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What's Going Right in Chicago

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The news out of Chicago hasn't been great lately! There were 780 homicides in the city in 2016, up from 468 the year before. The city's public-employee pension funds are in deep, deep trouble. The Chicago metropolitan area shrank by an estimated 6,263 people in 2015 -- the biggest population loss of any metro area in the nation.

It all sounds like a city in a downward spiral. But have you been to Chicago lately? I was there last week, working out of the Bloomberg bureau downtown, attending a conference nearby, and visiting people in neighborhoods to the north and northwest. Even in the chill of early January, the city seemed as vibrant as I've ever seen it. When I tried this observation out on Alden Loury, director of research and evaluation at Chicago's Metropolitan Planning Council, he agreed: "In the central business district and the residential areas near it, I don't know that there's been a more prosperous time in decades."

Loury gets around a lot more than an expense-account visitor, though, and added this: "If you hop on the train and go a few stops to the south or west, you see a very different story." What you see are vast expanses of poor, crime-ridden, depopulating neighborhoods. And the trouble doesn't really end at the city line. The northern suburbs along Lake Michigan -- you know, where John Hughes set his movies -- are more affluent than ever, and there are pockets of wealth to the west of the city. But overall, Chicago's suburbs aren't doing great.

Put it together, and you get a pretty anemic regional economy. Here's how job growth in the Chicago area has stacked up against the nation's nine other biggest metropolitan areas since 2000:

In Last Place Among the Big Metros
Nonfarm payroll employment growth since January 2000*
 
Source: Bureau of Labor Statistics
*By metropolitan area; seasonally adjusted

I picked the year 2000 because it seems like an inflection point after which both the economy and demographic trends changed. Growth slowed nationwide, and cities began making a comeback after losing ground to the suburbs for decades. If you measure from 1990, Chicago comes off a bit better, growing faster than metropolitan New York, Philadelphia and even Los Angeles (which went through something like a depression in the first half of the 1990s).

The Midwest generally has been growing more slowly than the rest of the country, so I figured it might be fairer to compare Chicago with a peer group of the other big Midwestern metropolitan areas:

Not Exactly Leading the Way in the Midwest
Nonfarm payroll employment growth since January 2000*
 
Source: Bureau of Labor Statistics
*By metropolitan area; seasonally adjusted

That's better, but not much better. Urban thinker Aaron Renn once wrote that "if you want to be a successful Midwestern city, it helps to be a state capital with a metro area population of over 500,000" -- which describes the three fastest-growing metropolitan areas in the above chart. Des Moines, Iowa, and Madison, Wisconsin, both meet those criteria, too, and they've also experienced faster-than-the-national-average job growth since 2000.

In Illinois, the state capital is Springfield, with a metro area population of 211,156. It isn't doing great. Neither is anywhere else in the state. (The below chart shows growth since November 1999 instead of January 2000 because there isn't seasonally adjusted data available for every Illinois metro area, and the most recent numbers available are from November 2016.)

Best of an Unimpressive Lot
Nonfarm payroll employment growth since November 1999*
 
Source: Bureau of Labor Statistics
*By metropolitan area; not seasonally adjusted

The Chicago area, then, is the closest thing to a job engine that Illinois has. And central Chicago (in Illinois Department of Employment Security lingo, the "Central Business District" and the "Outer Business Ring") has been adding jobs at a much brisker pace than the rest of the metro area. It's still not all that brisk -- private-sector employment in the central zone grew 6.7 percent from March 2001 to March 2015. But those jobs tend to pay really well. Annual compensation per payroll job in central Chicago rose from $51,820 (141 percent of the metropolitan area average) in 2000 to $81,126 (156 percent) in 2011, according to economists Bill Sander of DePaul University and Bill Testa of the Federal Reserve Bank of Chicago. The ratio has surely risen since then.

The people who get those high-paying jobs, meanwhile, are increasingly choosing to live in the city instead of in the suburbs. Sander and Testa also found that central Chicago and the neighborhoods to its north and northwest are filling up with college graduates. Mostly white college graduates, I should add. Overall, affluent whites are moving into the city, while blacks of all income groups are leaving. Chicago's black population fell from 872,286 in 2010 to 842,674 in 2014, according to demographic consultant Rob Paral (its all-time peak was 1.2 million in 1980), while the non-Hispanic white, Hispanic and Asian populations all grew. Non-Hispanic whites are back to being the biggest racial/ethnic group in the city, and while the growth of the Hispanic population has slowed markedly, they are on track to pass blacks in a few years, too.

In short, the central and northern part of Chicago seems to have succeeded in establishing itself as a global city beloved by the creative class, while the rest of the city struggles and the rest of the metro area just plods along. "It's hard to say where the city is going to go," said Paral. "You could get pessimistic, or you could get optimistic." You'd have to think this can't last: Either the central city's success will pull the rest of the area out of its funk, or the rest of the area's problems will drag the central city down. But Paral told me the city has seemed to be on the cusp of either a renaissance or a collapse for decades now.

Chicago became a great city because of its location. The hydrological divide that separates the Mississippi River watershed from the Great Lakes and the St. Lawrence River is just west of the city, and in what is now the suburb of Lyons you could haul your canoe from one watershed to the other with a short portage (if it had been raining enough, you could even paddle across the resulting marsh). After making the portage in 1673, French explorer Louis Joliet suggested that his countrymen dig a canal on the spot. They didn't, and the Americans didn't finish the canal until 1848, but by then the mere prospect of a gateway between east and west had already led to the creation of a bustling city. And as railroads subsequently supplanted waterways, Chicago became the hub where eastern and western lines met.

Nowadays, that locational advantage is a lot less important. Yes, Chicago is a major airline hub, but it is one among several. It's in a slow-growing part of the country, with less-than-wonderful weather. It is plagued by sharp racial and economic divides, and decades of less-than-brilliant government decision-making. What it has going for it, mainly, is that is already a great city -- in an era in which Americans value cities a lot more than they used to. Is that enough? I guess we'll find out eventually.

(Corrects third chart to reflect accurate percentage of U.S. growth for time period in article published Jan. 11.)
  1. There are apparently differing ways of tallying this, so you may see slightly different numbers elsewhere.

  2. For the purposes of minimizing the chart area devoted to metropolitan-area names, I've only named the largest city in every metro area. The state capital of Minnesota is in St. Paul, not its twin city Minneapolis. I don't think that really affects the argument, though.

  3. The Census Bureau's name for the Quad Cities is the Davenport-Moline-Rock Island Metropolitan Statistical Area. But if I followed my practice of just naming the biggest city, it would be Davenport, which is in Iowa, which would be confusing. Most of the metro area's population is in Illinois. Also, did you know that there are five Quad Cities? The name was coined to describe the three cities mentioned above plus East Moline, Illinois. Since then Bettendorf, Iowa, has passed East Moline in population, but the latter has understandably not wanted to give up its status as one of the Quad, and "Quint Cities" has never caught on

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net