Here we revisit of the 24/7 Wall St. Best (and Worst) States for Business.
So here’s how we determined the best and worst states for business. We compiled 47 measures into eight categories: business costs, cost of living, economy, infrastructure, labor and human capital, quality of life, regulation, and technology and innovation. Each category aimed to capture the essential elements that businesses consider when deciding where to locate.
Each category consists of several measures. Because many of the measures were interrelated, we created an index for each category using a geometric mean rather than the traditional arithmetic mean. We then used the geometric mean of each index score to calculate a state’s overall score. Potential scores ranged from one to 50, with lower values indicating better scores. Two categories — labor and human capital and technology and innovation — received double weight, and quality of life and cost of living were given half weights. Cost of business, infrastructure, economy, and regulation received full weight.
The business costs index offers a diverse look at the immediate expenses of a business. One of the category’s measures is the Tax Foundation’s 2016 Tax Climate Index, which captures the impact of state-level taxes on business. We also looked at 2014 commercial prices of electricity from the Energy Information Administration (EIA) and the 2013 costs of purchasing and renting industrial, office, and retail space per square foot from CoStar Group Inc. From the Bureau of Economic Analysis (BEA), we included average compensation per job in 2014 computed as a percentage of average wages and salaries, as well as average wages and salaries in each state.
The cost of living index was designed to encapsulate costs to both households and businesses. We included a housing affordability ratio, calculated using median annual ownership costs as a percentage of median household income. Both measures are from the U.S. Census Bureau’s 2014 American Community Survey (ACS). Also included was regional price parity, a measure of the cost of living, for 2013 from the BEA, and the average state and local tax burden as a percent of per capita income from the Tax Foundation. Tax Foundation figures are for the 2012 fiscal year.
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