Special Report

The Best (and Worst) States for Business

While the United States was founded on the principle of equality for all people, the 50 states are decidedly unequal in providing opportunities for business. For companies choosing to locate in the United States, deciding the state in which to base their operations can be very difficult.

To determine America’s best states for business, 24/7 Wall St. identified nearly 50 measures that contribute to the business climate and reviewed them in each of the 50 states. The measures were classified into eight larger categories that independently measured various risks and benefits of doing business in each state. (Click here for a complete methodology.)

The health of a state’s economy, the result of a confluence of factors, is perhaps the most important consideration for businesses choosing a location. The growth of economic output in 2013 in seven of the 10 best states for business was greater than the national GDP growth rate of 1.8%.

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Another indication of a healthy economy, the job market, was also strong in the 10 best states for business. All of the 10 states had unemployment rates below the national unemployment rate of 7.4% in 2013. Four of the worst states for business had unemployment rates that exceeded the national rate.

Click here for the best states for business

Click here for the worst states for business

However, while a state’s economy is tied to a host of factors, not all factors benefit businesses in the same way. The business climate in some states was more favorable to companies primarily concerned with minimizing the costs and risks of operating a business. These states, which include North Dakota, Wyoming, and Texas, tended to enjoy ample natural resources, low cost of living, and low regulation.

Some states benefit from a well-educated and highly skilled labor force. They are able to attract businesses that require these skills, such as professional and business services, health and education services, and information. In return, these businesses drive economic growth in these states through technology and innovation. These states include Massachusetts, Virginia, and Minnesota.

While it is emphasized more in some industries than in others, a low cost of doing business is a major reason to choose to operate in a particular state. The average cost of goods and services in six of the best states for business was lower than the national average. This was generally driven by beneficial tax climates, lower expenses from utilities and real estate, and lower average employee compensations.

Although the type and size of operating costs vary considerably between industries, wages are a major expense for many businesses. The average wage and salary in three of the 10 best states for business was roughly inline with the national average of $50,012 in 2013, while in five other states, average wages were below the national figure.

While lower wages lower the cost of doing business, they are also frequently tied to jobs with lower educational attainment. Among the five best states for business with lower than average wages, three had lower educational attainment rates than the national figure. In these states, including North Dakota and Wyoming, the prevalence of industries that require high-skilled labor was also relatively low.

Nevertheless, the percent of STEM jobs in a majority of the best states for business — jobs related to science, technology, engineering, or mathematics — was generally high. At least one in five of all jobs in eight of the 10 best states for business were STEM jobs. On the other hand, the percent of jobs in STEM fields was relatively low in the worst states for business.

In addition to a highly-educated labor force, access to capital can also drive innovation in a state. In 2013, 13.26 venture capital deals were made per 1 million Americans. In seven of the worst states for business, there were fewer than three such deals per 1 million residents. In the best states, on the other hand, investments were far more likely. In Massachusetts, there were 57 venture capital deals made per 1 million state residents, by far the highest nationwide.

These are the best (and worst) states for business.

 

The Best States for Business

10. Minnesota
> Real GDP growth, 2012-2013: 2.8% (13th highest)
> Average wages and salaries, 2013: $49,222 (14th highest)
> Pct. of adults with bachelor’s degree, 2013: 33.5% (10th highest)
> Patents issued to residents, 2013: 4,292 (9th highest)
> Projected working-age population growth, 2010-2020: 1.7% (9th highest)

Based on eight categories, including 47 measures, Minnesota is the 10th best state for business in the country. Informing the state’s high quality of life rank, just 8.2% of Minnesotans did not have health insurance in 2013, the fifth lowest rate nationwide. Also, the state was one of the safest, with a violent crime rate of 223.2 reported incidents per 100,000 people, among the lowest rates in the nation.

The state also received one of the highest scores for Infrastructure. Compared with other states, Minnesota businesses can also expect relatively well functioning transportation system. For example, just 11.5% of the state’s bridges were deemed structurally deficient or functionally obsolete, the lowest rate nationwide and less than half the national percentage of 24.3%. Businesses in the state also have the benefit of a relatively well-educated workforce. More than one-third of adults had at least a bachelor’s degree versus less than 30% of Americans. And 92.4% of state adults had completed at least high school as of 2013, the fourth highest rate in the country.

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9. North Dakota
> Real GDP growth, 2012-2013: 9.7% (the highest)
> Average wages and salaries, 2013: $46,775 (20th highest)
> Pct. of adults with bachelor’s degree, 2013: 27.1% (20th lowest)
> Patents issued to residents, 2013: 111 (2nd lowest)
> Projected working-age population growth, 2010-2020: 0.4% (2nd lowest)

North Dakota’s oil boom has spurred strong growth throughout the state’s industries, in residents’ personal incomes, and in employment. Less than 3% of the workforce was unemployed in 2013, the lowest in the country. As a consequence of the high levels of investment and spending in the state, North Dakota’s GDP grew nearly 10% in 2013. While this was by far the highest growth rate nationwide and more than five times the national growth rate of 1.8%, growth may slow considerably if oil prices continue to fall.

In addition to high wages and job opportunities, residents benefit from a relatively low cost of living. In 2013, the cost of housing required 26% of a typical household income, the second-lowest median annual affordability ratio nationwide. As in other states with a low cost of living, North Dakota also had a healthy infrastructure. Partly as a result, workers in the state benefited from an average commute time of less than 18 minutes, versus the national figure of nearly 26 minutes. It was the third lowest commute time in the country.

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8. Virginia
> Real GDP growth, 2012-2013: 0.1% (3rd lowest)
> Average wages and salaries, 2013: $53,267 (10th highest)
> Pct. of adults with bachelor’s degree, 2013: 36.1% (6th highest)
> Patents issued to residents, 2013: 1,886 (21st highest)
> Projected working-age population growth, 2010-2020: 7.5% (21st highest)

Virginia’s large capacity for innovation, and high quality labor force helped make it the eighth best state for business. The Old Dominion State scored in the top 10 of states for the percentage of STEM jobs — jobs related to science, technology, engineering, or mathematics. More than 36% of adults in the state had completed at least a bachelor’s degree, which helped strengthen the labor force. The state also fared very well for its business-friendly regulatory environment, its relatively low poverty rate, and its comparatively low energy costs.

What held Virginia back from an even higher overall ranking was its weak infrastructure, which was ranked lowest among the states. Residents had one of the longest average commuting times of 27.7 minutes, and the state spent among the least per mile on road repair. Virginia also struggled with weak real GDP growth, 0.1% in 2013, third lowest in the country.

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7. Colorado
> Real GDP growth, 2012-2013: 3.8% (6th highest)
> Average wages and salaries, 2013: $51,537 (11th highest)
> Pct. of adults with bachelor’s degree, 2013: 37.8% (2nd highest)
> Patents issued to residents, 2013: 2,793 (14th highest)
> Projected working-age population growth, 2010-2020: 8.6% (14th highest)

Colorado’s business climate is among the best in the country largely due to a strong labor market and an especially strong and innovative technology sector. These features are interwoven as a highly educated workforce is essential for innovation. Nearly 38% of adults in Colorado had at least a bachelor’s degree as of 2013, the second highest rate nationwide. As of that year, 14% of adults had completed a graduate or professional degree, a higher percentage than in all but a handful of states. The state’s population is projected to grow by 13.4% from 2010 through 2020 versus an estimated national growth rate of 7.1%, which also contributes to a strong labor market. Nearly 22% of all jobs in Colorado were STEM positions, the seventh highest proportion in the country.

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6. Texas
> Real GDP growth, 2012-2013: 3.7% (8th highest)
> Average wages and salaries, 2013: $50,643 (13th highest)
> Pct. of adults with bachelor’s degree, 2013: 27.5% (23rd lowest)
> Patents issued to residents, 2013: 9,222 (2nd highest)
> Projected working-age population growth, 2010-2020: 16.1% (2nd highest)

Like a majority of the best states for business, Moody’s and Standard & Poor’s rated Texas’ credit among the best in the nation. The Lone Star State also led the states in the value of exported goods, which totalled nearly $1.9 trillion in 2012. There were also 386 public use airports, the most in the nation. Curiously, while Texas had the third most post-secondary schools in the nation at 420 in 2013, it actually had the second lowest percentage of adults who had completed at least high school, at 81.9%. Texas benefits considerably from its abundant natural resources. For example, the mining industry accounted for 11.1% of the state’s GDP in 2013, the sixth highest such contribution in the country. Other kinds of businesses do not do particularly well in Texas. The information, finance-insurance-real-estate, professional and business service industries contributed relatively little to the state’s GDP.

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5. Delaware
> Real GDP growth, 2012-2013: 1.6% (20th lowest)
> Average wages and salaries, 2013: $51,093 (12th highest)
> Pct. of adults with bachelor’s degree, 2013: 29.8% (19th highest)
> Patents issued to residents, 2013: 453 (15th lowest)
> Projected working-age population growth, 2010-2020: 8.9% (15th lowest)

Based on several factors, Delaware’s regulatory climate was the most favorable nationwide for business. With high percentages of tech workers and strong independent investments, Delaware is also among the best states for innovation. More than 21% of all jobs in the state were STEM jobs, the eighth highest proportion in the country. The average venture capital investment of nearly $14.2 million per deal in 2013 — the second highest such figure nationwide — also reflects the high level of innovation and easy access to capital in the state.

Not so strong was Delaware’s infrastructure, which rated worse than most states. However, the consequence for businesses may be relatively small as businesses are concentrated in industries not especially dependent on transportation. For example, the financial industry, in which goods and services are relatively intangible, accounted for 42.1% of state GDP in 2013, the highest such contribution nationwide.

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4. South Dakota
> Real GDP growth, 2012-2013: 3.1% (9th highest)
> Average wages and salaries, 2013: $36,818 (the lowest)
> Pct. of adults with bachelor’s degree, 2013: 26.6% (17th lowest)
> Patents issued to residents, 2013: 129 (6th lowest)
> Projected working-age population growth, 2010-2020: 3.7% (6th lowest)

No state had a lower cost of doing business than South Dakota. In particular, the cost incurred from wages was the lowest nationwide, with a statewide average wage of just $36,818 in 2013. While residents have relatively low wages, they also have a generally high quality of life and low cost of living. For instance, there were 78.8 art, entertainment and recreation establishments per 100,000 state residents in 2012, the second highest rate and nearly double the comparable national figure. South Dakota also boasts affordable housing and low tax burdens. The annual median cost of owning a home was equal to 28.2% of the median household income in 2013, among the lowest affordability ratios. In fiscal 2011, state residents paid 7.1% of their incomes in state and local taxes on average, nearly the lowest tax burden nationwide. Both businesses and the working age population benefitted from a low unemployment rate. Just 3.8% of the labor force was unemployed in 2013, the second highest rate in the county.

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3. Wyoming
> Real GDP growth, 2012-2013: 7.6% (2nd highest)
> Average wages and salaries, 2013: $45,751 (23rd highest)
> Pct. of adults with bachelor’s degree, 2013: 26.6% (17th lowest)
> Patents issued to residents, 2013: 113 (3rd lowest)
> Projected working-age population growth, 2010-2020: 8.8% (3rd lowest)

With the best tax climate for business in a recent Tax Foundation report, and the lowest cost of living in the nation, Wyoming was especially affordable for businesses. The state had the lowest cost of living of any of the 50 states while at the same time the local per capita personal tax burden as a percentage of per capita income was the lowest in the country. But while Wyoming scored well in most categories, the state fared poorly in several particular metrics. For instance, it had the nation’s worst gender income gap. One anomaly within the state is in education. While Wyoming had the best high school graduation rate in the country of 93.5% — at least partially a result of spending $17,758 per student, the third highest expenditure in the country — it ranked next to last in the country with only 11 post-secondary schools within its borders.

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2. Massachusetts
> Real GDP growth, 2012-2013: 1.6% (23rd lowest)
> Average wages and salaries, 2013: $60,307 (3rd highest)
> Pct. of adults with bachelor’s degree, 2013: 40.3% (the highest)
> Patents issued to residents, 2013: 6,409 (4th highest)
> Projected working-age population growth, 2010-2020: -0.6% (4th highest)

Massachusetts led the nation in technology and innovation, due in large part to the high volume of research institutions, highly educated workforce, and the abundance of technology and science positions. Nearly 24% of all jobs in the state were STEM jobs, second only to Washington. And Massachusetts was home to 185 post-secondary schools, one of the highest figures. Also, more than 40% of state adults had at least a bachelor’s degree in 2013, the highest proportion in the country. Many college grads likely helped bolster innovation in the state. There were 6,409 patents issued to Massachusetts residents in 2013, the fourth highest figure in the nation.

Although the cost of living was very high compared to the other best states for business, this did not lower the high quality of life of many Mass residents. Less than 4% did not have health insurance in 2013, the lowest rate nationwide. Partly as a result, the United Health Foundation ranked the state third in the country for health.

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1. Utah
> Real GDP growth, 2012-2013: 3.8% (7th highest)
> Average wages and salaries, 2013: $42,693 (16th lowest)
> Pct. of adults with bachelor’s degree, 2013: 31.3% (14th highest)
> Patents issued to residents, 2013: 1,228 (23rd highest)
> Projected working-age population growth, 2010-2020: 20.5% (23rd highest)

Utah is the best state in the nation for business, faring among the best in all of the categories reviewed in 24/7 Wall St.’s independent business climate assessment. Over the 10 years from 2010, the state’s working-age population is projected to grow by 20.5%, the second highest among all states and more than four times the estimated national average growth rate. Businesses are also choosing to locate in the state as the number of non-government establishments grew by 2.5% in 2012, the second fastest growth rate and also twice the comparable national growth rate. In addition to an expanding workforce and business community, residents and businesses alike have the benefit of affordable housing and a safe and high quality of life. Owning a typical home cost 27.6% of the median household income, one of the lowest affordability ratios. There were also 209 violent crimes reported per 100,000 residents, the eighth lowest violent crime rate in the nation.

Utah also had among the most well-functioning transportation infrastructures, ranking among the highest in this category. Zero miles of state roads were in disrepair in 2013. The percent of deficient bridges in the state was also the fifth lowest nationwide. Workers had an average commute time of 21.2 minutes, one of the lowest in the country.

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Click here to see the worst states for business

The Worst States for Business

10. Tennessee
> Real GDP growth, 2012-2013: 0.8% (7th lowest)
> Average wages and salaries, 2013: $43,516 (20th lowest)
> Pct. of adults with bachelor’s degree, 2013: 24.8% (10th lowest)
> Patents issued to residents, 2013: 1,003 (25th lowest)
> Projected working-age population growth, 2010-2020: 6.3% (25th lowest)

Tennessee is the 10th worst state for business. Of the eight categories used to assess state business climates, Tennessee fared the worst in the labor and human capital category. On the other hand, with relatively low wages and a low cost of living, the costs to Tennessee businesses and residents were low compared to other states. This was not enough to offset the poor conditions for business overall.

In particular, residents were relatively poorly educated. While nearly 30% of American adults had at least a bachelor’s degree as of 2013, less than one-quarter of Tennessee adults had at least such a degree, one of the lowest proportions. A high quality of life can help raise productivity among workers and attract visitors and prospective employees to the state — all good for business. But Tennessee had a violent crime rate of nearly 580 crimes per 100,000 people, nearly the highest rate in the nation and a drag on the state’s quality of life metrics. The state’s economy was also in bad shape. Tennessee’s economy grew by 0.8% in 2013, less than half the national growth rate and one of the lowest figures reviewed.

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9. Rhode Island
> Real GDP growth, 2012-2013: 1.4% (18th lowest)
> Average wages and salaries, 2013: $48,306 (15th highest)
> Pct. of adults with bachelor’s degree, 2013: 32.4% (12th highest)
> Patents issued to residents, 2013: 321 (12th lowest)
> Projected working-age population growth, 2010-2020: -3.8% (12th lowest)

Construction — or lack thereof — is the main reason RI ranked as the ninth worst state for business in the country. Rhode Island issued the fewest building permits, it had the fewest public use airports at only seven, and the highest percentage of structurally deficient and functionally obsolete bridges. In addition, the state had the sixth highest percentage of miles of road in poor condition.

The need for repair has not alleviated the state’s weak labor market, even though Rhode Island invests over $540,000 per mile of road, the fourth highest in the nation. The state had the fourth highest average unemployment rate over the 2009-2013 period, and the second worst annual unemployment rate in the country in 2013. The state’s educational attainment rate, gauging the percentage of adults with a graduate or professional degree, at just under 13% ranked ninth highest.

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8. Oklahoma
> Real GDP growth, 2012-2013: 4.2% (4th highest)
> Average wages and salaries, 2013: $43,048 (18th lowest)
> Pct. of adults with bachelor’s degree, 2013: 23.8% (9th lowest)
> Patents issued to residents, 2013: 548 (18th lowest)
> Projected working-age population growth, 2010-2020: 5.5% (18th lowest)

Oklahoma was middle of the road or worse in the metrics used to determine the states with the best and worst business climate. While the Sooner State ranked in the bottom 10 in three categories, but failed to crack the top 10 in any. However, the state fared particularly well for the cost of doing business. The cost of electric power, the cost of commercial real estate, and average salaries per job were all relatively low. The state fared among the worst for a number of quality of life measures. Roughly one in every six residents did not have health insurance, which was one of the highest proportions and likely lowered the quality of life for many residents. The state also ranked sixth lowest in the number of art, entertainment and recreation establishments per 100,000 residents, which may affect the number of visitors to the state, as well as migration. The housing affordability ratio, which measures homeownership costs as a percentage of median household income, was the sixth highest in the country.

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7. New Mexico
> Real GDP growth, 2012-2013: 1.5% (19th lowest)
> Average wages and salaries, 2013: $41,801 (14th lowest)
> Pct. of adults with bachelor’s degree, 2013: 26.4% (15th lowest)
> Patents issued to residents, 2013: 443 (14th lowest)
> Projected working-age population growth, 2010-2020: 6.4% (14th lowest)

Compared with other states, New Mexico has one of the weakest economies. Nearly 22% of residents lived in poverty in 2013, higher than in every state except for Mississippi. In addition, loans for small businesses in New Mexico totalled $2,505 per small business employee. This was the lowest level of small business funding nationwide. The state also had among the lowest scores for quality of life. Nearly 600 violent crimes were reported per 100,000 residents, the second highest rate in the country. And while 14.5% of Americans did not have health insurance in 2013, nearly 19% of New Mexico residents were uninsured, nearly the highest rate.

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6. Hawaii
> Real GDP growth, 2012-2013: 1.9% (24th highest)
> Average wages and salaries, 2013: $45,302 (25th lowest)
> Pct. of adults with bachelor’s degree, 2013: 31.2% (15th highest)
> Patents issued to residents, 2013: 125 (5th lowest)
> Projected working-age population growth, 2010-2020: 5.7% (5th lowest)

Unlike nearly all of the worst states for business, Hawaii residents enjoy an exceptionally high quality of life. Less than 7% of residents did not have health insurance, for example, the second lowest rate nationwide. The state’s violent crime rate of 245.3 per 100,000 was also among the lowest in the country.

With an especially unfavorable regulatory climate and a very high cost of doing business, however, Hawaii is still among the worst states for business. Mercatus, an economic think tank based in the D.C. area, rated the state’s regulatory freedom near the bottom of all states. Also, more than 22% of workers were in a union, the third highest rate nationwide and nearly twice the national proportion.

Relative to other states, Hawaii is the most expensive state to live in and to own a business, with goods and services costing on average 17.2% more than the average cost of living across the country. The average compensation per job in the state was nearly the highest in the nation. Owning a home also required more than 39% of the median household income in 2013, nearly the highest affordability ratio among states.

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5. Alabama
> Real GDP growth, 2012-2013: 0.8% (8th lowest)
> Average wages and salaries, 2013: $41,578 (12th lowest)
> Pct. of adults with bachelor’s degree, 2013: 23.5% (7th lowest)
> Patents issued to residents, 2013: 503 (16th lowest)
> Projected working-age population growth, 2010-2020: 2.6% (16th lowest)

While the conditions for most businesses are on the whole unfavorable in Alabama, small businesses are relatively well funded in the state. Small business loans totalled $4,664 per small business employee, the second highest nationwide. The state’s redeeming qualities did not go much further than that, however. Alabama had a relatively weak labor force and economy, faring poorly in those categories. Less than 24% of adults in the state had completed at least a bachelor’s degree, one of the lowest rates nationwide. Also, nearly 19% lived in poverty, the seventh highest rate in the country. The state’s economy is growing much slower than the nation as well — GDP grew 0.8% in 2013 versus a national growth rate of nearly 2%. While 20.5% of all jobs in the state were STEM jobs, one of the higher rates, Alabama is not especially innovative by other measures. Venture capital deals are relatively infrequent, for example. While there were more than 13 deals made per 1 million people nationwide in 2013, only 0.83 deals were made in Alabama per 1 million residents, one of the lowest figures in the country.

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4. Mississippi
> Real GDP growth, 2012-2013: 1.6% (22nd lowest)
> Average wages and salaries, 2013: $37,572 (2nd lowest)
> Pct. of adults with bachelor’s degree, 2013: 20.4% (2nd lowest)
> Patents issued to residents, 2013: 161 (9th lowest)
> Projected working-age population growth, 2010-2020: -0.6% (9th lowest)

As in several other states with the worst business climates, Mississippi is very affordable for both residents and businesses. The cost of living in the state was the lowest compared to all states, and tax burdens for businesses and individuals tended to be low.

The state is still among the worst for business, faring the lowest in the nation in the innovation and labor categories. Less than 17% of all jobs in the state were STEM positions, the second lowest proportion nationwide. Venture capital deals were not only very uncommon, with 0.67 deals reported per 1 million state residents, but the deals that were signed were not especially valuable. The average investment was worth $350,000 in 2013, a fraction of the national average of more than $7.2 million. Mississippi was one of just 13 states where the working age population was projected to decline from 2010 through 2020.

Mississippi’s economy is also relatively weak. The state had the nation’s worst poverty rate, at 24% in 2013, and the unemployment rate was 8.6%, one of the highest rates in the country.

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3. Kentucky
> Real GDP growth, 2012-2013: 1.6% (21st lowest)
> Average wages and salaries, 2013: $40,673 (9th lowest)
> Pct. of adults with bachelor’s degree, 2013: 22.6% (6th lowest)
> Patents issued to residents, 2013: 553 (19th lowest)
> Projected working-age population growth, 2010-2020: 2.3% (19th lowest)

Kentucky was ranked nearly the lowest for labor and human capital, finishing seventh and sixth worst for the percentage of adults who had completed at least high school and at least college, respectively. The low educational attainment rates likely contributed to the state’s 8.3% unemployment rate in 2013, which was seventh highest in the country, and to its 18.8% poverty rate, which was sixth worst in the nation. These measures helped the state receive the lowest rank in the economy category in the country. The cost of living in Kentucky was the seventh lowest nationwide, which likely eased the burden of relatively low wages. The average annual wages in the state were $40,673 in 2013, nearly $10,000 less than the national average of $50,012 and ninth lowest in the country. Adding to Kentucky’s limited attractiveness for business and affecting the residents’ quality of life, the state had 28.6 art, entertainment and recreation establishments per 100,000 residents, eighth lowest in the country.

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ALSO READ: States Where the Middle Class is Dying

2. West Virginia
> Real GDP growth, 2012-2013: 5.1% (3rd highest)
> Average wages and salaries, 2013: $39,652 (6th lowest)
> Pct. of adults with bachelor’s degree, 2013: 18.9% (the lowest)
> Patents issued to residents, 2013: 145 (7th lowest)
> Projected working-age population growth, 2010-2020: -4.1% (7th lowest)

West Virginia’s economy grew by more than 5% in 2013, the third fastest growth rate nationwide. As in several other fast-growing economies, the growth in West Virginia was largely due to mining activity. The sector accounted for 16.9% of GDP growth in 2013, the third highest such contribution in the country. Despite the strong economy, West Virginia is the second worst state for business, largely due to especially low rankings in the labor and innovation categories. No state had fewer residents with at least a bachelor’s degree than West Virginia, where 18.9% had done so as of 2013. West Virginia was also one of just 13 states where the working-age population was projected to decline from 2010 through 2020. At -4.1%, it was nearly the worst projected decline nationwide. Regarding innovation, there were just 0.54 venture capital deals per 1 million state residents, one of the lowest.

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1. Louisiana
> Real GDP growth, 2012-2013: 1.3% (17th lowest)
> Average wages and salaries, 2013: $44,828 (23rd lowest)
> Pct. of adults with bachelor’s degree, 2013: 22.5% (5th lowest)
> Patents issued to residents, 2013: 395 (13th lowest)
> Projected working-age population growth, 2010-2020: -3.2% (13th lowest)

No state fared worse on 24/7 Wall St.’s business climate Index than Louisiana. The state is not the worst place to run all businesses, however. The manufacturing sector accounted for more than 20% of Louisiana’s economic output in 2013, the fourth highest such contribution in the country. Despite the strong sector, Louisiana generally provides poor conditions for business.

Nearly one in five residents lived in poverty in 2013 — nearly the worst rate in the nation — contributing to both the low quality of the labor force as well as a low quality of life in the state. The working-age population was projected to decline by 3.2% from 2010 through 2020, one of the worst declines in the nation. While nearly 30% of Americans had at least a bachelor’s degree as of 2013, only 22.5% of Louisiana adults had at least such a degree, also nearly the lowest rate. Poor education contributed to poor scores in innovation. The state was one of only a handful of states where the average venture capital investment was less than $1 million.

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Click here to see the best states for business

Methodology

To determine the best and worst states for business, 24/7 Wall St. 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 regulation and cost of living were given half weights. Cost of business, infrastructure, and quality of life received full weight.

The business costs index offers a diverse look at the immediate expenses a business has. One of the category’s measures is the Tax Foundation’s 2015 Tax Climate Index, which captures the impact of state level taxes on business. We also looked at 2013 commercial prices of electricity from the Energy Information Administration (EIA) and the 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 2013 computed as a percentage of average wages and salaries, as well as average wages and salaries in each state.

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The cost of living index was designed to encapsulate costs to both households and businesses. We included a housing affordability ratio, calculated using median monthly ownership costs as a percentage of median household income. Both measures are from the U.S. Census Bureau’s 2013 American Community Survey (ACS). Also included was regional price parity, a measure of the cost of living, for 2012 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 2011 fiscal year.

Economy is the broadest category and was designed to measure each state’s productivity, growth potential and labor market. We included both one- and five-year growth rates in real GDP from the BEA, as well as annual and average five-year unemployment rates from the Bureau of Labor Statistics (BLS). We also included data on the number of population-adjusted building permits issued in 2013 from the Department of Housing and Urban Development, and the percentage of 2013 employment that was hired to fill new positions rather than replace older workers. These data were from the Quarterly Workforce Indicators, a subsidiary of the Census.

Because many businesses benefit from higher consumer spending, the economy index includes state poverty rates and the individual earnings gap between men and women, both from the 2013 ACS. We added the value of goods shipped from each state in 2012 from the Commodity Flow Survey, as well as the growth of non-government establishments between 2011 and 2012 from the County Business Patterns (CBP). Both datasets are produced by the Census. Small business lending per employee in 2013 came from the Small Business Administration, and 2010 population density per square land mile from the Census. Finally, we created a composite rank of each state’s credit ratings from Standard & Poors and Moody’s Investor Service.

The infrastructure index captures the importance of transportation to businesses and employees. From the Federal Highway Administration (FHWA) we looked at the percentage of bridges deemed structurally deficient or functionally obsolete as of the end of 2013. Also from the FHWA, we used the percentage of rural and urban interstate miles in poor condition. Poor was defined as interstate roads with an International Roughness Index score greater than 170, or 220 for widely used rural principal arterial roads. We also considered FHWA data on state investments per state-controlled mile in 2012. From the Federal Aviation Administration we looked at the number of public use airports in each state, as well as estimated costs to commercial trucking due to traffic congestion in 2013 from the American Transportation Research Institute. Lastly, we used workers’ average commute time in each state from the 2013 ACS.

While the economy index provides an overview of general labor market health, the labor and human capital index offers a look at the quality of a state’s labor force. We included data on high school, bachelor’s, and graduate educational attainment rates from the 2013 ACS. We also looked at per-pupil education expenditures in each state for 2012 from Education Week. Finally, we incorporated our own population projections from 2010 through 2020, using both the growth in total population as well as the projected growth in the working-age population. Population projections were calculated using the cohort component method and used population data from the ACS and birth and survival rates from the Centers for Disease Control and Prevention.

The quality of life index was constructed to offer insight into why employees may decide to reside in particular areas. We included each state’s 2013 violent crime rate from the Federal Bureau of Investigation, and the percentage of people without health insurance in 2013 from the ACS. We also used the United Health Foundation’s 2014 State Health ranking. From the Department of Education we incorporated the total number of post-secondary schools in each state. We also looked at the number of art, entertainment, and recreation establishments per 100,000 state residents in 2012 from the CBP.

The regulation index includes each state’s status as a right-to-work state, as well as the share of non-agricultural workers who were union members as of 2013 from UnionStats. Additionally, the index includes the 2011 Regulatory Freedom Index from the Mercatus Center, and the Institute for Legal Reform’s 2012 Lawsuit Climate Index, a measure of how fair and reasonable a state’s legal system is perceived to be by businesses.

The technology and innovation index includes data on the average venture capital investment in businesses in each state, as well as the frequency of venture capital deals. Both are from the National Venture Capital Association and are for 2013. From the U.S. Patent and Trade Office, we included the number of patents issued to state residents in 2013. We used the Milken Institute’s 2014 State Technology and Science Index and the number of science, technology, engineering, and mathematics (STEM) jobs as a share of all jobs from the Brookings Institution’s 2013 Hidden STEM Economy report.

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