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Turning Tides

The Choice between Chicago and the Suburbs

By WILLIAM SANDER

In the competition for jobs and people, Chicago has, over time, lost some of its strength and importance to the suburbs. The city's population actually declined from 1950 to 1990, as suburban populations increased by more than 50 percent. Recently, however, Chicago has once again become an attractive place to live--at least for those who are college-educated.

The factors that affect where firms locate and where people choose to live in the Chicago region include family, demographics, income and education and housing demand. Population and industrial changes in the Chicago metropolitan area have also, of course, been indicative of where people live.

Population Trends

From 1890 to 1980, Chicago was the second largest city in the United States. Los Angeles became the "second city" in 1980, when the population of Chicago declined from more than 3.6 million to about 2.8 million. This downward trend was briefly reversed during the 1990s--a period when Chicago gained more than 100,000 residents. Since 2000, however, the city has been losing population once again, although it's not clear whether a negative trend is reestablishing itself.

Although Chicago is still a very large city, its importance relative to the metropolitan area has declined. The major metropolitan area includes more than eight million people. Before 1980, Chicago accounted for more than half of the metropolitan area. Today it accounts for about one third, largely because the suburbs have become more attractive to industry and households.

Industry Trends

The location of jobs is the key determinant in terms of where people decide to live. It is, however, interesting to note that about 30 percent of workers from Chicago are employed in suburban areas. Suburban residents, in turn, fill about one third of the jobs in Chicago.

Over time, industry has become more "footloose" and less tied to traditional transportation, such as rail. Cheaper land and lower taxes in suburban areas have drawn manufacturing, Chicago's traditional engine of economic growth, away from the city. Although Chicago is still an important manufacturing center, most of the jobs in this sector are now in the suburbs. More jobs in other sectors have also been created in the suburbs as households find suburban living more attractive.

As manufacturing has declined in importance, service sector jobs have increased in magnitude. Research by William Testa at the Federal Reserve Bank of Chicago indicates that business service jobs, in particular, have become a very important part of Chicago's economic base. Some of these jobs are located in the downtown area and attract many college-educated workers, who are increasingly choosing to live near the Loop.

Over the past decade, growth in employment in Chicago has been very modest relative to that of the suburbs. The city experienced about a 1 percent increase in private sector employment during the 1990s, while suburban counties all experienced double-digit rates of employment growth. For example, employment in DuPage County increased by more than 30 percent. Job growth in Will County increased by about a half. Since 2000, Chicago has lost jobs, and if this trend continues, so will the city's declining population.

Family Effects

Marriage and children, of course, affect where households choose to live. Married couple households typically live in the suburbs, while nonfamily households disproportionately live in Chicago. In 2000, only about 18 percent of households in Chicago were married couple households with children under 18. In contrast, about 37 percent of households in suburban areas were married couple households.

Families with children are typically attracted to suburban areas because of the higher crime rate and the perceived poorer quality of public education in Chicago. Although the evidence suggests that Chicago public schools are improving, a recent study puts the four-year high school graduation rate at a little more than 50 percent. Further, although the crime rate in Chicago has declined, it's still two to three times the rate of most suburban areas. The incidence of violent crime in Chicago is even higher.

Chicago is a more attractive place to live than would otherwise be the case because of its relatively large number of private schools. In 2000, about 17 percent of elementary and secondary school students attended private schools. This represents about a 25 percent decline since 1990--largely a result of Catholic school closings.

Demographic Effects

College graduates are increasingly living in Chicago due to declines in marriage and fertility. For example, in the 1970s about three out of four women (and two out of three men) ages 25 to 29 were married. Today, only about one out of two women in this age group and less than 50 percent of the men are married. Similarly, as fertility rates have declined, city locations have become more attractive. Because college-educated individuals tend to postpone marriage and have fewer children, city life is particularly appealing to them. Research by Kenneth Johnson at Loyola University indicates that during the 1990s there was a large increase in the number of young non-Hispanic whites living in Chicago. Once children become part of a household, however, cities become less attractive.

Income Effects

Chicago has become increasingly alluring to more affluent households, although the most affluent households still tend to live in suburban areas, as indicated by data on income. In 1999, about 12 percent of households in Chicago earned at least $100,000, which is about at the national average. This represents a significant increase in the number of high-income households living in Chicago. In suburban areas, 22 percent of households earned at least $100,000 in 1999.

Since the end of WWII, increases in household income have been a key factor in suburbanization because the more affluent tended to want new housing and more space. Although higher income is still associated with suburbanization, it is not necessarily the typical case today. If cities can provide the goods and services that more affluent consumers desire, the demand for city living will increase.

While Chicago may be increasingly appealing to affluent college-educated households, it's still an attractive location for the poor. The poverty rate in Chicago is almost at 17 percent--in suburban areas it's about four percent. This is a result of many factors, including the inability of households with modest incomes to afford housing in many suburban communities. One of the concerns regarding the high concentration of poor households in Chicago is that there is a "spatial mismatch" between where low-income households live and where jobs are going, which makes it an important policy issue for this region.

Education Effects

Statistics on educational attainment for adults 25 years and older indicate that in 2000 the percentage of non-Hispanic whites with a college degree was higher in Chicago than in the suburbs--42 percent in Chicago compared to 35 percent in the suburbs. This was not the case in 1990. Non-Hispanic whites in suburban areas were then more likely to have a college degree. For African-Americans, Hispanics and Asian-Americans, the pattern is reversed. Minority college graduates disproportionately live in the suburbs. Individuals with less than a high school diploma, regardless of their ethnic or racial background, disproportionately live in Chicago.

The growth in the number of college graduates living in Chicago follows a national trend of individuals with a college education increasingly being attracted to living in the city.

The same case is true for New York. Researchers such as Edward Glaeser at Harvard University have found that some of the amenities that attract households to central city locations include restaurants, art museums, historic buildings and live performances. Glaeser also found that the most important amenity that attracts highly skilled workers is a temperate climate--a factor that clearly works against the Chicago region.

Housing Demand

One of the consequences of more college graduates living in Chicago is that the demand for new housing has increased. The rate of growth of new home construction in Chicago increased modestly during the 1990s after declining every decade since the 1950s. This is causing many neighborhoods to change and housing prices to increase. For example, over the past two decades, median housing values have increased markedly in areas relatively close to the Loop. In these areas, the percentage of college graduates has increased as well.

Since 1980, housing values have nearly tripled in real terms in the community area north of the central business district. At the same time, the percentage of college graduates has increased by 28 percent. Housing values have increased tenfold in real terms south of the Loop and fourfold west of the downtown area since 1980. The percentage of adults with a college a college degree increased tenfold and threefold, respectively, in these areas.

The Future

Industry is increasingly attracted to locations with educated workers. Such workers are in turn continually drawn to locations with good quality of life. For these reasons, Chicago's future is increasingly linked to its ability to produce educated workers and provide the amenities that make the city a desirable place to live.

William Sander is a professor of economics at DePaul University.

Published: October 01, 2005
Issue: November 2005