The Best (and Worst) States for Business

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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.

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.

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.