Rural. Changes in Employment and Income in Illinois, by Norman Walzer and Bill Westerhold 1. Employment Distribution

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1 Rural RESEARCH REPORT Published by the Illinois Institute for Rural Affairs Stipes Hall 518 Western Illinois University 1 University Circle The distribution of employment in Illinois by industry is in a state of continual change and the outcome affects local earning and income levels. The trends in Illinois are not much different from those in other comparable states, especially in the Midwest. Nationwide, there has been a trend toward less manufacturing employment and more employment in services as competition from offshore manufacturing sites that pay lower wages has impacted the domestic employment situation. Overall employment levels are most commonly examined in assessing the health of a local or state economy. Unemployment rates in a state or locality are compared with comparable regions, and relatively low unemployment rates are typically viewed as indicators of a healthy economy. Changes in Employment and Income in Illinois, by Norman Walzer and Bill Westerhold 1 Spring 1995 Volume 6, Issue 8 Macomb, IL / Sometimes overlooked, however, are employment shifts from relatively high paying jobs to lesser paying ones, occasionally with limited, or no, employee benefits. Thus, even in booming times, as far as employment is concerned, a locality may find that the income stream is relatively stagnant. This situation, in turn, affects retail sales, housing prices, and other economic circumstances within the community. This report examines recent trends ( ) in employment and income by county in Illinois with the main focus on nonmetropolitan areas. We examine changes in employment structure, earnings, and transfer payments. The principal source of information is the U.S. Department of Commerce, Regional Economic Information System. Employment Distribution Statewide, Illinois has experienced a rather dramatic substitution of service employment for manufacturing employment since the early 1980s. The national recession in the early 1980s caused many manufacturing plants in Illinois to close. At the same time, new firms were prone to start operations in other regions of the U.S., rather than in Illinois. 2 The result was a substantial decline in manufacturing employment compared with a steady and large increase in service employment between 1980 and the early 1990s (Figure 1). A comparison of earnings by industry shows that, in Illinois, manufacturing pays substantially more than services, which in turn pay substantially more than agriculture, forestry, and fisheries (Figure 2). Thus, a relative decline in manufacturing employment, in favor of services, means that earnings, overall, do not increase as rapidly as if the growth had been in manufacturing employment. Figure 1. Illinois Employment by Sectors, (Quarterly Seasonally adjusted Source: Illinois Economic and Fiscal Commission, The authors are director and research associate in the Illinois Institute for Rural Affairs at Western Illinois University. They thank Lori York for her assistance on this project. This Rural Research Report was prepared with funding from Lt. Governor Bob Kustra, Chairman of the Rural Affairs Council. Layout by Nancy Baird. 2 Armington, Catherine Trends in Midwest business employment. In Financing economic development in the 1980s, eds. N. Walzer and D. Chicoine, New York: Praeger Publishers. 1

2 Figure 2. Real Earnings per Employee, , Illinois Note: The CPI for 1980=100; 1992= Economic Information System, 1992, Tables CA05, CA25, CD-ROM. growth occurring in the east northcentral counties. The declines tend to be located in the western portions of the state with isolated pockets of growth such as McDonough County and Pike County. Regional shopping centers and discount stores explain some of these trends. Cities such as Macomb, for instance, contain a discount store complex and draw customers from many surrounding communities. In many instances, the changes are based on local factors which are hard to explain without detailed knowledge of each case. Service Employment. The largest change in employment occurring during the period of observation includes growth in services. The service category includes a broad array of employment types. The two broadest categories are consumer services and producer services. The former includes employment in dry cleaning establishments, fast food restaurants, travel agencies, and a host of others. Fortunately, economic growth in the mid-1980s brought stability to manufacturing employment in rural Illinois. While manufacturing employment declined during the recession, by the early 1990s it had almost regained its 1980 position. Rural areas, of course, were adversely affected by declines in agricultural employment and tended to have substantial growth in service employment, including retail trade. The result in many areas was a reduction in the overall wage rate. Manufacturing. Changes in manufacturing between 1987 and 1992 were spread throughout the state, but several north central counties tended to have the greatest declines (Figure 3). Other counties (Vermillion, Edgar, Crawford, Wabash, Gallatin, and Hardin) on the eastern border also reported substantial declines. Statewide, 42 counties had declines in manufacturing employment, compared with 57 counties that reported increases. The counties with manufacturing growth were scattered throughout the state, but with a preponderance in the northern and central regions. The highest growth was concentrated in the midcentral counties and in the east central regions of the state. These comparisons are difficult for several reasons. First, counties with a small manufacturing base will experience relatively large percentage changes even though the absolute numbers are small. Second, the recession in the early 1980s reduced employment in some counties more than others. Those counties with substantial losses could later show a larger percentage increase as they returned to a more normal level in the early 1990s. In any event, it appears that manufacturing employment declined in many counties but increased in even more counties across the state. Retail Trade Employment. Trends in retail trade employment show a very different pattern. The importance of urban areas is quite apparent in Figure 4 with the highest Figure 3. Change in Manufacturing Employment, Percent Change % to -6.70% (N=25) -6.71% to -0.01% (N=17) 0.00% to 23.50% (N=33) 23.51% to % (N=24) Data missing (N=3) 2

3 Figure 4. Change in Retail Trade Employment, Producer services include occupations that mainly serve the business community such as legal assistance, accounting, and engineering services. These categories typically are better paid than the consumer services but offer mostly full-time, not part-time, jobs and are usually located in or near large urban areas that provide a sufficiently large market to make them profitable. Thus, in comparing changes in service employment, it is important to recognize that the distribution between consumer and producer services is a key factor in determining the impact on the incomes in a community. By and large, growth in metro counties has been in producer services, while growth in rural areas has especially been seen in consumer services. Percent Change % to -0.01% (N=21) 0.00% to 6.99% (N=28) 7.00% to 16.30% (N=28) 16.31% to 61.50% (N=25) Only eight counties report declines in service employment between 1987 and These counties are concentrated in central and southeastern Illinois. The largest growth in service employment was reported in south-central, central, and northern Illinois. In most instances, the highest service growth was associated with counties having a reasonably large city such as Bloomington-Normal, Peoria-Pekin, Galesburg, Macomb, Effingham, and others downstate. DuPage, McHenry, Lake, and Boone counties in northern Illinois reported similar growth that is, above 27 percent. The comparisons are clouded partly because of a different base employment. Counties with small service employment in 1987 will report relatively large percentage changes even when the absolute employment increases are small. Detailed information is not readily available to differentiate between producer and consumer services by county. Some insight can be obtained, however, through a comparison of the effect of employment changes on earnings. Earnings per Job Even within an industrial classification such as manufacturing, wide variations exist in the amount of pay. Many factors, of course, affect pay differentials. Whether a plant is unionized can be important. The age of the business may also affect wage levels, with older, more established businesses more likely to pay less than industries in the developmental stage such as telecommunications or electronics. Thus, the type of business, even when classified as manufacturing, determines the wages generated per job in a locality. Manufacturing. Earnings per manufacturing job in 1992 varied widely across Illinois with an average of $39,951 for the state as a whole. The highest earnings are reported in Tazewell County which reflects the importance of Caterpillar (Figure 5). Other counties with heavy industry and other industries such as Macon (Decatur) and Will (Joliet), also are above the average. The importance of the auto industries in McLean County (Bloomington) and Boone County (Belvidere) can be seen in the comparisons. It is hard to generalize comparisons of earnings in various regions of Illinois because of differences in cost of living. The Chicago metro area, for instance, generally pays more, but the cost of housing there is comparatively high. In general, however, the metro areas in Illinois tend to pay more per manufacturing job. 3

4 Figure 5. Change in Service Employment, The competition in the labor market is less intense so pay scales remain low. Second, these areas are not served well by up-to-date transportation systems. Until recently, Pike, Scott, Greene, and Calhoun counties did not have easy access to a four-lane highway. Even now, transportation access in western and deep southern Illinois is not extensive. Thus, businesses are not particularly attracted to these areas when they have to distribute relatively heavy final products or get products to market in a short time frame. The lack of competition means that the earnings are likely to be lower than in other areas. Manufacturing earnings per job range from $55,507 in Tazewell County in central Illinois to $15,186 in Menard County in southern Illinois. Some changes are occurring, however, with expansions in employment in McDonough County (Macomb), Adams County (Quincy), and Morgan County (Jacksonville). In all instances, the cities either have access to four lane highways or soon will have. Figure 6. Earnings per Manufacturing Job, 1992 Percent Change Note: Earnings are recorded by place of residence % to -0.01% (N=9) -0.00% to 17.30% (N=40) 17.31% to 27.69% (N=23) 27.70% to % (N=26) Data missing (N=4) There are many reasons for differences in earnings but one of the more commonly cited is that industries based on a creative idea usually start in an urban environment where a large support network exists. As the jobs become more routine, however, they tend to relocate to rural areas where the pay is lower. A third move may be from domestic rural areas to offshore locations which offer still lower wages. Thus, as the industry passes through these phases, the rural areas gain employment but often at a lower wage. Clearly, the importance of access to the Chicago metro area on the earnings levels is shown in Figure 6. The lowest earnings per manufacturing job are in western and southern counties. There are several contributing factors. First, the amount of manufacturing employment in many of these counties is relatively small and may represent small companies, some of which are family owned and managed. Dollars $ 9,809 to $25,150 (N=25) $25,151 to $29,220 (N=25) $29,221 to $36,075 (N=27) $36,076 to $55,507 (N=25) 4

5 Retail Trade. Statewide, retail trade pays substantially less per job than manufacturing $39,951 compared with $15,763. Thus, counties that rely more heavily on retail trade for employment could expect to have lower overall income per capita than those in which manufacturing employment represents the dominant employment source. Retail trade, as one might expect, tends to follow urban centers where the markets are largest, but, especially in small counties, this is not always the case due to unusual and unique circumstances. To a large extent, earnings per job in retail are a function of the size and type of establishment. High volume stores and those requiring extensive knowledge of the product are more likely to pay higher wages. Likewise, stores which sell expensive merchandise might be expected to pay their retail employees more. When we divided the total earnings from retail by the number of jobs, some unexpected findings are reported (Figure 7). While relatively high earnings per retail job are reported in the Chicago metro area, as expected, other rural counties such as Pike, Clay, White, Gallatin, and Cumberland also had average earnings per retail job of $14,510 to $19,258. The highest earnings per retail job are reported in Clay County in southern Illinois. A retail concentration in a small county can cause high earnings per job. DuPage County ranked second, while Calhoun ranked third, and Lake ranked fourth. Presumably, these findings reflect concentrations of retail establishments in rural locations with the earnings spread over relatively fewer workers. The lowest earnings per retail job were reported in Stark, Scott, and Schuyler Counties. These are all rural, and the lower earnings fit the expected pattern. Pope County, one of the poorest in Illinois, ranked among the four lowest in earnings per retail job. These comparisons are misleading when an adjacent county has a large retail complex or a large city is located adjacent to a rural county. Service Employment. Insights into the relative importance of consumer services and producer services within a county can be obtained from comparisons of earnings from service jobs (Figure 8). The null hypothesis is that doctors, lawyers, engineers, and similar highly trained personnel will locate in large urban centers which form the nexus of large markets, and that they will be highly paid especially if they have specialties for which extensive training is required. Cook County has the highest earnings per service job. At the same time, however, Cook County also contains many domestic and other relatively low-paying jobs. The range of earnings per service job is from $33,475 in Lake County in northeastern Illinois, to $6,989 in Scott County and $8,024 in Edwards County in southern Illinois. The differences in earnings per service job are clear in Figure 7. Earnings per Retail Trade Job, 1992 Dollars $ 9,276 to $11,990 (N=34) $11,991 to $13,250 (N=31) $13,251 to $14,500 (N=23) $14,501 to $19,507 (N=14) Figure 8 where concentrations of relatively high earnings are located in more urbanized areas, but, by and large, the earnings are much lower in western and southern Illinois. The relatively sparse population in these areas may explain some of the variation, as would lack of access to modern transportation facilities. Transfer Payments. Another significant source of income in many rural counties includes transfer payments; that is, income for which no work is performed. These include welfare assistance, social security and retirement benefits, and payments from a variety of social programs. Retired populations are not always poor and, in fact, can help stabilize local economies. The transfer payment category can include residents in poverty as well as relatively wealthy retirees. 5

6 The trends in transfer payments are hard to decipher (Figure 9). Counties in western and southeastern Illinois reported the lowest percentage increases in transfer payments between 1987 and All of these counties are rural, except for those around Peoria and the Quad Cities. At the other extreme, the most rapid increases are reported in the Chicago metro area as well as in rural counties in central Illinois. Most likely, these changes contain growth in more than one type of program. For instance, some of the growth in rural counties may be a result of residents agingin-place, whereas growth in Cook County or large central cities may represent more of an increase in poverty payments. One of the important implications of comparing changes in transfer payments is that current discussions about public policy changes regarding entitlements could very directly affect counties. Counties which, in the recent past, have experienced relatively rapid growth in transfer payments might suffer from cutbacks in social programs, for example. Statewide, transfer payments represent 14.9 percent of county income, but in rural counties, they represent an average of 21.5 percent. Figure 8. Earnings per Service Job, 1992 Figure 9. Change in Transfer Payments, Dollars $ 6,989 to $11,550 (N=24) $11,551 to $13,500 (N=25) $13,501 to $17,500 (N=31) $17,501 to $33,475 (N=20) Data missing (N=2) Percent Change 6.60% to 16.00% (N=26) 16.01% to 18.20% (N=25) 18.21% to 21.60% (N=26) 21.61% to 31.30% (N=25) 6

7 Combined Effects of Employment Shifts At this point, it is useful to examine combinations of employment and income shifts under a variety of scenarios. Given that manufacturing and retail trade tend to have higher earnings than services, especially in rural areas, and that transfer payments represent income paid to residents not in the workforce, counties most likely to be adversely affected are those which have a decline in manufacturing and retail trade, but an increase in low-paying services and transfer payment income. Between 1987 and 1992, nine counties (Adams, Alexander, Cook, Edgar, Gallatin, Greene, Jefferson, Perry, and Wabash) fit the pattern of declines in manufacturing and retail trade employment but showed increases in services and transfer payments. There does not appear to be consistency of characteristics among these counties, with some being rural and others largely urban. As noted previously, some of the shifts in service employment represent relatively high-paying positions, and some of the increases in transfer payments may represent retirees who have sufficient resources to live in comfortable settings. Also true, however, is that in some of the counties, these trends represent growth in relatively low-paying jobs in services and a growing dependency on welfare payments. On further examination, in two counties (Adams and Cook) retail trade and manufacturing employment declined while service employment and total earnings increased. These situations may represent instances where relatively highpaying service employment was increased, thereby offsetting losses in manufacturing employment. More detailed information is needed to determine precisely how the economic structure has changed. Summary Rural economies have undergone substantial changes in structure, and these changes will probably continue as the national economy becomes more information-based and less reliant on durable manufacturing. Services will continue to be a growing sector. The impact of these structural changes is important in understanding the future for counties, especially in rural Illinois. A continued shift toward more service employment from relatively better paid manufacturing will mean, for example, that local economies will not support as high a level of retail activity. While it is critical that employment continue to grow in these areas, it is equally important that the earnings received by residents be at a high enough level to support other economic activities. It is also important that community leaders and local public officials realize that the future really depends on actions that they are able to take. The days of state and federal programs which solve local problems with large infusions of funds are gone at least for the immediate future. Local policies must be based on sound economic logic and must be realistic for the region. Rural counties that are able to take control of their future and market themselves effectively will be those who prosper even in difficult times. The Rural Research Report is a series published by the Illinois Institute for Rural Affairs to provide brief updates on research projects conducted by the Institute. Rural Research Reports are peer-reviewed and distributed to public officials, libraries, and professional associations involved with specific policy issues. Printed on recycled paper 7

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