By Paul Merrion
Illinois always has been one of the last states to suffer from a recession and one of the last states to recover, but this is getting ridiculous.
Nearly five years after the recession ended nationwide, the Illinois unemployment rate is 8.4 percent, third worst in the nation. When Gov. Pat Quinn took office in January 2009, the recession had been underway for a year and unemployment stood at 8.0 percent, just slightly above the national average.
Since then, the Illinois economy has sputtered, with unemployment peaking at 11.4 percent before slowly dropping. The rate is now almost 2 percentage points above the national average.
The nagging question—and one that might determine the outcome of this year’s governor’s race—is why?
Illinois’ stubbornly high unemployment is the result of several factors, including the severity of the state’s housing slump, which has badly hurt the construction industry. The decades-long decline in manufacturing has continued, while neighboring states like Indiana and Michigan have a larger share of the rapidly improving auto industry, the only part of the sector that is rebounding. Meanwhile, jobs in retailing and financial activities in Illinois also continued to decline here while the rest of the nation recovered.
The state’s troubled fiscal condition and the “temporary” tax hike it spawned have not encouraged employers to put out the “Now Hiring” sign, either.
Like many of the 200,000 other Illinoisans left unemployed since the downturn, Luther Harmon still is looking for steady work after losing a well-paying middle management job with Pepsico’s Quaker Oats unit in a mass layoff five years ago.
“I really can’t figure it out,” the resident of south suburban Matteson says. “I have great experience.”
“I’ll move anywhere,” he adds. “The opportunities are limited here.”
Mr. Quinn brags that the state has created 257,000 private-sector jobs since January 2010, but that’s a gain of about 5 percent. Only a few states grew less. That figure also ignores a huge loss of teachers and other government workers, which means nonfarm job growth was only about 3 percent since then.
Income taxes went up in January 2011, precisely when Illinois started to diverge from most other states that saw steady improvement in their unemployment rates.
“We started to see that correlation way back then,” says Ted Dabrowski, vice president of policy at the Illinois Policy Institute, a nonprofit conservative think tank. The Springfield-based organization strongly opposes the tax hike extension advocated by the governor and many Democrats to prevent blowing a hole in next year’s budget.
“There wasn’t any way to prove causation six months in, but it’s persisted, it doesn’t go away, we continue to have that two-point gap,” he says. “We think the tax hike is a huge factor.”
Some experts question the impact of the tax hike on hiring.
“In fact, one could argue that the economy would be in worse shape had the tax hike not occurred, since the reduction in public-sector jobs and subsequent ripple effect would have been much larger,” says Aaron Smith, a regional economist at Moody’s Analytics Inc., an economics consulting firm in West Chester, Pennsylvania. “Of course, consumer spending would also have been stronger due to more discretionary income, but I don’t think the tax hike is a valid cause of the hiring slowdown in other industries.”
So politically sensitive is the unemployment issue that the Quinn administration last year asked the federal Bureau of Labor Statistics, which compiles unemployment statistics, to recheck its calculations, arguing that a government survey of firms’ payrolls showed more jobs than a separate survey of households on which the unemployment rate is based. “It is difficult to believe that employment would be collapsing in tandem with the labor force when payroll employment shows the opposite,” the letter said.
The agency declined to change its methodology. The discrepancy may be because some people are holding down two or more jobs, increasing employment in the payroll survey without reducing the unemployment rate. Or it could be a quirk in survey methodology.
DOUBLE WHAMMY
Manufacturing has been a double whammy for Illinois. The state not only has less of the booming auto industry than the rest of the Midwest, but it also has a heavier concentration in earthmoving and other heavy equipment, led by Peoria-based Caterpillar Inc. and its many downstate suppliers, which have been hammered by a global slowdown in mining.
“The state’s particular mix of industries is likely contributing to underperformance,” says Chicago Federal Reserve Board regional economist William Testa in a recent analysis. Cat’s sales were down $11 billion last year, forcing it to cut its workforce by about 9 percent. Illinois exports were down nearly $2.3 billion last year, and its largest manufactured export—off-highway dumpers—was off by 48 percent.
Despite claims that Illinois employers are freaked out by higher taxes, public-sector job losses account for a significant portion of the unemployment rate. Six of the nine occupations in Illinois losing the most jobs in 2011 were teachers and other government workers, according to Economic Modeling Specialists International, a labor market data analysis firm based in Moscow, Idaho.
Since November 2010, when the Illinois unemployment rate was 9.6 percent—just two-tenths of a point above Indiana and the national average—only New Mexico has seen a smaller decline in its unemployment rate, compared with where it was. Indiana’s rate is down 3.5 percentage points since then, while Michigan, which started higher, is down 4.1 percentage points.
A spokesman for the Illinois Department of Employment Security says the high rate reflects the woes of the entire Midwest.
Yet at 8.4 percent Illinois has by far the highest unemployment rate in the Midwest, ahead of Michigan’s 7.5 percent and well above Indiana and Wisconsin (both at 5.9 percent), Iowa (4.5 percent) and Missouri (6.7 percent).
The Quinn campaign and a spokesman for GOP gubernatorial candidate Bruce Rauner decline to comment.
TAX HIKES, UNPAID BILLS . . .
It’s difficult to separate the tax hike from other shocks that Illinois employers felt over the past three years, including the state’s backlog of unpaid bills and the onset of Obamacare. Talk of the state’s pension problems heated up in 2011, raising the possibility of even higher taxes.
“Everybody was on that bandwagon: how can I hire” when taxes are going up, says Alyce Andres-Frantz, who talks to scores of local executives each month as lead author of the Chicago Business Barometer, an index of business activity published by Market News International.
Many firms have turned to temporary workers. In 2011, it was the state’s fastest-growing occupation by far, according to Economic Modeling Specialists, gaining 11 percent or nearly 14,000 jobs. By 2013, there were 50 percent more temp workers in Illinois than in 2009.
“I worked for a temp agency; they sent me all the way from Riverdale to Buffalo Grove,” says Yvonne Cobb, who lost her job in downtown Chicago as a billing specialist at a Near West Side surgeons group in April 2011. After five months of a long commute for a job that paid $13.25 an hour, about $4 less than before, she quit. “Financially it just wasn’t making any sense for me.”
Original article here.