A reader wrote recently, “Illinois is in a downward economic spiral.”
Many, in both Indiana and Illinois, believe this is true. They also believe Indiana enjoys a superior economic condition.
What’s a good measure of a “downward economic spiral” or a superior condition?
A central question about any economy is “What kind of income growth is generated for working people, and is that income growth stable?”
Compensation, as defined by BEA (the U.S. Bureau of Economic Analysis), does the job. It includes wages and salaries, plus employer contributions for employee pension and insurance funds, as well as for government social insurance.
We’ll examine the private non-farm sector, which generates 82 percent of all compensation. Quarterly figures for 1998 through the third quarter of 2019 (the latest available data) will be used.
The average annual growth of compensation in the U.S. during this period was 4%; Illinois grew by 3.2% (43rd among the 50 states) and Indiana by 3.1% (45th). Both states, with similar rates of growth, seriously trailed the rest of the nation.
How stable were those growth rates? Let’s consider the range of those rates for the nation and each state. The U.S. had its peak quarterly growth at 4% in the first quarter of 2000, with it’s low at -5% percent in 2009:Q1. That’s a range of nine percentage points.
Illinois’ stability, as measured by the range of growth rates, was 22nd in the nation at 8.4 points. Indiana ranked 37th with a 10.5-point range. By this measure, our western neighbor looked more stable than we did.
The range, however, tells us only about the extremes of growth. Variability (the spread of each quarter’s rate of change around the average change rate) is a stronger way of gauging the back and forth of a bouncing economy.
In terms of variability, Michigan ranked first and Montana last. Indiana (9th) was more variable than Illinois (20th).
Where does this leave us?
Most people favor high levels of growth with little variability. In terms of growth rates, Illinois and Indiana were low and nearly tied. Illinois showed less variability than Indiana, and this gave the Illini a somewhat better record.
Finally, to find Illinois’ “downward economic spiral,” we cut the data into two 10-year decades and looked at each state’s share of total national compensation.
Both states had declining shares of compensation in both periods. Illinois lost most of its declining share in the recent decade; Indiana’s loss, relative to the nation, was mainly in the earlier decade.
Thus, we have two states not keeping pace with the nation and exhibiting more variability in growth than 30 other states.
Critics say Illinois’ poor performance resulted from excessive regulation and taxation, plus favoritism of unions. Why then was Indiana, with light regulation, business-friendly taxes, and hostility toward unions, so similar to Illinois? Aren’t we that “state that works?”
Morton Marcus is an economist. You can contact him at [email protected]. You also can follow his and those of John Guy on “Who Gets What?” wherever podcasts are available. Send comments to [email protected].
