Championing the start-ups
New jobs data shows decade-long pain for Illinois entrepreneurs, small business owners
by J. Scott Moody, Senior Fellow or Budget and ax Policy and ed Dabrowski, Vice President o Policy at the Illinois Policy Institute
able o ContentsIntroduction
Te problemOur solutionWhy this works
Te three basic components o private sector job creation
Te births o new establishments and the deaths o existing onesTe migration o businesses into and out o IllinoisTe expansion and contraction o existing business establishments
Notes and sourcesAppendices1
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Introduction
Tere are three basic components o private sector job creation: the births o new establishments and the deathso existing ones, the migration o businesses into and out o Illinois, and the expansion and contraction o existingbusiness establishments. Te most important component o these is the net jobs created rom the births o new establishments and the deaths o existing ones. Tis new report presents detailed data related to the three basiccomponents o private sector job creation.
The problem
Illinois increased the tax burden on businesses in 2011 by hiking corporate income taxes 46 percent. Inresponse, Sears and CME Group threatened to leave Illinois or states with lower tax rates. Tesecompanies wanted the state government to grant them special tax breaks to stay in Illinois. Fearing a mass exoduso jobs, state ocials agreed to their demands.When companies such as Sears and CME Group threaten to leave Illinois, there is real reason or concern. Bigcorporations employ a lot o people. Tey pay large tax bills. Tey can make or break a community. No one wantsto see yet another business head or greener pastures.State ocials have doled out hundreds o millions o dollars in tax breaks and other incentives to keep Fortune 500names and other big businesses rom eeing Illinois. But were state ocials ocused on the right targets? Who andwhat matters most in job creation?
Te Institute’s new analysis fnds the key to job creation in Illinois is jump-starting new establishment jobcreation. Creating an environment conducive to starting new businesses is vital to increasing the number o jobs available to Illinoisans. Company migrations and expansions play a role, but they pale in comparisonwith the net job creation resulting rom business “births” and “deaths.”
Tis nding is derived rom the latest release o the National Establishment ime-Series, or NES, a poweruldatabase o Illinois’ businesses.
1
Based on the ar-reaching Dun & Bradstreet marketing inormation le, thisdatabase tracked more than 41.7 million business establishments nationally between 1989 and 2009.
2
Te letracks businesses via an assigned “DUNS number,” which is the business equivalent o a Social Security number.
3
As such, the NES database is the most comprehensive establishment-level census available.Te NES database paints a dismal job creation picture in Illinois rom 1995-2009. Te state was 48
th
in thecountry in generating jobs rom the creation o new businesses. Tose losses urther were compounded by jobslost rom ailed establishments, which Illinois ranked 19
th
.Tis combination, ewer jobs rom new companies and job losses rom the closure o others, contributed most toIllinois being one o only six states to lose jobs in the nation between 1995 and 2009. Overall, Illinois ranked 50
th
– dead last – in total job creation (See Appendix 1). Graphic 1 shows how Illinois compared with its neighbors, allo which showed job growth during that period.
2
Graphic 1. Illinois only state among neighbors to lose jobs over 14 year period
Percent change in jobs between 1995 and 2009 (national ranking in parentheses)
Sources: National Establishment Time-Series Database, www.YourEconomy.org and Illinois Policy Institute.
Graphic 2 shows the net job destruction the state has experienced since 2001. Illinois lost more than 925,000 jobsrom 2001-09, largely because o a collapse in the jobs created by new businesses and by an acceleration o jobs lostto business closures.Te graphic also highlights the exceptionally strong correlation between the net jobs created by business birthsand deaths and the state’s total job creation each year, particularly since 2001. Unquestionably, business birthsand deaths drive total job creation, much more so than the other two categories o private sector job creation: themigration o businesses into and out o Illinois and the expansion and contraction o existing businesses.
Graphic 2. When new businesses aren’t creating jobs, Illinois isn’t either
Jobs created from births and deaths of businesses
Sources: National Establishment Time-Series Database, www.YourEconomy.org and Illinois Policy Institute.
Kentucky (24
th
)11.7%Iowa (28
th
)10.3%Wisconsin (34
th
)7.5%Missouri (38
th
)5.9%Indiana (39
th
)5.2%Illinois (50
th
)-2.7%
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