Prime working-age Illinoisans leading the state’s population decline

The current and future workforce is shrinking in Illinois, but growing across the U.S. Making the Prairie State more attractive for families seeking to work and invest is key to fixing this problem.

Illinois has seen four consecutive years of population decline, driven by far more people moving out of the state than moving in. Demographic data released June 21 by the U.S. Census Bureau reveal the main culprit behind Illinois’ population decline is not retirees moving away, but rather working-age people seeking greener pastures.

Illinois’ current and future workforce is declining while that segment of the population is growing in the rest of the country. This is because Illinois is losing far more families than it is attracting, which has dire implications for the state’s economy.

Claims that Illinois’ population problem isn’t so bad – that the “sky isn’t falling” – are not only inaccurate, but stand in the way of reforms Illinois desperately needs to begin attracting and retaining families.

Divergence

Illinois is often said to be the state that most resembles the nation as a whole. This is true in some respects. The median age in Illinois is almost identical to that of the nation – just under 38 years old. And the prime working-age population (25-54 years old) makes up about 40 percent of the population for both Illinois and the nation.

But the differences in demographic changes between the U.S. and Illinois – driven by Illinois’ migration problem – are cause for concern.

The first difference to note is that Illinois can’t blame its people problem on retiree outflows alone.

Since 2010, the population aged 65 and over in the rest of the nation has grown 30 percent faster than in Illinois – with that cohort growing by 17 percent in Illinois compared with 22 percent in the rest of the country. It’s true that retired Illinoisans move to other states, but more concerning is the fact that Illinois’ prime-age workers leave the state, which means fewer Illinoisans even reach retirement age in Illinois.

Indeed, the second key difference between Illinois and the nation is that the prime working-age population is declining in Illinois but growing in other U.S. states.

From July 2016 to July 2017, Illinois’ prime working-age population declined 0.8 percent while it grew 0.4 percent nationally. In every prime working-age population cohort (ages 25 to 29, 30 to 34, 35 to 39, 40 to 44, 45 to 49 and 50 to 54) Illinois saw weaker growth than the nation as a whole.

Since the end of the Great Recession, Illinois’ prime working-age population has declined 5 percent while the U.S. prime working-age population has grown 1.4 percent. Over this timeframe, Illinois again saw weaker growth in every prime working-age population cohort. The most severe divergence was in ages 25 to 29, which grew 1.5 percent nationally but shrunk in Illinois. (While the Great Recession ended in 2009, the most recent base year for the Census data is 2010, meaning measuring post-recession population change begins in 2011.)

Not only is Illinois hemorrhaging its current workforce, but population losses are also compromising its future workforce. Decline in Illinois’ youngest population cohorts are more severe than in the rest of the nation. From July 2016 to July 2017, Illinois’ population ages 0-24 declined by 1.2 percent while it declined by 0.2 percent in the rest of the U.S.

Illinois’ population ages 0-14 shrunk by 1 percent over the year, but that population nationally saw a small increase over the same time.

Unfortunately, this trend has been constant since the end of the Great Recession.

What’s driving Illinois families away? 

People move when they experience a net gain from moving. For example, economists find that migration flows respond to local labor market conditions (Topel, 1986; Blanchard and Katz, 1992). If better paying jobs are more abundant in one region relative to another, then workers have a big incentive to move.

Economists largely agree that distance, home and previous locations, and population size all have significant effects on migration (Kennan and Walker, 2011). They also find that age and local climate also matter for migration decisions. But even after controlling for all these factors, migration decisions remain significantly affected by expected changes in income.

This is a problem for Illinois, where income growth is lagging the rest of the U.S.

In the rest of the U.S., personal income grew 28 percent faster than Illinois from 2015 to 2016, according to the Bureau of Economic Analysis. In addition, Illinois job seekers stay unemployed 33 percent longer than unemployed workers in the rest of the nation, according to government data. This helps to explain why other states offer more opportunity.

The state of Illinois’ economy is one reason the 2017 tax hikes were such a poor policy choice. By costing the state thousands of jobs and billions of dollars in economic activity, the recent tax hike will exacerbate the state’s outmigration crisis.  State lawmakers cannot continue to rely on tax hikes if they want families to bet on Illinois.

Racial breakdown

Along with age details, the new Census data provide insight on racial demographics as well.

While all other races in Illinois saw increases in population in 2016 and 2017, both the white and black population declined, down 0.48 percent and 0.50 percent respectively. This stemmed almost entirely from declines in white and black residents younger than 55 years old. Since 2010, the white population in Illinois has declined 1.5 percent, and the black population has declined 1.4 percent; again, almost entirely due to declines in residents younger than 55. 

Meanwhile, the state’s Hispanic population grew 1.3 percent between 2016 and 2017 and 8.6 percent between 2010 and 2017, perhaps because of age demographics. The Hispanic population is far younger than whites and blacks in Illinois, with a median age of 28.7 years compared to 39.6 years and 34.3 years respectively. A younger age profile means more of the population is likely to be in child-rearing years, which could help explain part of why the Hispanic population has grown. However, the growth in the Hispanic population was not due to new births, as the 0- to 4-year-old segment of the Hispanic population has been declining in Illinois.

Instead, Hispanic population growth from 2016-2017 and 2010-2017 has been driven by consistently large gains in a wide swath of the population ages 10-69, indicating Hispanic gains in Illinois are due to migration trends. Without those gains, the state’s population problem would be even more dire.

Why population growth matters

Unfortunately, the recent population changes are bad news for Illinois’ long-term economic growth.

The reason societies invest is in significant part to provide capital for new workers and to provide housing for new families. If the growth rate of new workers and new families slows or even declines – as is the case in Illinois – one should expect the share of GDP dedicated to investment to decline. A decline in investment makes capital scarce. And capital is an essential ingredient to improvements in living standards. 

When productive capital becomes scarce, output per worker (labor productivity) declines, hiring slows and so do wages for new hires. Historically, productivity growth has led to gains in compensation for workers and greater profits for firms.

Growing and moving forward

If Illinois is to reverse recent trends and foster population growth within the state, it must address the root causes of its migration problem: an unfriendly business environment that discourages investment and job creation, and punishes residents with high taxes.

Improving Illinois’ labor market will require sound fiscal and labor policies that assure businesses and employees that market activity will not continue to be penalized with higher taxes each year. Instead of continuously hiking taxes, state lawmakers need to free Illinoisans from their enormous tax burden. A lower tax burden would stimulate investment and job creation, making the state a more attractive place for families and businesses to plant roots.

However, the only way to get lower taxes is to rein in government spending at the state and local levels. A spending cap could provide certainty about future government spending and help lawmakers avoid tax hikes to balance the budget.

Unfortunately, lawmakers have been more concerned about adopting a progressive income tax that would open the door for tax hikes on Illinois’ shrinking middle class – one progressive tax proposal could cost the state as much as 34,500 jobs and $5.5 billion in economic activity.

In light of the 2019 budget and the upcoming gubernatorial election, the progressive income tax hike is a very real possibility – one that would almost certainly mean Illinoisans can expect more of the same in 2018 and beyond.