The problem
State officials have doled out hundreds of millions of dollars in tax breaks and other incentives to keep Fortune 500 names and other big businesses from fleeing Illinois. But were state officials focused on the right targets? Who and what matters most in job creation?

The Illinois Policy Institute’s new analysis finds the key to job creation in Illinois is jump-starting new establishment job creation. Creating an environment conducive to starting healthy new businesses is vital to increasing the number of jobs available to Illinoisans. Company migrations and expansions play a role, but they pale in comparison with the net job creation resulting from business “births” and “deaths.”

This finding is derived from the latest release of the National Establishment Time-Series, or NETS, a powerful database of Illinois’ businesses. The NETS database paints a dismal job creation picture in Illinois from 1995-2009. The state was 48th in the country in generating jobs from the creation of new businesses. Those losses were compounded further by jobs lost from failed establishments.

This contributed to Illinois being one of only six states to lose jobs between 1995 and 2009. Overall, Illinois ranked 50th – dead last – in total job creation.

Unquestionably, business births and deaths drive total job creation, much more so than the other two categories of private sector job creation: the migration of businesses into and out of Illinois and the expansion and contraction of existing businesses.

Our solution
If Illinois wants to create jobs, elected officials must focus most on the companies that don’t have the big lobbyists and fancy public relations firms. Instead, officials must focus on creating an environment that allows job creation and entrepreneurship to occur. Illinois must end its decade-long anti-business environment and embrace a reform agenda that lowers taxes, reduces burdensome red tape, ends corporate favoritism and restores Illinois’ fiscal order.

Why this works
The NETS data show that Illinois’ total job growth is highly correlated with how well Illinois fosters the creation of new companies and how well it provides an economic environment that promotes entrepreneurial activity. The bottom line: when new businesses aren’t creating jobs, Illinois isn’t either.