The Best (and Worst) States for Business

Print Email

41. Rhode Island
> Real GDP growth, 2013-2014:
1.6% (24th lowest)
> Average wages and salaries, 2014: $49,866 (16th highest)
> Pct. of adults with bachelor’s degree, 2014: 30.4% (19th highest)
> Patents issued to residents, 2014: 363 (11th lowest)
> Projected working-age population growth, 2010-2020: -3.8% (6th lowest)

There are a variety of factors driving up the cost of doing business in Rhode Island. According to the Tax Foundation, the state has one of the least favorable tax structures in the country for corporations. Electricity is also very expensive in the state, at 13 cents per kwh compared to 10.9 cents across the country. While in the majority of states, less than one in 10 miles of roadway are in poor condition, nearly 40% of Rhode Island’s roadways are in bad shape, by far the worst in the country. This may contribute to the high costs of trucking to businesses due to congestion in the state due to, at roughly $142,000 per mile.

A potential long-term problem for Rhode Island businesses is a projected loss of an employee pool. By 2020, the size of the working-age population is expected to have declined by 3.8% from 2010, one of the worst drops over that period.

42. Arkansas
> Real GDP growth, 2013-2014:
1.5% (21st lowest)
> Average wages and salaries, 2014: $40,560 (5th lowest)
> Pct. of adults with bachelor’s degree, 2014: 21.4% (3rd lowest)
> Patents issued to residents, 2014: 204 (9th lowest)
> Projected working-age population growth, 2010-2020: 5.2% (21st highest)

Compared to the rest of the country, Arkansas is one of the most cost-effective places to run a business. The average salary in the state is just $40,560, the fifth lowest nationwide. Commercial electricity costs just 8 cents per kilowatt hour, cheaper than in any state except for Idaho. Similarly, commercial real estate is the seventh least expensive in the country.

Despite the state’s cheap labor and capital, a subpar applicant pool may deter new businesses. Just 21.4% of adults have at least a bachelor’s degree and 7.5% have a graduate or professional degree, the third and second lowest shares of any state. Of all jobs in Arkansas, only 17.2% are in STEM fields — a smaller share than in any state other than Mississippi and Nevada. Between 2012 and 2013, Arkansas was one of 14 states where the number of private establishments declined — by 0.1%.

43. Oklahoma
> Real GDP growth, 2013-2014:
2.9% (8th highest)
> Average wages and salaries, 2014: $44,447 (18th lowest)
> Pct. of adults with bachelor’s degree, 2014: 24.2% (8th lowest)
> Patents issued to residents, 2014: 572 (17th lowest)
> Projected working-age population growth, 2010-2020: 5.5% (19th highest)

The promise of an enjoyable and healthy life can often help businesses attract and maintain employees. Oklahoma, unfortunately, has among the worst quality of life in the country. According to the United Health Foundation, the state has one of the least healthy populations of any state, and one of the worst rates of health insurance coverage as well. Oklahoma also has just 27.2 arts, entertainment, and recreation establishments per 100,000 people, the fifth-lowest share in the country.

Oklahoma’s businesses also draw from a relatively low-skilled workforce. Just 24.2% of the state’s adults have at least a bachelor’s degree and only 8.1% have a graduate or professional degree, compared to more than 30% and 11.4% of American adults, respectively.

44. Hawaii
> Real GDP growth, 2013-2014:
0.4% (6th lowest)
> Average wages and salaries, 2014: $46,650 (25th highest)
> Pct. of adults with bachelor’s degree, 2014: 31.0% (16th highest)
> Patents issued to residents, 2014: 136 (7th lowest)
> Projected working-age population growth, 2010-2020: 5.7% (17th highest)

In few states is the cost of doing business higher than in Hawaii. Electricity in the state costs 34 cents per kWh, close to double the next most expensive state. Hawaii real estate is also by far the most expensive of any state, and the cost of property ownership is among the highest in the country relative to the typical household income. Goods and services are more expensive in Hawaii than in any other state. The state’s infrastructure is also relatively poor. More than 40% of Hawaii’s bridges are structurally deficient or functionally obsolete, and 28.7% of the state’s roadways are in poor condition. Of course, transporting goods between the state and the mainland is much more expensive than shipping within the contiguous United States.

One mitigating factor for businesses in the state is the very high quality of life residents enjoy. Violent crime is relatively low, and residents are among the healthiest in the country.

45. Alabama
> Real GDP growth, 2013-2014:
1.5% (21st lowest)
> Average wages and salaries, 2014: $42,594 (12th lowest)
> Pct. of adults with bachelor’s degree, 2014: 23.5% (7th lowest)
> Patents issued to residents, 2014: 500 (16th lowest)
> Projected working-age population growth, 2010-2020: 2.6% (25th highest)

Alabama’s private sector economy is struggling. The number of non-government businesses in the state declined between 2012 and 2013, one of just 14 states where this occurred. To compare, the number of businesses nationwide expanded by 0.8% over the same period.

Businesses in Alabama may face a shortage of eligible workers in the coming years. While the national working-age population is projected to have grown by 4.6% over the decade ending in 2020, the corresponding growth rate in Alabama is only 2.6%. Currently, workers with high educational attainment are relatively scarce in the state. Only 23.5% of adults have a bachelor’s degree and only 8.8% of adults have a graduate or professional degree, each some of the smallest shares of any state in the country.