After five years of concerted effort by government and business leaders, Indiana’s economy is still falling behind.About 40,000 high-paying industrial jobs have vanished since 2003, and efforts to replace them with a high-wage tech economy have not taken hold.That means Indiana paychecks still are rising less than the U.S. average, a process that began decades ago and shows few signs of reversal despite successful efforts to increase biotech, advanced manufacturing and service jobs.Those efforts were partly undermined by the rapid disintegration of the national economy brought on this year by high fuel prices and the global lending crisis. Hoosier unemployment, for example, was below the national average for years but suddenly surpassed it this summer as the U.S. economy slumped and high gas prices hit Indiana’s RV industry.But experts say a massive investment over decades on the scale of the $700 billion U.S. bank bailout would be needed to reverse Indiana’s decline.Since Republican Gov. Mitch Daniels took office four years ago, criticizing state leaders for failing to make needed changes, state and local leaders have launched a flurry of economic development initiatives.They boosted the pool of venture capital fivefold, handed out nearly $1 billion in tax breaks to business and balanced the state budget. They leased out the Indiana Toll Road to provide $3.8 billion for road construction, increased funding for all-day kindergarten to boost literacy rates and adopted daylight saving time to help local companies and East Coast businesses stay in touch.The goal was to move the needle on a number of economic measures, but especially in one key statistic: earnings per job. Indiana incomes, among the nation’s highest in the 1970s, had fallen below the national average.By some measures, the efforts succeeded. Indiana has 37,000 more jobs today than when Daniels took office, and unemployment is lower here than in neighboring industrial states.But the crucial gap in earnings per job has grown. In 2006, the last year for which state-by-state income data are available, earnings per job in Indiana averaged $41,007 — trailing the national average of $47,286 by almost $6,300, U.S. Bureau of Labor Statistics data show.This was the widest gap in a generation. The trend continues today. Indiana has replaced jobs in manufacturing, where pay averages almost $70,000 a year, with service work in fields such as health care, where 31,000 new jobs have emerged since January 2005. But in the health-care field, pay averages about $43,000.“Manufacturing is the best-paying industry in Indiana, but the state really doesn’t have anything else taking its place that pays as well while the manufacturing jobs are being lost,‘’ said economist Sean Maher, who tracks Indiana for financial adviser Moody’s Economy.com of West Chester, Pa.Now Daniels faces criticism, as Jill Long Thompson, the Democratic candidate for governor, assails Indiana’s economic performance.”I think Governor Daniels has not been successful in putting forth policies that work for Indiana’s economy," Long Thompson said. “And I think, as my mother would say, the proof is in the pudding.”Daniels counsels patience.“This has been a 40-year phenomenon,” he said, referring to the steady loss of factory work and wages statewide. “It’s not going to be turned around in a couple of years, certainly not in the face of a downturn in the national economy.”Voters will have their say Nov. 4. An Indianapolis Star/WTHR poll in September showed a close race despite a significant spending advantage by Daniels.Manufacturing jobs have vanished, leaving workers in once prosperous factory towns with fewer options.Working on the production line at the Thomson glass plant in Marion, Dianne Randolph found steady pay, security and the promise of a sound future — until the 3,000-employee plant was closed in 2004.She’s yet to regain that regular paycheck.“I’ve lost my home. I don’t have a car anymore. My mom gives me rides,” said Randolph, 46, a single mother training to drive a heavy truck. “Now it’s getting worse. It’s hard on the kids. They can’t find good jobs.’’It’s an Old Economy story being repeated across the Midwest, and especially in Indiana, which has a greater portion of its workers in manufacturing than any other state. Residents in old factory towns like Marion are waiting for the turnaround.Marion has lost half of its 10,200 industrial jobs since 1996. New work has come in, including Wal-Mart and Dollar General distribution centers, bringing total employment to a level that is about 6,000 jobs ahead of the level a decade ago. But most of the new jobs are in service industries that pay far less than the old factories.The Rev. Willie Love, founder of the city’s Morningside Missionary Baptist Church, sees the social damage. Visits to the church’s food pantry have more than doubled in recent years.”People don’t have money anymore,‘’ Love said. "It’s not just Thomson closing down. A number of factories have closed down around here."Industrial decline waylaid the career of electrical engineer James Vodraska. Dismissed by Thomson in 2004, he never regained his footing in engineering.Vodraska joined thousands of recently idled manufacturing workers living within an hour of his Marion home. They had been let go by what was once Indiana’s industrial backbone: Amcast, Bell Fiber, Borg-Warner, Dana, Delphi, Foster Forbes, General Tire, Guide, Hayes, Lear, Muncie Transmission, Remy, Slater Steel and Visteon.Amid the welter of other industrial engineers looking for work, he was unable to land an engineering job. He taught high school classes but didn’t like the routine. Now he’s an entrepreneur with his son, running Monty’s, a cafén the Hotel Marion.Indiana gains praise — and a better credit rating — for creation of jobs, commitments for moreDaniels and others have attacked the problem on a number of fronts: job attraction, education, research, technology transfer and investment.One of the governor’s key tools has been the Indiana Economic Development Corp., which provides tax incentives to companies looking to expand or relocate in Indiana. In an effort to increase wages per job, the agency offers incentives to companies whose average wage is higher than the state average.Overall, it has committed more than $700 million in incentives for 610 deals and 75,761 promised jobs averaging about $3 an hour more than the average wage in the state. That’s about double the number of jobs created in the last years of the previous, Democratic administration led by Joe Kernan and earlier by Frank O’Bannon. The Kernan-O’Bannon years were marked by the 2001 recession, which dragged down job creation.It may take years to determine the impact of the Daniels administration’s effort. Most of the jobs it attracted are scheduled to emerge in 2009 and 2010 as the companies finish building plants, and it is not known what impact the flagging economy could have on their expansion plans.The IEDC’s effort has gained national praise, and the Daniels administration called the agency “red hot” after it landed a coveted Honda plant in Greensburg.U.S. Investment Monitor, a report on corporate investment for 2006 by the consulting firm Ernst & Young, ranked Indiana fifth among all states and best in the Midwest for securing job pledges from companies that also considered other states. Indiana ranked second in the nation in new capital investments.“We are beating our competition for new investments and new jobs at an unprecedented rate,” said Nathan Feltman, IEDC president. “The point is we’re winning new investment, new jobs and new high-paying jobs.”Rating agencies also have taken note of Indiana’s fiscal health under Daniels.When Standard & Poor’s upgraded the state’s credit rating in 2006 to AA, the agency cited the burgeoning life science sector as a stable factor in the state economy. This year S&P assigned Indiana the top AAA rating. It’s the first time Indiana has achieved the highest credit score, and it didn’t hurt that the state had a balanced budget and more than $3 billion in the bank from the road lease deal.Among other steps taken by government and business leaders in the past five years:» Ivy Tech Community College was refocused to train students for new jobs, such as lab technicians.» The 21st Century Research and Technology Fund was recast to invest in start-up tech firms.» Universities were encouraged to attract more federal research grants and turn ideas into marketable products.» The state increased Small Business Innovation Research grants.» Tax breaks for corporate research spending and venture capital were boosted.A high school diploma isn’t enough. The new economy requires “more brains than brawn.”Only a few years ago, Tristan Crayton was an Indianapolis teen yearning for a good wage on a factory floor. Today, he’s one of 300 lab technicians in training at Ivy Tech campuses, preparing for a $32,000-a-year career in biotechnology.“After reading in the papers that all this industry is going down, GM could go bankrupt, I’m glad I took the biology route,’’ said Crayton, 23.Young Hoosiers are getting the message that a high school diploma and a factory job are no longer the path to a comfortable life.”Our success is really going to depend on the education base of the labor force," said Tom Lehman, business professor at Indiana Wesleyan University in Marion. “Years ago, manufacturing took advantage of an education base nicely suited to what it wanted people to do in terms of occupational skills — not brains but brawn. Increasingly today, we’re going to have to rely more on brains than brawn.”In all, the coveted life science and biotechnology sector grew 6 percent from 2004 to 2007, according to a federal survey. But the sector still accounts for less than 14 percent of the jobs in the state economy. And many of those jobs provide relatively small paychecks.Life science includes janitors in hospitals, clerks in doctor’s offices, and scientists and engineers in biotech labs among its numbers.Biotech, which refers to the use of biological science to come up with new medical devices and medicines, is considered the sweet spot because of the high salaries paid to engineers and professionals. Also, their inventions can lead to new products supporting hundreds of jobs.From 2001 to 2007, the number of biotech jobs in Indiana increased 14.2 percent, mainly in the fields of drug making, medical device making and scientific research. But in an economy with 3 million workers, the gain is barely a ripple. It amounts to 5,200 new jobs, for a total of 41,730 biotech jobs, U.S. Bureau of Labor Statistics reports show.One key measure of innovation — patent activity — appears unexceptional, largely because the state has relatively few corporate headquarters and related research offices. Last year, 1,385 patents were issued to Indiana residents and companies, the U.S. Patent and Trade Office reports.Although this exceeded Indiana’s 20-year average — 1,263 patents a year — it trails the modern peak of 1,745 patents in 2002. And it works out to be one patent for each 4,548 state residents. This was the lowest ratio in the industrial Midwest and trailed the U.S. average of one patent per 3,178 residents.The most promising dream, to create high-tech start-ups, needs more money and more time.The economic development dream with perhaps the greatest promise, and certainly the one that has received the most acclaim, is also the one with the longest horizon, and the greatest need for capital.The private-sector push to boost venture capital and create high-tech start-up companies, especially in biosciences, has been substantial enough to gain national recognition. But it is not yet large enough, or sustained enough, to reverse the decline in earnings per job.BioCrossroads was created in 2003 to promote the life science sector in Central Indiana and attract venture capital. It organized the $73 million Indiana Future Fund, a venture capital cache supported by Indianapolis corporate stalwarts Eli Lilly, WellPoint and American United Life Insurance.Indiana Venture Center, also created in 2003, began to nurture more entrepreneurial efforts. The center was the nation’s first public university-private partnership aimed at creating high-tech businesses. It includes Ball State, Indiana, Notre Dame and Purdue universities and Rose-Hulman Institute of Technology.By late 2007, businesses in the state had attracted more than $403 million in total venture capital since early 2003, according to the consulting firm PricewaterhouseCoopers. That amounts to more than $100 million a year flowing into the state, double the amount between 1995 and 2002.That sounds like a lot of money. But creating a single viable biotech company with 10 to 20 employees takes as long as 10 years and as much as $100 million in cash infusions over those years, Eli Lilly start-up specialist Joshua Salisbury estimated.By that rough measure, replacing the state’s 133,400 lost factory jobs with the same number of knowledge workers would require amassing $670 billion to seed 6,700 new tech firms employing 20 workers each.Is that doable in Indiana?"You don’t just flip a switch,‘’ Daniels said. "We went from being the manufacturing state, the greatest manufacturing state. We have a longer transition than anyone else to have a more balanced foundation. You can’t do it overnight. But you have to start somewhere.’’