Special Report

The Best (and Worst) States for Business

Evening in Little Rock, Arkansas.
Source: Thinkstock

41. Arkansas
> 1-yr. real GDP change: 0.5% (6th lowest)
> Avg. salary: $41,486 (6th lowest)
> Adults w/ bachelor’s degree: 21.8% (3rd lowest)
> Patents issued: 233 (10th lowest)
> Working-age population chg. 2010-2020: +5.2% (21st highest)

Many states seek to attract companies that create high-paying science, technology, engineering and math jobs, also known as STEM professions. One of the largest obstacles to creating such jobs is a population’s low educational attainment rate. In Arkansas, just 21.8% of adults have a bachelor’s degree, compared to 30.6% of adults nationwide. Also, only 7.8% of state adults have a graduate or professional degree, the second-smallest share of any state.

STEM jobs in Arkansas account for just 3.3% of total employment, the fifth smallest share among states. Further evidence of the minimal high-tech and science development in Arkansas is the relatively few patents that are awarded in the state.

Bridge Rush Hour in Louisville, Kentucky Skyline at Sunrise
Source: Thinkstock

42. Kentucky
> 1-yr. real GDP change: 1.4% (21st lowest)
> Avg. salary: $43,108 (8th lowest)
> Adults w/ bachelor’s degree: 23.3% (5th lowest)
> Patents issued: 663 (19th lowest)
> Working-age population chg. 2010-2020: +2.3% (23rd lowest)

Typically, southern U.S. states have low cost of goods and services, real estate affordability, and relatively low tax burdens. Such favorable measures certainly help make states like Kentucky more business friendly. Only four states are more affordable to live than Kentucky, which also ranks better than most states in business regulations and tax policy.

Beyond these advantages, however, Kentucky is not especially fertile grounds for business. Generally, an educated workforce helps companies flourish. In Kentucky, though, just 23.3% of adults have a bachelor’s degree, close to the lowest such percentage of all states. Educational attainment tracks closely with measures of innovation in a state, itself an indication of a favorable business environment. In Kentucky, venture capital deals, patents awarded per capita, and the share of STEM jobs are all relatively uncommon compared with other states.

Rhode Island
Source: Thinkstock

43. Rhode Island
> 1-yr. real GDP change: 1.4% (21st lowest)
> Avg. salary: $51,321 (16th highest)
> Adults w/ bachelor’s degree: 32.7% (13th highest)
> Patents issued: 324 (12th lowest)
> Working-age population chg. 2010-2020: -3.8% (6th lowest)

A state’s infrastructure is often critical to productivity and output. Of all miles of roadway in Rhode Island, 39.7% are in poor condition and 56.0% of bridges in the state are structurally deficient or functionally obsolete, each the largest share of any state in the country. The state also has a traffic problem. Congestion added an estimated $146.9 million to trucking costs in 2016, which after adjusting for the size of the state’s interstate system, is far more than typical.

As is the case in most states, many Rhode Island businesses also face labor problems. More than 30% of business owners surveyed in the state cited finding qualified labor as a hindrance to doing business. The problem will likely only get worse. The state’s working-age population is projected to decrease by 3.8% between 2010 and 2020, one of the largest declines of any state.

Toledo, Ohio evening
Source: Thinkstock

44. Ohio
> 1-yr. real GDP change: 1.8% (24th highest)
> Avg. salary: $48,007 (24th highest)
> Adults w/ bachelor’s degree: 26.8% (16th lowest)
> Patents issued: 3,590 (12th highest)
> Working-age population chg. 2010-2020: -4.1% (5th lowest)

A shrinking working-age population is a sign of a low level of confidence in a state’s economy and means businesses can count on fewer individuals in the applicant pool. The population of working-age adults nationwide is projected to grow 4.6% over the decade through 2020. In Ohio, by contrast, the working-age population is projected to shrink by 4.1% over that period. Just as a growing pool of working-age adults suggests future prosperity for businesses, a highly qualified workforce is indicative of a business-friendly environment. In Ohio, however, just 26.8% of adults have a bachelor’s degree, one of the lower shares of all states.

highway bridges near Albuquerque new mexico
Source: Thinkstock

45. New Mexico
> 1-yr. real GDP change: 1.7% (25th lowest)
> Avg. salary: $43,553 (12th lowest)
> Adults w/ bachelor’s degree: 26.5% (13th lowest)
> Patents issued: 427 (15th lowest)
> Working-age population chg. 2010-2020: +6.4% (15th highest)

A less affluent population with little disposable income can be problematic to businesses — particularly customer-facing ones. In New Mexico, over 20% of the population lives in poverty, compared to the national poverty rate of 14.7%. The typical household income is just $45,382 annually, about $10,000 less than the national median household income.

Due to the high crime rate in the state, New Mexico is potentially a less attractive place to live, which can impact businesses’ ability to attract employees. New Mexico had the third highest violent crime rate in the country in 2015, at 656 incidents per 100,000 residents, compared to the national rate of 373 incidents per 100,000 Americans.