Shaky start

Before the pandemic, when the U.S. economy steamed ahead and the nation’s unemployment rate fell to near-record lows in 2019, employment in Illinois also grew – but at nearly half the rate of the rest of the nation. A year after the start of the pandemic, even with Illinois’ relatively high vaccination rates, prolonged restrictions meant a late and more sluggish recovery, preventing those most harmed by the pandemic – particularly women and Black workers – from getting back to work at the same pace as other similar Americans.

Although Illinois’ relative decline has been more than two decades in the making, Pritzker presided over the worst first-year labor market performance of any governor since disgraced former Gov. Rod Blagojevich. In Pritzker’s first year in office, five out of the state’s 11 major job sectors experienced job losses.

Illinois’ sluggish labor market performance meant Illinoisans were less likely to be employed, on average, than similar Americans¹ nationwide. Among prime working-age individuals with a four-year college degree or higher, on average Black non-Hispanics were 3 percentage points less likely to be employed than similar Blacks in states bordering Illinois. The Illinois disadvantage was -1 percentage point for similar white non-Hispanics, while there was no difference for Hispanics between Illinois and elsewhere in 2019. Among prime working-age individuals with no college degree, Black non-Hispanics were 2 percentage points less likely to be employed than similar Blacks in Illinois border states on average. The Illinois disadvantage was -1 percentage points for white non-Hispanics while Hispanics were 1 percentage point more likely to work in Illinois.

Not only were most Illinoisans often at a disadvantage when compared to their peers nationally and in nearby states, there also existed large discrepancies in the labor market within Illinois along racial and ethnic lines. The white-Black employment gap was higher in Illinois than in other states. In Illinois, college educated whites were 7.1% more likely to be employed than similar Blacks – more than twice the national average.

Prime working-age white Illinoisans without a college degree were 13.2% more likely to be in a job than similar Black Illinoisans. This gap was also twice as large in Illinois than the nation as a whole.

Illinois’ continued weak labor market performance and fiscal mismanagement under Pritzker left the state unprepared to support vulnerable Illinois families and businesses during the economic downturn that followed.

COVID-19, plus Illinois government’s response made things worse

At the onset of the global pandemic, fear surrounding COVID-19 coupled with public health mandates led to record job losses. Employment in Illinois fell by 833,200, with 52.2% of all job losses concentrated in leisure and hospitality (-300,300 jobs) sectors as well as trade, transportation and utilities (-134,800 jobs). Other sectors that saw large declines in employment included educational and health services (-99,000 jobs) as well as the professional and business sector (-94,300 jobs).

Despite the lack of direct evidence that more severe COVID-19 business and school closures saved more lives, the Illinois governor’s stated benchmark for reopening the state’s economy was a vaccine or highly effective treatment, or the elimination of new cases over a sustained period through herd immunity or other factors.

While Pritzker’s decision may have been well-intended, the business closures unfortunately meant Black Illinoisans disproportionately suffered from COVID-19-related job loss. During the sudden economic contraction, occupations mattered as workers in jobs that had been deemed “non-essential” lost jobs at a higher rate than other workers. Those who couldn’t work from home were often minorities and women, those without a college degree, and in low-paying occupations.

While some of the job loss was because Blacks were overrepresented in occupations that were deemed non-essential, there is also ample evidence from previous recessions that Blacks are the first fired at the onset of economic weakness.

Non-Hispanic Black employment fell by 15% compared to 10.3% for non-Hispanic Whites and 10.8% for Hispanics with similar characteristics. The declines in employment among all groups were also more pronounced in Illinois than in the rest of the nation.

More than six months after the first vaccine doses were distributed and more than 55% of eligible Illinoisans are fully vaccinated and 71% have received at least one dose, COVID-19 is simply not going anywhere and Illinois’ employment recovery continues to lag. The consequences are the 406,700 jobs still missing when compared to January 2020 – when the first COVID-19 case appeared in Illinois.

Black workers have been completely left out of the recovery. From June 2020 to June 2021, the employment rate of Blacks fell by 5 percentage points while increasing for every other race or ethnicity. Outside of Illinois the Black employment rate increased during that same period as the U.S. economy slowly recovered from the pandemic shock.

The disparate impact of COVID-19 on certain occupations and industries tells part of the story and some industries are recovering more slowly than others. More surprising is how much government contributed to the pain despite government revenues having long exceeded their pre-pandemic levels. In Illinois, Blacks filled 35% of all state and local government jobs at the start of the pandemic. As of June 2021, that number was down to 24%.

COVID-19 and the state’s response to the crisis caused the white-Black employment gap to increase but more so in Illinois than in the rest of the country. Among college-educated workers, whites are now 8.5% more likely to be employed than similar Blacks – this is compared to just 3.8% on average across the country.

Among those without a college degree, Whites are now 15.6% more likely to be employed than similar Blacks in Illinois, compared to just 7.8% on average across the country. Black Illinoisans are at a clear disadvantage when compared to their white counterparts within the state and even when compared to most Black Americans in other states.

The pandemic job loss led to a rise in housing and food insecurity among households that suffered disproportionate job losses. While federal stimulus checks to households substantially reduced hardship, getting people back to work is the only sustainable way to reduce poverty in the long run.

Unfortunately, since the recovery began, Illinois jobseekers were less likely to find a job than the unemployed in other states on average. At the current pace, Illinois’ unemployment rate is expected to remain well above the rest of the country for the long run.

A sluggish Illinois labor market recovery is particularly troublesome for all Illinoisans – but even more so for Black Illinoisans.

More tax hikes, job cuts to pay public pensions likely to prolong Illinois’ problems

Construction workers have benefited from an unexpected boom in real estate prices and the trade, transportation and utilities job sector is on the way to approaching a full recovery. Some industries such as leisure and hospitality, as well as trade and transportation, are recovering at slower rate in Illinois. But manufacturing is lagging ever farther behind, especially durable goods manufacturing.

In Illinois, the mining, information, and financial activities sectors have continued to cut jobs amid the national recovery. Illinois state and local government jobs also remain far below their pre-pandemic levels despite above-expected revenues and large federal transfers padding balance sheets. Even in the industries that have begun to make a recovery, all remain far off their pre-pandemic employment levels.

Despite the sluggish labor market recovery that left Illinoisans worse off than their counterparts in other states, Illinois’ latest budget included a raise for state lawmakers, an increase in their office allowances and even a bump for the governor’s office.

To add insult to injury, Illinois lawmakers approved $655 million in new business taxes requested by Pritzker but still could not balance the state’s budget – for the 21st year in a row. Another deficit was expected because Illinois politicians’ giveaways to public sector unions – pay increases and rising pension costs – continue to grow at a pace that far exceeds growth in the tax base.

Even before the pandemic, rising pension costs already squeezed budgets to leave little room for new government hires or new investments such as job training programs. That government spending would benefit Illinoisans left behind in an increasingly unequal distribution of income and opportunity – especially for those without a college education.

The governor’s latest budget is expected to slow the employment recovery, extending the unemployment duration for all Illinois job seekers.

On the revenue side, the governor’s decisions are just as harmful as his spending priorities. Pritzker raised taxes on business taxpayers.

First, he reinstated the state’s franchise tax. Among the business tax hikes was a rollback of the Federal Tax Cut and Jobs Act’s 100% bonus depreciation deduction. Reducing this tax write-off means cash-starved businesses will be denied the space necessary to invest and create new jobs. That’s because 100% bonus depreciation is a tax incentive that allows a business to immediately deduct the purchase price of eligible assets, such as machinery, rather than write them off during the life of those assets. The Tax Cuts and Jobs Act had doubled the bonus depreciation deduction for qualified depreciable property from 50% to 100%.

Since 2017, tax law changes have reduced the initial cost of new business investments by allowing businesses to deduct the full cost from their tax liability immediately rather than over several years. Evidence from corporate tax returns shows that in the past, bonus depreciation had led to substantial increases in eligible new investments across the country. There was a 10.4% boost between 2001 and 2004, during an economic expansion, and then a much higher 16.9% boost during the Great Recession. The increase in investment also led to higher employment growth.

The largest impact of the tax change will likely be among small firms, who are responsible for more than 60% of new jobs in Illinois. Small firms with low cash holdings are highly responsive to a policy that immediately generates cash flows. As of March 2021, more than 35% of small businesses in Illinois remained shuttered.

Lower investment and job creation in Illinois means those who were disproportionately harmed will be left behind by peers in other states.

Luckily, taxpayers rejected Pritzker’s income tax hike amendment. Pritzker’s plan to reduce tax credits for scholarships that provide access to a good education for many low-income children was also thwarted.

Lagging increase in labor demand is met by even more sluggish supply

Illinois was also among the states that delayed reopening schools. Even though the Illinois State Board of Education encouraged a return to in-person instruction and asked school districts to consider extending the school year to mitigate learning loss, by April 2021 only a fraction of Illinois school districts had decided to fully reopen schools for in-person learning.

The delay in reopening schools was unfortunate because research found that in areas where infection rates were under control, public school closures were unwarranted. The researchers found in-person learning had no effect on the spread of COVID-19.

While some governors across the country had required schools to re-open, the lack of government action in Illinois to order the re-opening of public schools kept many mothers out of the labor force. Delayed school re-openings likely contributed to Illinois’ sluggish employment recovery.

At the onset of the COVID-19 pandemic, Illinois, like many other states, eased qualifications for those applying for unemployment benefits. Among them was the suspension of job search requirements for those collecting unemployment benefits, which remain suspended today. It is likely the elimination of job search requirements for those receiving unemployment benefits has reduced job search intensity.

However, another reason for the U.S. labor shortage is because of a growing skills gap.  This is because workers made jobless in struggling industries will find it difficult to adjust to a post-pandemic economy.

According to Prudential’s latest Pulse of the American Worker Survey, 43% of workers said their long-term financial security will be in jeopardy if they do not retrain or learn new skills.

The good news is the mismatch between displaced workers’ skills and new job openings is not insurmountable.  The U.S. Chamber of Commerce launched an initiative to bring business and government together to address America’s talent shortage.

Before the pandemic, Illinois and most of the country had a skills mismatch. According to the national skills coalition, 52% of jobs require skills training beyond high school, but not a four-year degree.

Among prime working-age Illinoisans as of June 2021, 40% of non-Hispanic Blacks had not completed beyond a high school degree when compared to only 22% of non-Hispanic Whites, according to IPUMS, CPS data. Without closing this gap, Illinois Blacks are at a huge disadvantage and cannot compete for jobs in the new economy.

Illinois could do more by investing in tertiary education – technical colleges, apprenticeships and career training programs – to equip workers for the digital economy and the post-pandemic world. Unfortunately, state investments in higher education are down 17% since 2010 in real terms. Meanwhile, Illinois spending on public sector pensions has skyrocketed 91% during that same period.

In this year’s budget, Illinois is spending $11.6 billion on pensions, which is more than 27% of its budget. Higher education funding is mostly flat, apart from a new $8 million program at the University of Illinois to research carbon capture technology.

If state budgets are moral statements of priorities, then politicians’ priorities in Illinois are clear: public employee pensions take precedence even if it means fewer opportunities for all Illinoisans as well as continued racial and ethnic inequity.

Pritzker’s reelection campaign promises more of the same

Pritzker made it clear from the beginning that he is a friend of government unions first and that means all other Illinoisans must pay a heavy price. From the AFSCME contract in his first budget that was criticized by outside observers, to his signing of legislation that would allow teachers’ unions more power to walk out on students by going on strike, he’s made it clear which special interest receives his greatest interest.

Pritzker has made it clear in the first message from his reelection campaign that you can expect more of the same during a second term if he’s reelected. What he fails to mention is his track record is plagued by a weak labor market – even by Illinois standards – and a perilously slow pandemic recovery that has left many Illinoisans behind.

Positive change in Illinois will require policies that expand economic potential. That means investing in the future – technology and people – without resorting to counterproductive tax hikes to finance those crucial investments. Pension reform could free up billions to invest in the future of the state.

Pritzker continues to pick winners: public sector unions; and losers: most Illinoisans. He ignores the concerns of job seekers and business taxpayers, especially those of more than 144,000 Black-owned Illinois businesses.

Endnotes

¹ Estimates of differences in employment rates account for age, sex, education, marital status, presence of children in the household, and metro area residence.