ IN AI eases and motivates faster AI adoption by Hoosier enterprises through technical assistance delivered via regional initiatives, university partnerships and online training. Businesses learn how AI can speed work, reduce errors and improve product quality.¹⁶ Together, these initiatives strengthen productive places, productive industries and productive workers.

Developing the next generation of productive workers is equally important. Indiana's expansion of registered apprenticeships seeks to increase the number of workers who acquire technical skills through paid employment rather than classroom instruction alone. The initiative draws inspiration from Switzerland's apprenticeship system, where employers, educational institutions and government jointly develop highly skilled workers while reducing skills mismatches.¹⁷ Apprenticeships increase productivity by developing occupation-specific skills in the environments where those skills create economic value.

Higher education initiatives increasingly reinforce the same objective. Purdue's partnership with SK hynix aligns engineering education and research with one of the nation's largest semiconductor investments.¹⁸ Indiana University's IU LAB initiative strengthens research translation by connecting researchers, entrepreneurs and private employers.¹⁹ The BioTrain program at Heartland BioWorks prepares workers for careers in biomanufacturing through collaboration among industry, universities and community colleges.²⁰ Ivy Tech Community College complements these efforts by providing applied technical education, stackable credentials and rapid workforce training aligned with regional employer demand.²¹ Together, these initiatives strengthen the connection between education, productive employment and higher average hourly earnings.

Regional strategy is equally important. Every region seeks the same outcome – increasing productivity and average hourly earnings – but each begins with different comparative advantages. Kokomo continues to build on its automotive manufacturing base. Lafayette leverages engineering talent and semiconductor manufacturing. South Bend strengthens recreational vehicle manufacturing and its supplier network. Fort Wayne benefits from a diversified industrial economy. Indianapolis leverages its strength in life sciences and pharmaceutical manufacturing. Bloomington builds on research capacity, life sciences and entrepreneurial activity. Indiana's regional strategy recognizes these differences while pursuing a common objective: increasing worker productivity across the state.

Conclusion

Indiana's recent economic performance has been impressive. Since the pandemic, the state has outpaced its neighboring states in growth of real GDP, population and labor force participation. These measures demonstrate that Indiana has strengthened its competitive position and created favorable conditions for future prosperity. They do not, however, measure prosperity itself.

Prosperity depends on productivity. Communities become more prosperous when workers generate greater economic value and, in competitive labor markets, earn higher average hourly earnings as a result. Average hourly earnings therefore provide a practical indicator of whether economic development is translating into broader gains for workers and their community. Real GDP, employment, investment and population remain important because they positively correlate with prosperity, not because they define it.

The comparison of Indiana metropolitan areas reinforces this distinction. Regions that experienced the strongest growth in average hourly earnings consistently combined productive capital investment, competitive tradable industries and a skilled workforce. Although each region pursued a different path, all strengthened the conditions that support sustained productivity growth.

Viewed through this framework, the central question for economic development is not simply whether Indiana's economy continues to grow, but whether that growth enables workers to create greater economic value over time. Policies that strengthen productive investment, expand competitive industries and develop skilled workers are ultimately investments in productivity and, therefore, in prosperity.

Indiana's economic momentum provides a strong foundation for the future. The state's long-run success, however, will ultimately be judged not by how rapidly the economy grows, but by whether that growth generates high-productivity workers that are paid higher hourly wages by nationally and globally competitive industries.