Special Report

The Best (and Worst) States for Business

Charlotte North Carolina
Source: Thinkstock

16. North Carolina
> 1-yr. real GDP change: 2.0% (18th highest)
> Avg. salary: $47,465 (25th lowest)
> Adults w/ bachelor’s degree: 29.4% (25th lowest)
> Patents issued: 3,354 (13th highest)
> Working-age population chg. 2010-2020: +12.5% (7th highest)

In North Carolina, a stark economic divide exists between the urban and rural parts of the state. While Charlotte, Raleigh, Durham, and other cities have experienced substantial economic growth since the recession, population loss in rural parts of the state has limited economic recovery, as businesses in these areas have struggled to fill available positions. The result has been average growth for the state as a whole. North Carolina’s GDP grew 2.0% in 2014, slightly less than the 2.5% national growth rate. Similarly, the state’s 5.7% unemployment rate is slightly higher than the 5.3% national figure.

Montpelier, Vermont, USA town skyline at twilight.
Source: Thinkstock

17. Vermont
> 1-yr. real GDP change: 0.4% (4th lowest)
> Avg. salary: $43,360 (11th lowest)
> Adults w/ bachelor’s degree: 36.9% (7th highest)
> Patents issued: 451 (16th lowest)
> Working-age population chg. 2010-2020: -5.2% (2nd lowest)

While some aspects of Vermont’s business climate are excellent, others are quite poor. For example, Vermont is exceptionally safe, residents are well educated, and Vermonters display a relatively high level of innovation. There were just 118 violent crimes reported per 100,000 people in 2015, by far the lowest of all states. The percentage of adults with at least a bachelor’s degree, at 36.9%, is seventh highest of all states. And while the average value of a venture capital investment in the state is $2.55 million — one of the lower figures — there were 72 patents issued for every 100,000 residents in 2014, fifth most of all states.

What may be holding the state back is its shrinking workforce. A sufficient pool of applicants is critical for businesses to grow and function optimally. Vermont’s working population is projected to shrink by 5.2% by the end of the decade through 2020.

Des Moines, Iowa
Source: Thinkstock

18. Iowa
> 1-yr. real GDP change: 1.3% (15th lowest)
> Avg. salary: $43,134 (9th lowest)
> Adults w/ bachelor’s degree: 26.8% (16th lowest)
> Patents issued: 992 (25th lowest)
> Working-age population chg. 2010-2020: +0.1% (14th lowest)

One clear sign of a favorable business climate is economic growth. Over the five years through 2015, Iowa’s economy expanded by 2.0% on average each year, slightly faster than the national average growth rate.

For businesses, it is also important for a state to be appealing to potential employees considering relocation. One such attraction in Iowa is affordability. For example, housing in Iowa is among the least expensive in the country, with the median annual costs of homeownership coming to 19.2% of median household income, versus the national average of 23.8%. The overall cost of goods and services in the state is roughly 90% of the average cost across the country.

Los Angeles County, California
Source: Thinkstock

19. California
> 1-yr. real GDP change: 3.8% (4th highest)
> Avg. salary: $62,104 (4th highest)
> Adults w/ bachelor’s degree: 32.3% (14th highest)
> Patents issued: 40,196 (the highest)
> Working-age population chg. 2010-2020: +5.2% (20th highest)

Though it is better than in most states, California’s business climate is a mix of favorable and unfavorable conditions. The most populous state in the country, employers in California are among the least likely to struggle to find qualified labor. Parts of the state are also hotbeds of innovation. Across the state, there were 1,773 venture capital deals in 2014 alone, accounting for over 40% of all venture capital deals nationwide that year. Many of these deals funded tech startups in Silicon Valley, a region just south of San Francisco and home to such companies as Apple, Facebook, and Google.

However, operating a business is not cheap in California. Commercial real estate and electricity costs are each nearly the highest in the country. Additionally, the state’s high cost of living translates to strains on payroll departments. The average salary among workers in California is $62,104 a year, higher than in all but three other states.

Phoenix, Arizona
Source: Thinkstock

20. Arizona
> 1-yr. real GDP change: 1.4% (21st lowest)
> Avg. salary: $48,854 (22nd highest)
> Adults w/ bachelor’s degree: 27.7% (18th lowest)
> Patents issued: 2,540 (15th highest)
> Working-age population chg. 2010-2020: +18.8% (3rd highest)

Arizona is favorably for business by some metrics, but quite poor in others. For example, on the Annual Survey of Entrepreneurs, business owners in Arizona were less likely than those in most states to cite either taxes or trouble finding qualified workers as having a negative impact on profits. At the same time, state business owners are among the most likely to say poor access to financial capital was a hindrance to doing business.

An affluent population usually helps companies, especially customer-facing businesses, flourish. However, Arizona has one of the higher poverty rates in the country, and the state’s median household income falls below that of the nation.