• Forum ideas: Jobs & wages
  • As population shrinks, gaps appearing in workforce, wages

    Measures to foster a better economic climate would stanch the loss of businesses and workers.

    Getty Images

    Orphe Divounguy 


    Chicago has long been the economic powerhouse of the Midwest. As we head into a new decade, how is that legacy holding up?

    79彩票注册网址Once the fastest-growing city in the country, Chicago’s population has been declining since 2014, with no signs of slowing. The Chicago area experienced the largest of any metro area in the nation last year, shrinking by 22,068 people.  

    Headlines have focused on Chicago’s population loss, but as the city has bled prime working-age residents, its labor force has changed. This has serious implications for Chicago’s economy.

    79彩票注册网址Despite a steady supply of college-educated job seekers entering the market, the median real wage for those with college degrees has increased 10.5 percent relative to the pre-recession peak, while the median wage for those without a college degree has fallen 10.9 percent.   

    What this means is Chicago is a good place to be if you have a college degree, because job vacancies for college-educated workers aren’t being filled fast enough.

    79彩票注册网址Part of what is going on is related to the changing nature of the workplace: the advent of new technologies and their applications across industries means that machines can handle tasks that low-skill workers used to perform. It also means companies need the talent to complete tasks that low-skill workers lack the necessary training for, putting a premium on highly skilled and highly educated employees whose output cannot be automated.

    This trend toward the adoption of labor-saving technologies is likely to increase as some government policies make the cost of labor more expensive. This is true in most major American cities.

    At the state level, college-educated workers have seen no growth in real wages and non-college-educated workers have seen a 9.3 percent decline in real wages. Stagnant or declining wage growth is consistent with the fact that job openings have failed to keep pace with the number of job seekers despite a persistent decline in the size of Illinois’ available workforce.

    The wage divergence exacerbates income inequality and widens racial earnings gaps: Research at the state level shows that white Illinoisans are more likely to have college degrees than black Illinoisans.

    While technological change and labor laws create winners and losers in the labor market, a smaller labor force harms everyone. A smaller labor force disincentivizes job creation, and the result tends to be lower levels of employment and a smaller overall economy.

    In other words, when the labor force shrinks because people are leaving, those who stay suffer. It’s the main reason to doubt anyone who claims the state economy is on the right track. Consider the following:

    79彩票注册网址While a robust national job market has pulled workers throughout the nation back into the workforce, Chicago’s labor force has failed to return to pre-recession highs, shrinking by more than . Why? Many of the city’s prime-age workers are leaving, causing the state’s labor force to shrink.

    79彩票注册网址But it’s not just the city workforce in decline. Since peaking in 2014, Cook County has more than 20,000 business establishments with declines in three out of the last four years. Meanwhile, the rest of the nation continued to add businesses.

    What else happens when businesses and workers leave? A smaller labor pool means the costs for creating and filling new jobs have increased. Lower profits discourage new capital investments, resulting in lower aggregate employment and a smaller economy.

    79彩票注册网址So how can leaders kick-start the Chicago economy as we head into 2020?

    79彩票注册网址For one, they should be pursuing policies that foster a healthier business climate. This would include rejecting the progressive income tax hike on the ballot Nov. 3. If adopted, the progressive income tax hike will reduce private investment even further.

    Chicago and Illinois alike should make widespread reforms that root out corruption and reduce the state’s pension costs—instilling greater business certainty and trust. If these behemoth public policy crises aren’t addressed, pension costs—which crowd out public investments that would raise labor productivity—will suck up every dime collected from any additional tax revenue governments here hope to collect.

    79彩票注册网址The city needs to grow its labor force and start attracting migrants again. Lowering the overall tax burden to stimulate private investment could help foster a business environment that creates jobs and entices people to plant roots here.

    Chicago can again be a dynamo, but not without the government discipline to fix spending and pensions, curb corruption and create a stable business environment that grows well-paying jobs that will keep young families here.

    Orphe Divounguy is chief economist at the Illinois Policy Institute.

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