Metropolitan Chicago's ability to retain and foster new businesses is an important regional economic indicator.  Businesses base site decisions on factors such as access to customers, workforce, infrastructure, and public policy.  CMAP analyzed data on moves, creations, and closures of establishments to better understand business churn in our region.
 
This analysis focuses on establishment-level data -- business units at a single location ranging from a one-person operation, a company's single location or headquarters, or a franchise branch -- to understand which types move to, from, and within the region.  Each of a company's "establishments" or branches is considered a separate entity for the purpose of this analysis.
 
Data from 2001-12 show that relocations from metropolitan Chicago to another region represent a relatively small proportion of moves. When businesses do relocate, they tend to move nearby, often within the same county. Over the 12-year period, smaller establishments were a majority of the 300 business that moved out of the region. This trend was tempered by an influx of larger establishments into the region.
 
Overall, metropolitan Chicago experienced a nearly equal number of business moves to and from most states, with a handful of states accounting for a majority of the 300 establishments that moved out of the region. It is important to consider these moves within a larger economic context: Census data show that business creations and closures, as opposed to moves, represent a much larger share of regional economic activity.
 
This Policy Update explores two datasets not previously analyzed by CMAP.  National Establishment Time-Series (NETS) data track moves to and from the seven-county CMAP region, which includes the counties of Cook, DuPage, Kane, Kendall, Lake, McHenry, and Will. Additionally, U.S. Census Bureau Business Dynamic Statistics (BDS) data track business creations and closures, referred to as "births" and "deaths," in the Chicago metropolitan statistical area (MSA), a larger geography that includes all of the CMAP region plus parts of Indiana and Wisconsin.
 
Moves to the CMAP region have relatively little impact on employment patterns. This Policy Update underscores the importance of fostering growth from within the region, findings that echo the GO TO 2040 comprehensive regional plan and the World Business Chicago (WBC) Plan for Economic Growth and Jobs regarding the critical importance of implementing regional strategies to invest in our workforce, infrastructure, and innovative capacity.
 

Moves vary by establishment size and type

Metropolitan Chicago is home to a diverse mix of more than 540,000 establishments. Establishments relocate for a variety of reasons, often to reach new markets, access labor, decrease costs, or expand facilities.
 
Analysis of NETS data indicate that the region's smallest establishments -- those with fewer than five employees -- move more frequently and in greater numbers than larger ones.  Between 2001-12, over 70 percent of establishments that moved to or from the region had fewer than five employees, and most had just one.  These small establishments account for more than two-thirds of the region's businesses but fewer than ten percent of all jobs.  Among the region's smallest establishments, personal factors tend to influence relocation decisions, often reflecting broader demographic migration trends. For this reason, subsequent analysis in this Policy Update focuses on establishments with five or more employees -- businesses that often consider greater market, infrastructure, and human capital attributes in location decisions and account for over 90 percent of the region's jobs.
 

Majority of moves are intraregional 

Business moves to and from other states represent just 15 percent of the 35,000 moves that occurred within the Chicago region from 2001-12. The remaining 85 percent of moves were intraregional, in which establishments relocated within the seven-county CMAP region. 
 
The volume of moves decreased in recent years and remains below the 2004 peak. Moves into the region increased by nearly 70 percent during the 2007-09 recession and remain higher than the rate observed in the early 2000s.  During the same period, moves out of the region increased by about 40 percent and remain lower than rates observed in the early 2000s.  
 
Analysis of NETS data for the Chicago region shows that when establishments move, most often they relocate within the same county; in other words, the county "retains" the establishment.  Suburban Cook, McHenry, Lake, DuPage, Kane, and Will counties all retained around 58 percent of their businesses, which is also the regional median rate.  The city of Chicago retained 72 percent of total establishments.  Kendall County had the lowest retention rate at 36 percent; however, as home to less than one percent of the region's establishments, it draws from a much smaller base.
 

Moves to and from other states

According to NETS analysis, from 2001-12 approximately 2,400 establishments with five or more employees moved into the seven-county Chicago region and 2,700 moved out.  The majority of the 300 moves from the region were attributable to departures of establishments with less than 25 employees. Over the same period, the region saw a net increase of over 50 establishments with greater than 25 employees.
 
Across the U.S. as a whole, the number of establishment moves to and from other states was nearly equal in 35 states, with a few states accounting for the majority of moves.  The following map shows net establishment moves (by state) to and from the seven-county Chicago region over the 12-year period.
 
When establishments relocate within Illinois outside the Chicago region, they typically do not move far: two-thirds of the 89 establishments that moved outside of the CMAP region but stayed within Illinois relocated to the adjacent counties of DeKalb, Grundy, Winnebago, and Kankakee.
 
Establishment moves to the region from just six states -- Illinois outside the Chicago region, California, Indiana, Wisconsin, Michigan, and Florida -- accounted for almost half of the raw number of moves to the region.  Similarly, establishment moves from the region to five states -- Illinois outside the Chicago region, Indiana, Florida, Wisconsin, and California -- accounted for nearly half of the raw number of moves from the region. A large proportion of moves from the region reflect recent demographic trends in the U.S. and coincide with higher rates of population growth in southern metropolitan areas.
 

Moves vary by industry cluster type

Industry clusters consist of interdependent groups of firms and related institutions that gain benefits from their proximity.  The region saw a higher rate of move activity among business that produce goods and services that are consumed locally, nationally, and globally, which are known as traded industry clusters.  These traded industry clusters, which represent 38 percent of the region's establishments, play an outsized role in regional economic growth.  Local industry clusters produce goods and services that are consumed by businesses and consumers within the same region and represent 62 percent of the region's establishments. Local clusters make up the underlying infrastructure that supports the development of traded industry clusters. 
 
Of the 300 net moves from the region, 60 percent were local industry cluster establishments while 40 percent were traded industry cluster establishments, nearly mirroring their shares of the regional economy. CMAP found that among the traded and local clusters, establishments that primarily provide business services such as accounting or consulting tended to be the most mobile.  
 
The 2007-09 recession accelerated the rate of traded and local establishment moves.  Since 2009, there have been more moves into the region by traded cluster establishments and more moves out by local cluster establishments.  An increase in the number of traded cluster establishments may yield jobs that tend to pay higher median salaries, spur innovation, and generate additional economic activity.
 

Most establishment churn occurs through births and deaths

U.S. Census Bureau Business Dynamic Statistics (BDS) data for the 14-county Chicago MSA show that establishment birth and death activity significantly outpaced move activity.  Although the geographies and datasets do not precisely align, a comparison of volume is still meaningful.  According to NETS data, about 740 establishments of all sizes moved to the seven-county CMAP region in 2012.  During the same year, BDS data show that more than 13,500 new establishments were created in the Chicago MSA.  Although the geographical comparison is not exact, establishment birth rate in the Chicago MSA is nearly 20 times the rate of establishment moves to the seven-county Chicago region.
 
Similarly, establishment deaths in the Chicago MSA significantly exceeded moves from the region.  In 2012, an estimated 920 establishments of all sizes moved out of the seven-county CMAP region while the Chicago MSA saw almost 11,500 establishment deaths.  The number of establishment births exceeded deaths in the Chicago MSA every year since the 1970s except 2009.  The region should continue building on its strengths to cultivate innovative ideas that spur new business growth.
 

Looking forward

GO TO 2040 and WBC's Plan for Economic Growth and Jobs highlight the need to plan for and respond to the diverse factors that shape our region's economy.  The resilience of metropolitan Chicago's economy depends on the vitality of its industry clusters, quality of its infrastructure, and caliber of its workforce.  Building on these existing assets will help the region grow, attract, and retain establishments that contribute to the broader success of our economy.
 
Previous CMAP analysis emphasized the importance of regional coordination to provide strong economic opportunities through strategic investment and enhanced livability.  By reorienting its public policy and economic development efforts, the region can compete better globally and curtail intraregional competition.
 
The region's next comprehensive plan, ON TO 2050, will identify strategies to leverage our innovative capacity, retain and attract a robust workforce, and promote economic development policies and practices that support industry clusters.  The Chicago region can gain significant advantages by providing the access, infrastructure, and resources that its workers and businesses require.  These efforts help improve our economy and quality of life by fueling the region's economic engine from within.