Prof says state's recovery will be at least 10 years

Tuesday, October 05, 2010

It will likely take Illinois more than a decade to recover from this recession, a University of Illinois professor says.

Not only is the state trying to dig out of the recession that started in late 2007, but it's also still trying to regain jobs lost in the 2001 downturn, said Geoffrey Hewings, director of the UI's Regional Economic Applications Laboratory.

Illinois has 463,700 fewer jobs than it did in November 2000, he told about 25 people at the University YMCA's Friday Forum series.

"The current employment in Illinois matches that for April 1997," Hewings said, noting there's been no net employment growth over the past 13 years.

Plus, other jobs have been lost that aren't reflected in official unemployment statistics.

Although the Illinois unemployment rate is hovering around 10 percent, Hewings said the state's "shadow" unemployment rate which includes discouraged workers who have given up their job search is estimated at 12.3 percent.

If the state could add 114,000 jobs a year, Illinois would make a full jobs recovery in five years, Hewings said. If it adds 71,000 jobs a year, it would take eight years.

An annual gain of 57,000 jobs would result in a 10-year recovery. And 38,000 new jobs a year would mean a 15-year recovery.

But given that Illinois had only one year in recent history in which it added more than 50,000 jobs, "it will likely be 10 to 15 years before we get back to where we were in 2000," he said.

Hewings said Illinois is losing ground economically when compared with the U.S. as a whole.

"Since 1980, there have been only three years when Illinois employment growth exceeded the U.S. rate," he said. All three years were before 1990.

Yet the makeup of the Illinois economy in terms of jobs is not all that different from the rest of the country, he added.

Between 1992 and 2007, Illinois grew at a 2 percent rate annually, while the U.S. grew at a 3.1 percent rate. Over those 15 years, Illinois' ranking among the states, in terms of per-capita income, dropped from fourth to 15th.

"We'll probably see continued erosion of the state's competitive position," Hewings said.

Net outmigration, particularly of highly skilled workers, is robbing the state of essential growth, he said.
Hewings said state government is in "a state of denial" about the situation and has been for a long time.

"It's not a Republican problem. It's not a Democratic problem. It's a legislative problem," he said.

"There's been no consistent evaluation of the state's problems," he added.

Hewings said Democratic Gov. Pat Quinn and Republican gubernatorial candidate Bill Brady have branded themselves respectively as "pro-labor" and "pro-business."

But what's really needed are candidates who are "pro-economy," Hewings said. An economy can't function without both labor and capital.

Hewings said the state has about a $12 billion budget gap, and there are several options for closing it:

Increasing the state sales tax by 1 percent would generate between $2.5 billion and $3 billion.

Expanding the sales tax base to include services would generate about $3.6 billion.

Cutting state spending by 10 percent would narrow the gap by about $3.4 billion.

Policymakers need to bring all three options to the table, Hewings said. When the Illinois tax structure was adopted years ago, manufacturing accounted for 36 percent of the state's gross domestic product; today it accounts for only 12 percent.

Hewings said Illinois also needs to address $80 billion in pension liabilities, which will require a multi-year plan.

He zinged state government for subsidizing the film industry while giving scant attention to biotechnology. In terms of long-term business, investing in biotech would provide better returns, he said.

Hewings also urged Illinois to work together with Indiana, Ohio, Wisconsin and Michigan in developing regional solutions for growth.

"It's in our best interest for Wisconsin, Indiana and Michigan to grow, he said. "That's a collaboration that makes sense. Trying to differentiate ourselves does not make sense."