State of the state: Pritzker saw worst first-year jobs numbers since Blagojevich

Illinois job creation lagged the national median in nearly every sector.

Illinois’ jobs market performance severely lagged the national average during 2019, growing at nearly half the rate of the rest of the nation, according to new data released by the Illinois Department of Employment Security in conjunction with the Bureau of Labor Statistics.

While Gov. J.B. Pritzker’s administration touted 2019 as a success for jobs, Illinois’ jobs market continued to struggle during the governor’s first year in office.

During the year, preliminary December 2019 data shows that Illinois:

Added 45,000 nonfarm payroll jobs for an increase of 0.7%, the slowest growth rate in the first year of any Illinois governor’s elected term since Rod Blagojevich in 2007

Added jobs at the 32nd fastest rate in the nation (38th when not counting the public sector)

Underperformed the national median in nearly every sector, actually shed jobs in five of 11 sectors and failed to grow the state’s labor force

Ended the year with an unemployment rate higher than most neighboring states

One of the growth sectors was government employment, adding 13,400 jobs in 2019 to earn Illinois its highest ranking at No. 5 in the nation. But recent history makes clear that increased government spending and payrolls are not the solution to Illinois’ weak economy.

Large increases in state spending during the past 20 years have failed to improve Illinois’ economic performance compared with other states. According to the U.S. Census Bureau, Illinois has increased per capita total state spending by 46% after adjusting for inflation. That’s 35% faster than the national average. Meanwhile, real per capita personal income in Illinois has only grown by 18%, a rate 21% slower than the national average.

Instead, the state needs to stop fostering government jobs and pursue policies that promote a healthy environment for private sector jobs to grow.

Jobs growth sluggish in 2019

Illinois’ sluggish economy added jobs at the 32nd-worst rate in the nation. Making matters worse, when you remove the public sector gains, Illinois’ performance falls even farther, ranking 38th for private sector jobs growth during the year. Overall, 2019 showed lackluster performance in nearly every industry.

By the end of 2019, eight of the 11 sectors of Illinois’ economy had lagged the national median in terms of jobs growth, and five out of the state’s 11 sectors had actually experienced job losses during the year. The strongest performance compared with other states came from the government sector, which in Illinois grew at the fifth-fastest rate in the nation.

Robust growth in the public sector is likely part of the reason growth in the private sector has been less pronounced, as government contracts have been shown to reduce other employment opportunities in Illinois.

The state’s losses were felt by the following sectors: Mining, down 600 jobs (-7.7%); Information shed 700 jobs (-0.8%); Construction saw payrolls depleted by 1,200 (-0.5%); Trade, Transportation & Utilities lost 4,600 jobs (-0.4%); and Manufacturing shed 1,900 jobs (-0.3%).

Meanwhile, of the industries that gained jobs, the strongest performance came in the Leisure and Hospitality sector which added 16,900 jobs (+2.7%). Following up that performance was the Educational and Health sector growing payrolls by 17,100 (+1.8%); Government expanded by 13,400 positions (+1.6%); Other Services added 3,800 jobs (+1.5%); Financial Activities grew payrolls by 1,800 (+0.4%); while Professional and Business Services added 1,000 jobs (+0.1%) during the year.

Unemployment rate dropping due to workforce dropout, not Illinoisans finding jobs

While Illinois’ 2019 performance lagged most other states, the state’s total jobs growth was tied with neighboring Kentucky and Missouri – all up 0.7% for the year – and ahead of all other neighbors. Unfortunately, the relatively strong jobs growth compared with neighboring states hasn’t translated into lower unemployment rates than neighboring states or the national average of 3.5%.

While the decline in unemployment rates across the nation during the economic recovery has been due to job creation, Illinois has not had the same experience. Illinois’ decline in unemployment rate since 2007 has been due entirely to more Illinoisans exiting the labor force, not job creation. In fact, relative to 2007, Illinois has actually shed nearly 120,000 jobs (-1.9%) and the unemployment rate has only fallen because even more Illinoisans – 243,000 (-3.6%) – have left the labor force altogether.

If Illinois’ labor force were the same size as it was in 2007, the state would have an unemployment rate of 7.2%. That would be higher than the December 2007 rate of 5.4% and nearly double the current unemployment rate.

Labor force

A key component for job creation and a thriving state economy is a growing labor force. Labor force growth assures businesses looking to invest in a state that there will be a growing pool of workers from which they can pull talent and a larger consumer base for their products. It also bolsters the housing market, which is closely linked to the health of the labor market. Unfortunately, Illinois also performed poorly when it came to growing the state’s labor force. In 2019, the state’s labor force was essentially stagnant, adding fewer than 10,000 (+0.1%) potential employees to the workforce, among the worst performance in the nation.

The states that have been most successful in growing their labor forces have also tended to be the most successful at attracting residents from other states, something Illinois has failed to do and instead lost residents for six consecutive years. The state’s stagnant labor force in 2019 is part of a larger trend for the state, as the labor force has been in a state of near-constant decline since 2007.

A shrinking labor force will continue to pose challenges for expanding employment and lowering the joblessness rate in Illinois’ struggling labor market. Reversing the decline of the state’s prime working-age population and providing confidence for families and businesses to invest in the state is the only way to buck Illinois’ trend of lackluster employment outcomes.

State spending isn’t the answer

In the past two decades, state governments in every state have increased per capita state spending, even after adjusting for inflation. However, the growth in state spending varies widely among U.S. states. Since 2000, Illinois has increased per capita state spending 35% faster than the national average, the 11th fastest rate in the nation.

While proponents of increased government spending would say this increase in state spending is good for the state’s economy, and Illinois should continue to pursue large increases in spending, the evidence that the abnormally large increase in state spending has led to tremendous benefits for Illinois compared to other states is sparse.

Since 2000, per capita personal income in Illinois has only grown by 18% after adjusting for inflation. That’s 21% slower than the national average and among the bottom 10 states nationally.

Despite Illinois’ above average increase in state spending per capita, personal income growth per capita has been among the lowest in the nation. Proponents of increased government spending would expect the increase in spending to be associated with a large increase in personal income, as government funds are often used for education that can improve the quality of the workforce, protective services to ensure public safety and order, and infrastructure which can also improve efficiency within markets. However, the empirical evidence for the benefits of government spending are mixed at best.

As outcomes for Illinoisans continue to lag other states, it is clear that increased government spending and payrolls are not the solution to Illinois’ weak economy and are likely causing the state to shed jobs it would have otherwise added. Instead, the state needs to pursue policies that foster a healthy environment for private sector jobs to grow.

Real solutions

Recent tax hikes have already fostered an environment in Illinois that makes it harder for Illinoisans to find work and reduces wage growth prospects for those who are employed. While the rest of the nation has experienced robust employment growth in the past decade, with payrolls far exceeding their 2007 levels, Illinois has struggled to add jobs. Since 2007, Chicago has added a mere 241,000 jobs, the second-worst performance in percentage terms among the 15 most-populous metropolitan areas. Meanwhile, the rest of the state has actually lost jobs since 2007, shedding more than 41,000 jobs.

Adopting the governor’s progressive income tax proposal would prolong the state’s labor market troubles, likely costing the state thousands of jobs and encouraging even more Illinoisans to exit the workforce. Instead of again asking taxpayers for more, lawmakers need to pursue real reforms that would put the state on firm fiscal footing and give much needed certainty and tax relief to families and businesses.

First, Illinois must address its pension problem, which continues to grow despite two record income tax hikes within the past decade. Though pensions take up more than 25% of Illinois’ general fund expenditures, the state pension funds’ debt is growing. But by amending the Illinois Constitution to allow for adjustment of the growth rate of not-yet-accrued benefits, the state can reduce pension debt and ensure the plans can support retirees without overwhelming taxpayers. Such changes could include increasing the retirement age for younger workers, tying annual benefit increases to the actual cost of living and making retirement plans more closely resemble 401(k)s for new workers.

Second, a spending cap could help the state meet Illinois’ constitutional balanced budget requirement, which has been ignored for nearly 19 years. One interesting proposal would be a smart spending cap that ties government spending growth to a measure of what Illinois’ taxpayers can afford, such as growth in state gross domestic product or personal income. Texas and Tennessee have implemented something similar to this, and both have budget surpluses, no state income tax and lower property tax rates than Illinois.

Responsible government spending growth that taxpayers can afford would provide more stability for families and businesses. But if the state substitutes tax hikes for necessary reforms, Illinois can expect to continue enduring unfavorable labor market outcomes relative to other states.