The Best (and Worst) States for Business

Print Email

11. North Dakota
> Real GDP growth, 2013-2014:
7.0% (the highest)
> Average wages and salaries, 2014: $49,741 (17th highest)
> Pct. of adults with bachelor’s degree, 2014: 27.4% (18th lowest)
> Patents issued to residents, 2014: 104 (2nd lowest)
> Projected working-age population growth, 2010-2020: 0.4% (15th lowest)

North Dakota has recently experienced an economic boom as the direct result of the discovery of large oil reserves in the Bakken region. Over the past five years, the state’s GDP has grown at a rate of 9.6%, by far the fastest in the country. The state’s unemployment rate of 2.8% is the lowest in the United States. Businesses outside of the oil industry have likely benefitted as a result of the influx of capital and people into the area. However, because of the decline in oil prices, the region’s production is slowing, and the state may even be due for a significant downswing.

One benefit for businesses in the state is its relatively low cost of living. The cost of goods and services is far lower in North Dakota than in the majority of states. The state also has the lowest level of home ownership costs relative to median household income.

12. Vermont
> Real GDP growth, 2013-2014:
0.3% (4th lowest)
> Average wages and salaries, 2014: $42,155 (11th lowest)
> Pct. of adults with bachelor’s degree, 2014: 34.9% (8th highest)
> Patents issued to residents, 2014: 578 (18th lowest)
> Projected working-age population growth, 2010-2020: -5.2% (2nd lowest)

Although it is not among the top 10, Vermont’s business climate is still favorable compared with most states. One of the biggest contributors to Vermont’s ranking is a very high quality of life. The state has the second highest rate of health insurance coverage in the country and the lowest violent crime rate. It also has a high share of art, entertainment, and recreation centers per capita. The state’s adults are also among the most likely in the country to have a high school diploma, a college education, and a professional degree. The high quality of life available in the state, as well as the relatively high levels of education among the workforce, has improved the business climate in Vermont.

13. South Dakota
> Real GDP growth, 2013-2014:
2.3% (18th highest)
> Average wages and salaries, 2014: $38,246 (2nd lowest)
> Pct. of adults with bachelor’s degree, 2014: 27.8% (23rd lowest)
> Patents issued to residents, 2014: 115 (4th lowest)
> Projected working-age population growth, 2010-2020: 3.7% (22nd highest)

South Dakota’s tax code, according to the Tax Foundation’s State Business Climate Tax Index, is the second best of any state. South Dakota is one of just four states with neither corporate nor income taxes. State residents pay an estimated 7.1% of their household income in state and local taxes, the second-lightest tax burden of any state. Compared to the rest of the country, South Dakota businesses are also saving on wages. The average salary in the Mount Rushmore State is $38,246, the lowest of any state other than Mississippi.

South Dakota also has low unemployment and residents’ average commute time is the shortest in the nation. Still, weak human capital and a stagnant entrepreneurial environment may hinder certain types of businesses from thriving in the state. Just 7.8% of South Dakota residents have a graduate or professional degree, the fifth lowest such rate in the country. The state also has a smaller share of STEM jobs than in most states. Only 115 patents were issued and just one venture capital deal was made in 2014, significantly lower than other states.

14. California
> Real GDP growth, 2013-2014:
2.3% (18th highest)
> Average wages and salaries, 2014: $59,391 (5th highest)
> Pct. of adults with bachelor’s degree, 2014: 31.7% (13th highest)
> Patents issued to residents, 2014: 40,661 (the highest)
> Projected working-age population growth, 2010-2020: 5.2% (20th highest)

The regulatory and tax climate in a state is often a major factor for business owners choosing their home base. On this count, California is one of the least favorable states. It trails the vast majority of states on two rankings from the Institute for Legal Reform Lawsuit Climate report and Mercatus’ Regulatory Index. The cost of doing business in California is among the highest in the country by several other measures as well. The cost of goods and services in the state is the fourth highest among the states, and the costs of commercial property are higher than in every state except for New York and Hawaii.

On the other hand, some parts of the state — Silicon Valley, for example — are strongholds for technological development and innovation. More venture capital investments are made in California than any other state by a considerable margin, and the average value of each deal — $15.7 million — is higher than in all but two states. In California, 105 patents per 100,000 are issued each year, the most in the country.

15. North Carolina
> Real GDP growth, 2013-2014:
2.9% (8th highest)
> Average wages and salaries, 2014: $45,849 (22nd lowest)
> Pct. of adults with bachelor’s degree, 2014: 28.7% (25th highest)
> Patents issued to residents, 2014: 3,411 (13th highest)
> Projected working-age population growth, 2010-2020: 12.5% (7th highest)

North Carolina’s economy, which has traditionally relied heavily on its textile sector, has expanded and diversified in the past half century. Today, North Carolina is one of the better states for business. The state’s GDP grew by 2.9% in 2014, the eighth fastest in the country. That year, the state issued more building permits than every state except for California, Florida, and Texas. Also, only 1.9% of nonfarm workers are union members, the smallest share nationwide. The fewer workers participating in unions, the more control an employer can have over his or her business.

Despite the business-friendly economic and labor climate, North Carolina lags behind other states in measures of human capital. A smaller share of adult residents graduated high school than American adults nationwide, and the case is the same with college education. The state spends an average of $8,867 per pupil annually, the eighth least in the nation.