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 While Illinois boasts a younger,
more highly skilled population with fewer early retirees than most states,
Illinoisans have been sluggish to get back to work. In fact, most of the United
States’ employment recovery was concentrated in a few states –Texas, Arizona,
Utah and Idaho are the only states to surpass pre-pandemic job levels as of
December 2021 – with fewer regulations, lower taxes and better overall
governance. The combination of sluggish job creation and the lack of urgency to
re-open schools for in-person learning kept parents – especially mothers – out
of the labor force.
On the demand side, stricter than average COVID-19 restrictions in Illinois kept
economic activity suppressed for longer and caused job openings to lag relative
to the rest of the country. The lack of opportunity and the decline in economic
freedom pushed many residents out of Illinois, exacerbating years of population
decline. Meanwhile, some states – less regulated states with lower taxes –
experienced rapid population growth, which fueled housing demand, job creation
and rapid economic recovery.
Now, as more and more states are approaching a full recovery from the economic
shock of the pandemic, Illinois is left to grapple with a very serious issue:
the state’s economic potential is now lower in wake of the COVID-19 downturn and
accelerating population decline.
Illinois’ economy is currently
$31.4 billion smaller than where it would have been without population losses.
Population decline was already contributing to lower economic growth for
Illinois, but as COVID-19 and government shutdowns wreaked havoc on the state’s
economy, population loss has continued to accelerate. The combination now likely
means that the state’s economic potential has declined.
POPULATION LOSS REMAINS ILLINOIS’ BIGGEST CHALLENGE
2021 marked the eighth consecutive year of population decline for Illinois. West
Virginia is the only state with a longer history of a shrinking population,
currently suffering nine consecutive years of population decline.
According to the U.S. Census Bureau, between 2013 and 2018, Illinois’ population
fell by 1.33%, or 34,219 fewer residents each year on average. In the last three
years, population worsened with Illinois shrinking by another 1.97%, which
amounts to roughly 83,644 fewer residents each year on average. The state’s
precipitous population decline is due solely to domestic outmigration.
POPULATION LOSSES RESTRAINED HOUSING APPRECIATION AND HURT ECONOMIC GROWTH
The opportunity to build wealth through homeownership – often a family’s largest
asset – is among the leading reasons why Illinoisans have left the state. While
housing prices in Illinois surged 11.4% in 2021, the state’s experience was a
far cry away from the 18.4% appreciation on average in most of the country.
Across the country, homes appreciated rapidly last year as a result of housing
demand increasing during the pandemic. Policy stimulus – ultra-low interest
rates and government checks – helped to improve households’ balance sheets and
stimulate housing demand. The need for space and the shift to work-from-home due
to government lockdowns resulted in higher appreciation for houses when compared
to condos and apartments.
Some states benefited more than others as population growth in those states
fueled demand for housing, job creation and economic growth in 2021.
Home prices were boosted even higher due to issues with the supply of housing.
New construction was sluggish before the pandemic and lagging demand. The
pandemic only exacerbated pre-existing issues due to labor shortages and rising
material costs.
While rising demand and short supply of new housing units contributed to higher
prices across the country, housing demand increased less in Illinois, mostly due
to population losses, resulting in lower appreciation in home prices.
The importance of housing market valuations cannot be overstated. This is
because changes in housing prices have a larger impact on consumer spending, and
thus on the economy at large, than changes in stock market prices. Since housing
is often a family’s most valuable asset, a decline in the value of housing
causes individuals to feel less wealthy. As a result, they reduce their
consumption. This is what is referred to as the wealth effect.
In addition to the wealth effect, a sudden and unexpected decline in housing
values would reduce the incentive to build. Fewer construction projects would
reduce employment in the construction and real estate industries, lowering
economic output.
Because of how sensitive the broader economy is to housing valuations, the real
estate market is vital to a state’s economic wellbeing. The historically
persistent lower housing appreciation in Illinois means lower increases in
consumer spending, less new construction, less job creation and lower wage
growth.
POPULATION LOSSES REDUCED ILLINOIS’ WORKFORCE
Population loss means aggregate employment will likely remain permanently lower
than pre-pandemic levels.
As of December 2021, Illinois was still missing 4.0% of its pre-pandemic
employment level. This is compared to 2.8% on average across the country. In
fact, of All Midwestern states, only Michigan and North Dakota are missing more
jobs than Illinois.
Meanwhile, Utah, Idaho, Texas and Arizona have all surpassed pre-pandemic
employment levels and Montana is missing a mere 100 jobs relative to February
2020.
Illinois’ results are unsurprising since, relative to the size of its unemployed
population, Illinois created fewer new job openings than most, making finding a
job harder in Illinois than nearly every other state in the nation. From January
to October 2021, there were 0.8 vacant jobs per Illinois job seeker on average
each month according to the Bureau of Labor Statistics’ Job Openings and Labor
Turnover Survey (JOLTS), when compared to 1.1 per job seeker across the country.
Perhaps even worse for Illinois’ labor market is that public policy wreaked
havoc on the state’s labor supply, reducing both the quantity and quality of
potential workers. More generous extended unemployment benefits with no job
search requirements for most of 2021, a sluggish return to in-person learning,
and a growing skills gap among Black workers – those disproportionately hurt by
COVID-19 job loss – all acted to reduce labor supply.
In most states, younger Americans who left the labor force during the pandemic
are expected to return. However, population loss in Illinois, especially among
working-age Illinoisans, suggests that even if early retirees return to work,
aggregate employment will not return to its pre-pandemic level.
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Illinois lackluster
performance will also cause economic disparities to persist. The
effects of the COVID-19 pandemic and state-mandated lockdowns have
served to widen pre-existing racial gaps in Illinois, which were
already more severe than the rest of the nation. Now, relatively
fewer labor market opportunities in Illinois will make closing
racial gaps in employment more difficult.
THE END RESULT: ILLINOIS ECONOMY IS SMALLER
The decline in home price appreciation, labor force and available
jobs ultimately culminate in a massive loss for the state’s economy.
The sum of these losses is an economy that is $31.4 billion smaller
due to population loss.
Economic growth is
measured by changes in a state’s gross domestic product (GDP) – a
measure of economic output –which can be deconstructed into its
population and economic elements. Expressed as percentage changes,
economic growth is equal to population growth plus growth in each
worker’s contributions toward GDP, or economic productivity. In
other words, without substantial increases in productivity,
declining population growth will lead to lower economic growth.
As a result, Illinoisans will continue to experience weaker
improvements in living standards, see fewer job opportunities and
lower wage growth.
ADDRESSING THE POPULATION CHALLENGE MEANS STOMPING OUT CORRUPTION,
LOWERING COSTS AND IMPROVING SERVICES.
In order to attract workers from other states, Illinois has model
states that have historically been successful at attracting talent.
State and local government policies seem to be driving Americans’
return to the workforce. More affordable and business-friendly
states are near or above pre-pandemic employment levels. Red tape
kills job creation.
Taxation and spending policies also play a factor as well. Support
from the federal government meant most states’ finances recovered
quickly. Eleven states, including Arizona, Iowa, New Hampshire,
Missouri, Montana and Wisconsin, reformed their income tax systems
to reduce residents’ overall tax burden. They cut taxes to provide
relief for residents and to jump-start their economies.
But Illinois was constrained by public employee retirement costs. In
fact, despite $8.1 billion in federal aid in 2021, Illinois raised
taxes on the state’s most vulnerable residents during the pandemic.
The latest state budget introduced $655 million worth of new taxes
and fees. And part of the tax increase included raises and higher
office allowances for the lawmakers who voted to approve the
governor’s budget.
Meanwhile, during this same legislative session, Illinois lawmakers
voted to put a constitutional amendment on the ballot that would
permanently raise the cost of government services. Illinois already
has some of the most unfair laws in the region when it comes to
negotiating with government worker unions. That, in turn, drives up
the cost of government services.
Senate Joint Resolution Constitutional Amendment 11 would make this
unfair power dynamic permanent. This because the amendment would
permanently allow government unions to negotiate anything and
everything into their collective bargaining agreements – not just
wages and workplace benefits – giving most public sector workers the
right to go on strike for just about any reason.
In the case of police unions, it could also mean limits on the
investigation of officers after alleged wrongdoing and the
destruction of disciplinary records. In the case of teachers unions,
although union bosses claim protecting students is their top
priority, unions can be a roadblock to investigating teachers
accused of misconduct.
Of course, this should come as no surprise because $15.1 million
flowed from unions to lawmakers who voted for the measure.
Unfortunately, this is yet another reason to expect that the quality
of government services will continue to deteriorate.
History shows why enshrining government union power in the Illinois
Constitution is dangerous.
In 1970, government unions succeeded at enshrining pension
protections in the state’s constitution. The result: the worst
pension crisis in the nation.
The state has increased pension spending by more than 533% during
the past 20 years, adjusting for inflation. Health insurance
spending has gone up 127%. As pension debt continues to increase, so
do required pension contributions. Pension contributions now consume
26.5% of the state’s general funds budget, up from less than 4%
during 1990 to 1997.
As pension costs capture an increasing share of the state’s budget,
the state raises taxes while forgoing desperately needed public
investments. The estimated total cost of pensions had soared to
nearly $28 billion on average each year in forgone income and direct
payments to the pension systems by 2017.
At the local level, property taxes go up and yet an increasing share
of municipal budgets go to pensions instead of key services and new
public investments.
From 1996 to 2016, Illinois property taxpayers sent an additional
$396 million to police departments, but pensions consumed a vast
majority of these funds. Statewide, 81 cents of every additional
property tax dollar for police departments – more than $320 million
– went to pensions rather than police protection services.
The same held true for fire departments, which levied an additional
$260 million in property taxes from 1996 to 2016. Most of that money
went to pensions. Statewide, 78 cents of every additional property
tax dollar for municipal fire departments – more than $200 million –
went to pensions rather than fire protection services.
Unfortunately, Gov. J.B. Pritzker has proposed tax increases in
every state budget during his tenure and has given in to government
union leaders’ every demand. As government unions’ demands
increased, the cost of government increased for Illinoisans, even as
services decreased. As a result, population losses accelerated.
Turning the state around will require the legislature to put a
pension reform constitutional amendment on the ballot so future
state and local expenditures can finally prioritize spending on
education and social services for those in need. Pension reform will
make government work for all Illinoisans. That’s the first step
toward reversing Illinois’ population decline.
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