Population loss, aging workforce threaten Illinois economy

Sluggish growth, continued outmigration and demographic challenges are projected to continue, according to Moody’s Analytics.

Illinois’ already sluggish economic and job growth will slow down even further, according to a new forecast.

Moody’s Analytics’ “State of Illinois Economic Forecast” outlines some of the state’s major challenges, including slow GDP and employment growth compounded by weak demographic trends, such as a shrinking and aging population.

Primary factors in Moody’s downbeat projections include high taxes, an uncompetitive business environment and declines in key industries such as manufacturing and agriculture that continue pushing away jobs and investment.

Illinois nonetheless has many strengths, such as its central location, a large pool of skilled workers, strong tourism and world-class universities, upon which is can build a stronger economy. Reforming  policies that undercut these advantages will help the state economy grow.

Sluggish economic and employment growth

From 2025 to 2029, the Illinois economy is expected to grow just 1.4% annually, compared with 1.8% in the Midwest and 2.2% nationally.

Illinois has already been the fifth-slowest growing state economy since 2019, with real GDP rising just 7.9%, less than half the national average of 17.6%.

Even worse: Illinois’ job growth. Total nonfarm employment is projected to grow only 0.6% from 2025 to 2029. By comparison, the rest of the Midwest is projected to grow 2½ times faster, and the nation five times faster.

An uncompetitive business environment driven by high business taxes is a key factor behind Illinois’ weak GDP and employment growth. The state lost 218 businesses to other states in 2023 alone, while lower-tax states led in gaining businesses. Extensive state regulation and burdensome occupational licensing requirements also can discourage investment and job creation, research shows.

Moody’s projects job loss in key industries, including manufacturing and retail, driven partially by federal trade policy uncertainty and continuation of long-term industry trends.

A demographics nightmare

Moody’s predicts Illinois’ outmigration challenges will worsen, with the state projected to lose 600,000 residents by 2033 in addition to roughly 200,000 over the past eight years. Population loss has been an issue in Illinois for more than a decade.

Even more concerning is the expected drop in prime-age workers. Moody’s projects that Illinois’ prime-working age population will decline by over 450,000 by 2033.

The number of residents over 65 is expected to increase by approximately 150,000 by 2033.

The departure of current and future workers puts significant pressure on both state finances and economic growth. It shrinks both the tax base and the number of people available to fill jobs and sustain the economy.

Where does Illinois go from here?

While these forecasts paint a bleak picture, Illinois has an opportunity to improve its outlook turn things around by addressing policies that drive away residents and businesses.

In tackling factors weakening its economic outlook, Illinois must begin by reworking the state’s tax structure to create a more favorable business environment that encourages job growth. Reducing the country’s third-highest corporate tax rate and repealing job-killing policies such as the deduction cap on net operating losses and estate tax would be a critical first step.

Illinois’ nation-leading property tax burden is one major factor that drives residents away. The state should strengthen property tax levy limits by reducing exemptions that make current limits largely ineffective.

Lawmakers also must build on Illinois’ natural strengths. The state has a plethora of highly skilled workers and companies willing to invest in top talent. Reforms including removing unnecessary occupational licensing barriers, expanding apprenticeship opportunities and opting into the Federal Scholarship Tax Credit program could help develop Illinois’ future workforce and help sustain businesses looking to take advantage of a highly skilled workforce.

Without meaningful reform, the state risks continued population loss and slower economic growth in the years ahead.