The Economic Fallout of the Chicago Way


Many large American cities are hurting from the recent recession. Unrealistic revenue assumptions based on ever higher real estate prices and sales tax receipts have left cities unable to pay their basic bills. As asset and consumer prices deflate, from a lack of demand, those cities with “sticky” costs – the result of overly powerful unions and excessive business regulations – are stuck in an economic quagmire.

Chicago has become a leading poster child for recent urban economic malaise. With the election of Barack Obama, 2009 was supposed to be a year in which the Windy City basked in glory. The world was supposed to see the benefits of an administration run by Chicago Machine operatives such as David Axelrod, Rahm Emanuel, Valeria Jarret and Desiree Rogers.

Yet despite the new power in Washington, the Chicago Way has not turned out well back home. A series of events has put Chicago in a funk, along with structural economic problems. In June, Chicago’s unemployment rate peaked at 11.3%, far outpacing the national unemployment rate.

Since 2007 the region has lost more jobs than Detroit, and more than twice as many as New York. Over the decade that is about to end Chicagoland’s total loss was greater than any region outside Detroit. It has lost about as many jobs – 250,000 – as up and comer Houston has gained.

Columnist Mary Schmich of the Chicago Tribune, usually a reliable booster, has described the situation:

Chicago has a mood problem.

It seems edgy lately, a little sullen and scared, verging on depressed. Some days, it feels more like the angry, confused place I moved to in 1985 than the exuberant city that has swaggered through the past two decades.

One can question Schmich’s past description of Chicago as “exuberant”. But recently there’s been many Chicago problems.

Chicago’s bid for the 2016 Olympics failed. Even with Chicago’s most prominent citizens, President Obama and Oprah Winfrey, making a pitch to the International Olympic Committee, the Windy City came up short, behind all the finalists.

Oprah’s recent announcement that she’s ending her long run talk show will end Chicago’s most visible export. It appears much of the Oprah’s empire is moving to California to be closer to America’s entertainment capital, more celebrities and, of course, better weather.

On a more serious note, Chicago also has had to deal with two high profile political suicides. Chicago Board of Education President Michael Scott committed suicide in November. Scott was subpoenaed before a federal grand jury that was investigating the sale of admissions to magnet schools.

In September, a prolific Chicago fundraiser, Chris Kelley, committed suicide after pleading guilty to felony charges concerning the Blagojevich federal case. Kelly’s death was another reminder of the fallout of Chicago corruption.

But it’s just the top of the social heap that’s hurting. The national recession also has been particularly harsh for union-dominated Chicago. The loss of employment has put pressure on Chicago’s politicians to allow Wal-Mart to expand their number of stores in the city. With only one Wal-Mart store in the city, the thousands of potential new jobs could be just what Chicago needs right now. Mayor Daley wants to let Wal-Mart open several more stores but faces stiff opposition in City Council. Alderman Burke, the Chairman of the Finance Committee, is the key decision maker concerning Wal-Mart, whose local expansion is anathema to the unions. Mayor Daley said this concerning when Alderman Burke is going to hold hearings on Wal-Mart:

“That’s up to him. He could have had it six months ago or two months ago.”

The other big union problem can be found in Chicago’s fast-eroding convention business. The union run McCormick Place has been making big news lately because of its loss of three major conventions. In November when two major conventions announced they were leaving Chicago, Crain’s Chicago Business made this stunning indictment:

The chief executive officer won his post after raising campaign cash for disgraced Gov. Rod Blagojevich. The just-departed human resources director owed her job to a powerful state senator. Other top executives have long ties to Mayor Richard M. Daley's political machine.

That's what clout looks like at the Metropolitan Pier and Exposition Authority, known as McPier, a little-understood government entity that operates the city's primary convention venue, the vast McCormick Place complex; the adjacent McCormick Hyatt Regency Hotel, and the lakefront tourist center Navy Pier.

The loss of two major trade shows this month and a deepening financial crisis raise questions of how the Chicago Way can compete with more efficient, warm-weather convention centers such as Orlando, Fla., and Las Vegas.

With labor costs much cheaper in other venues, competing becomes very difficult, particularly in tough times.

Fiscal incompetence has made the problems worse. To help with Chicago’s downturn a “rainy day” fund was set up by leasing major city assets. Chicago leased its parking meters to a private company. This controversial move was supposed to yield generous revenue up front. When Chicago recently passed the new city budget, the Chicago Sun-Times reported:

Chicago’s 75-year, $1.15 billion parking meter windfall would be nearly drained in just one year to provide token property tax relief and stave off tax increases, thanks to a $6.1 billion 2010 budget approved Wednesday.

Despite complaints that Chicago’s future was being mortgaged, the City Council voted 38-to-12 to approve Mayor Daley’s plan to drain reserves generated by asset sales to solve the city’s worst budget crisis in modern history.

Chicago’s recent economic decline is also affecting the state of Illinois' budget. It may be unfair to blame the Chicago Machine for Illinois’ budget situation, but they certainly have played their role. Just days ago Moody's and S&P downgraded the state of Illinois debt. Only California now has a lower debt rating.

Worse may be in the offing. Chicago’s recent economic malaise has been revealed in the stunning new documentary on the coming elimination of futures floor trading:

The exchange, a critical element of Chicago’s economy, may be on the way to downsizing if not oblivion. That’s more bad news for a city that seems to be falling apart even as its operatives try to run the country.

Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at He works in Internet sales.

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In general I think

In general I think prophesying oblivion for Chicago or anywhere only encourages the same kind of fear that has allowed the recession to take such an effect. We must be more positive in order for the economy to get better. My New York office space has been downsized considerably as part of my company’s new tactic to recover from the recession, it is a inconvenience for me but I’m not complaining - I’m being positive.

Are you kidding me?

This article is AWFUL. Did the author just pull his facts completely out of his backside? Besides the job statistics that are completely at odds with reality (thanks emathias, for showing the real statistics), the author's proclamations on the fate of Chicago's financial exchanges are LAUGHABLE.

Yes, Mr. Bartin, the exchange floors are going away. But what is replacing them? ELECTRONIC exchanges. Apparently you haven't been paying attention for the last 15 years or so. In that time, most floor-based exchanges started preparing for the eventual exodus from the floors. The Chicago Mercantile Exchange, in particular, aggressively pursued the electronic trading technologies. As a result, they have been able to merge with the CBOT and buy out the NY Mercantile Exchange, giving them a virtual monopoly on derivative trading activity in the US.

If anything, electronic exchanges are one area in which Chicago is outcompeting most of the US (and the world for that matter). But don't let reality get in the way of your Chicago bashing.

Honestly, how does a guy so fundamentally wrong get to throw up these terrible articles? My guess: his world view conforms to this site's obnoxious anti-city, pro-south, right-wing mentality. Have fun in your echo chamber, guys. A few more articles like this and your credibility will be completely shot...

electronic exchanges

Actually, it was emathias using incorrect numbers (see comment on his comment).

Anyway, you're correct, electronic exhanges account for one of Chicago's most competitive industries. Here's a quick 2002-2009 shift share to the NAICS 3-digit level:

Most Competitive Industries
NAICS Code Description
Job Change
Competitive Effect
611 Educational services 36,119 9,656 $43,320
425 Electronic markets and agents and brokers 15,080 7,393 $98,887
484 Truck transportation 8,271 5,775 $56,773
485 Transit and ground passenger transportation 9,703 4,934 $28,454
551 Management of companies and enterprises 9,516 4,716 $134,466
237 Heavy and civil engineering construction 4,238 3,977 $95,106
812 Personal and laundry services 13,083 3,493 $31,916
322 Paper manufacturing  (3,639) 1,970 $69,458
488 Support activities for transportation 3,925 1,962 $60,002
811 Repair and maintenance 1,961 1,680 $39,350
452 General merchandise stores 7,716 1,571 $24,577
516 Internet publishing and broadcasting 1,564 1,324 $91,498
331 Primary metal manufacturing  (8,193) 1,164 $99,201

And least competitive:

Least Competitive Industries
NAICS Code Description
Job Change
Competitive Effect
541 Professional and technical services 32,213  (46,444)
238 Specialty trade contractors  (21,823)  (29,810)
531 Real estate 54,690  (20,093)
423 Merchant wholesalers, durable goods  (19,436)  (16,056)
622 Hospitals 7,682  (13,871)
523 Securities, commodity contracts, investments 14,028  (13,283)
930 Local government 9,903  (13,225)
522 Credit intermediation and related activities  (8,545)  (10,012)
920 State government  (6,425)  (9,501)
332 Fabricated metal product manufacturing  (20,194)  (9,473)
493 Warehousing and storage 97  (8,480)
561 Administrative and support services  (121)  (7,578)
448 Clothing and clothing accessories stores  (1,088)  (6,851)
713 Amusements, gambling, and recreation 498  (6,363)
524 Insurance carriers and related activities  (2,798)  (6,123)
912 Federal government, military  (4,941)  (5,221)
236 Construction of buildings  (9,681)  (5,137)
336 Transportation equipment manufacturing  (9,442)  (3,455)
221 Utilities  (3,317)  (3,170)
481 Air transportation  (9,742)  (3,115)
518 ISPs, search portals, and data processing  (4,581)  (3,112)
311 Food manufacturing  (4,596)  (3,050)

*Data is via EMSI Complete Employment, Fall 2009

What's also interesting is that while the region's total manufacturing sector shed 122,000 jobs since 2002, its shift share is relatively stable and the LQ actually increased to 1.11 over that time. Not only is manufacturing remaining a key cog in the Chicago area economy, but it's been nationally competitive as well.

Finally, someone tells the

Finally, someone tells the truth about Chicago! I am sick of hearing all this Chicago boosterism about an alleged "comeback". If anything, you were too kind and diplomatic.

Here are the facts:

1. Chicago's population has been in non-stop decline for 50 years. There was NO growth during the 1990's. What happened was the Census radically changed its methodology for counting Americans in the 2000 Census. The result was that many urban centers showed population growth from 1990 to 2000, but this is only because the Census was now making estimates for those who refused to be counted (homeless, undocumented, etc.)

2. Chicago continues to lose white folks. For every Big Ten grad who moves into some River North high rise, there are five white ethnics in the outer neighborhoods who moves to suburban Chicagoland or the Sunbelt. And the Big Ten grad eventually moves to the suburbs too. There are very few newcomer 23-year olds who remain in Chicago at age 35. They marry and move to the burbs or back to Michigan or wherever.

3. There is no "downtown boom". What happened is that Daley has done what no other American city could or would do: force city taxpayers to pay for empty, unneeded downtown towers. Daley has gone "TIF" crazy. Through Tax Increment Financing, and really crazy changes in city condo taxes, he is forcing Joe Six Pack in Jefferson Park to subsidize half-empty condo buildings for Chads and Trixies in River North. There is literally a 10-year supply of condos downtown.

And office space? Downtown Chicago has twice the vacancy rate of other major American cities. Virtually every office tower constructed in the last 30 years received major city subsidies.

Hotel space? Chicago's hotel vacancy rate is higher than any other major American city. It's a joke.

4. Daley has mortgaged the future. He has sold literally everything that can be sold. He has used every gimmick in the book. The richer parts of the city pay almost nothing in taxes, because they are giant TIF zones. This city is in for an extremely severe financil reckoning in the next 5 years.

Do you just make up facts?

Where on earth are you getting your labor statistics that show Chicago is worse off jobs-wise than 10 years ago?

Using BLS statistics:

In January, 1999, metro Chicago had 4,166,000 persons in the labor force, of which 179,900 were unemployed, yielding 3,986,100 employed workers.

In October, 2009, metro Chicago had 4,848,400 persons in the labor force, of which 486,600 were unemployed, yielding 4,361,800 employed workers.

Unemployment in every city in America is at least double what it was in 1999, so it's no surprise that the raw number of unemployed in Chicagoland is 2.7 times what it was ten years ago, but while unemployment is 300,000 higher now than in 1999, the number of people currently employed is nearly 400,000 higher.

Furthermore, in January, 2008, the labor force was 4,951,000 and the number of unemployed was 286,900, for a net of 4,664,100 employed people, meaning Chicagoland had added 678,000 jobs since the start of 1999 before this recession kicked in. That's the equivalent to the pre-recession employment of the entire Greater Loop+Michigan Avenue areas of Chicago. In other words, Chicagoland added the equivalent in jobs of an entire new downtown according to the numbers from the BLS.

P.S. Even when the CME shuts down floor trading, which is inevitable, it will not be a death cry. No European exchange has had floor trading for over a decade, and floor trading in New York is also a far cry of what it once was. The market doesn't need men waving their hands to work, but it still needs a center. Chicago is a center of trading talent that will remain whether there are physical floors or not. Why are so many new online brokerages targeted towards serious traders started and based here in Chicago? It's because we have the skills, experience and knowledge workers here to make them work.

The Numbers


Thanks for taking the time to verify the job numbers, but there's a serious flaw in your analysis: you're citing a 10 year old LAUS press release and since that time OMB has redefined the geographic definition of the Chicago MSA. Also, since you're citing non-seasonally adjusted data, it would be better to define your time period starting and ending at the same point of the year.

Looking at the current LAUS numbers (pulled from for the currently-defined MSA shows:

Jan 99 - Oct 2009: -60,845
Oct 99 - Oct 2009: -174,653
Jan 99 - Jan 2008: gain of 227,005

However, my guess is that Steve got his numbers from BLS's Current Employment Survey data set, and I am thinking that by "this decade" he is referring to "since 2000". Looking at all MSAs and an average of July-Sept (Q3):

Chicago Q3 99 - Q3 09: -186,000
Chicago Q3 00 - Q3 09: -253,800
Detroit Q3 00 - Q3 09: -454,000
New York Q3 00 - Q3 09: 9,900
Houston Q3 00 - Q3 09: 256,400
San Francisco Q3 00 - Q3 09: -213,300
Los Angeles Q3 00 - Q3 09: -170,200

Over the same 2000-2009 period Chicago employment declined 5.5%, ahead of SF and Detroit among the 15th largest MSAs. However, much of this loss has occurred since the fall of 2007 (down 5.3%) which is middle of the pack among the 15 largest regions, ahead of SF, Miami, LA, Atlanta, Riverside, Phoenix, and Detroit.

I do agree that the concentration of market and trading acumen still present in Chicago can be much more relevant in the long run than end of floor trading.

One reason MSAs get

One reason MSAs get redefined is due to population growth, so it's not comparing apples to oranges to compare previous to new MSA defninitions, especially if all MSAs are redefined to reflect new population and commuting patterns at about the same time.

Even with your interpretation of the BLS data, one would be hard-pressed to come to the same conclusion that Steve did. At worst, Chicago has enjoyed a bit of over-hype, but hasn't been hiding a Detroit-style collapse.

MSAs are redefined based on

MSAs are redefined based on inter-county commuting patterns. Your analysis appeared to show job growth because your 1999 definition of the region included fewer counties: comparing two different regions. All I'm saying is you need to use the same group of counties in 1999 as you do in 2009: "apples to apples."

Chicago's employment decline is not on par with Detroit (something Steve clearly stated), but it certainly is among the bottom tier of large metropolitan areas as far as job growth is concerned.

Knowing that, job growth is certainly not the only determining factor of a region's success, especially for a large, mature place like Chicago.

Chicago's loss of jobs is a different issue than your beef with Steve's reasons as to why the decline is occurring.

Chicago still has Finance, but not much else

"I think that you will find that EVERY convention center in the country requires union labor."

In order to compete with cities in right-to-work states, Minneapolis Conv Ctr set a policy of not requiring union labor. And if you're in a right-to-work state like Georgia, Texas, Florida, or Nevada, non-union labor is a major selling point to trade associations.

re:Chicago I was recently on the floor of the NY Stock Exchange. It's basically a TV studio now for CNBC and Fox Business, without reporters on the floor it would feel like a thinly staffed computer room. But if you look at CME (Chicago Merc Exchange) volumes, they keep rising due to futures and options trading. Derivative brokers and traders want to be in Chicago even where the actual execution is electronic.

Nonetheless, the growth in the Midwest is in the metros (but not states) of the Plains, in places like Sioux Falls, Omaha, and the Kansas suburbs of KCMO, where there's a solid combination of right-to-work laws, agribusiness, and a reasonably educated workforce. Wouldn't surprise me if in a few decades Chicagoland's population gets surpassed by DFW.

Unioin Problem

"The other big union problem can be found in Chicago’s fast-eroding convention business."

"compete with more efficient, warm-weather convention centers such as Orlando, Fla., and Las Vegas."

I think that you will find that EVERY convention center in the country requires union labor.

I will agree that better weather and lower costs (airfare, hotel, food) could be a difference, but not unionized or non-unionized labor.

Dave Barnes