In today’s economy, states and regions are competing to attract and retain innovative companies and talented workers. A region’s overall business environment—including not only regulatory climate but also talent, infrastructure, culture, and technology—can greatly influence a company’s decision on where to locate. Measuring net business relocations for Illinois provides a clear indicator of how companies view the state’s overall business climate.
In 2012, Illinois lost slightly more companies than it gained from business moves within the United States.1 However, the companies that relocated to Illinois were larger on average than those that left, resulting in a net increase of more than 1,400 jobs in Illinois—relatively small compared with the state’s employment base of nearly six million. Illinois’ recent performance in attracting employment from the rest of the country suggests signs of a competitive business climate, and analysis of this data over time will help discern macro-level trends.
While recent data show relocations occurring across the nation, the greatest churn of companies moving to and from Illinois came from neighboring East North Central states (see exhibit below). Together Indiana, Michigan, Ohio, and Wisconsin accounted for more than a quarter of all 2012 moves to and from Illinois; this figure rises to 43 percent when West North Central states are included. Even with this business churn, Illinois in fact gained slightly more companies than it lost to nearby states. The net gain in employment but loss in companies indicates Illinois’ strength in attracting larger companies and its challenge to retain smaller businesses.
Recent business relocations to and from Illinois highlight the state’s leading industries. In 2012, the state’s net increase in trade, manufacturing, and transportation jobs2 from business relocations was more than the net growth in all other industries combined. These three industries benefit from built-in advantages of the state’s business climate, including transportation infrastructure, skilled workers, and integrated supply chains.
As the July edition of the Index reported, a business climate that supports industry clusters can have a direct impact on innovation through the colocation of investment, talent, and businesses. As part of a transition to more service-intensive activities, Illinois lost employment in many production-based clusters. Yet even with employment loss, the state remained at the forefront of manufacturing and transportation. These industries have also led in the economic recovery; since 2010, employment in the region’s freight and manufacturing industries have grown by 7 percent, more than double the growth rate of the rest of the economy (2.8 percent).3
Illinois’ historical specializations in manufacturing, transportation, and trade also support innovation, especially as manufacturing shifts toward advanced processes and trade relies on sophisticated transportation networks (see spotlight). Tracking industry business moves over time will reveal whether companies continue to choose Illinois’ developed production and trade clusters over competing locations. The following chart shows the industries with the most net employment change due to relocations in 2012.
Tax incentives. Local and state governments often offer tax incentives as a way to attract companies and jobs. The data on business relocations suggest that efforts by states and municipalities emphasizing business attraction through tax incentives may have minimal impact. A recent CMAP report found local tax incentives are prevalent throughout the region but typically have the greatest influence after a company has already selected a region and is deciding on a particular location within the region.
Regulation. Notably, the regions of the United States that were the biggest sources of relocated employment—South Atlantic, West South Central, and Mountain—all contain a large number of states with right-to-work laws. Illinois’ performance suggests that its diverse economy, deep pool of skilled labor, and quality of life are more powerful draws for companies.
Cost of living. According to the Council for Community and Economic Research, Chicago is significantly more affordable than other large U.S. urban centers and technology hubs. Transportation in San Francisco, for example, is 10 percent more expensive than in Chicago, and housing in New York is as much as 237 percent more expensive than in Chicago.