The Decatur Herald & Review editorialized about the Illinois Policy Institute's recent report on the lack of business startups in Illinois.
Job growth is crucial to the future of Illinois. The state’s financial problems, which definitely need legislative attention on pension reform and other issues, can’t be completely solved if the state isn’t growing.
But where should that growth come from?
The answer, according to a new study by the Illinois Policy Institute, is that the largest job growth in Illinois would come from the establishment of new businesses. Using a huge database of business activity during the past several years, the Institute’s analysts paint a dismal picture of job growth in the state during the period from 1995 to 2009. In fact, Illinois ranked last among the 50 states in job creation during that period. It was one of only six states to have a negative job growth during those years.
Not surprisingly, states surrounding Illinois experienced better job growth. Kentucky, Indiana, Iowa, Wisconsin and Missouri experienced job growth ranging from 5 percent to 11 percent during those years.
The analysis does give Illinois policymakers a road map for the future. There are basically three ways new jobs are created within a state: expansion of existing businesses, migration of businesses in and out of the state and the net number of new businesses when business “births” and “deaths” are tabulated.
While many people believe the migration of businesses in and out of the state is important, that factor had little effect on job growth between 1995-2009. In fact, the in-and-out migration numbers basically cancelled each other out.
The state did gain some jobs from the expansion and contraction of existing businesses. The study found job expansion, which are existing businesses adding jobs in the state, was relatively stable throughout the 14-year period. However, the contraction of jobs was widely variable, with some years seeing massive contractions and others experiencing less.
The main factor in the state’s overall job growth was the difference between businesses opening and closing. This is the most closely correlated to whether the state experiences net job growth. During the period studied, an average of 78,500 jobs was lost each year because more businesses died than were born. In total, the state lost nearly 1,100,000 jobs in this category.
The policy implications of this conclusion are clear. At the local level, cities, villages and counties should do all they can to encourage new businesses.
But most of the responsibility lies at the state level. These businesses, which have a huge impact on the state’s economy, are not represented by high-powered lobbyists or special interest groups.
This category of businesses, however, is affected by state policies. Unnecessary regulation and red tape, high workers compensation costs, a high minimum wage, high business taxes, the unstable state financial situation and a generally unfriendly attitude toward business directly affects the number of new businesses that open and close. Those policies, most enacted during the same time period as the study, led to the worst job growth record in the nation.
The opportunity for Illinois is clear. Create a more business-friendly environment and new businesses will create job growth.
Or the state can follow the same path it’s been on and experience the same results.