Special Report

The Best (and Worst) States for Business

Indianapolis, Indiana
Source: Thinkstock

36. Indiana
> 1-yr. real GDP change: 1.4% (21st lowest)
> Avg. salary: $44,634 (15th lowest)
> Adults w/ bachelor’s degree: 24.9% (9th lowest)
> Patents issued: 2,033 (21st highest)
> Working-age population chg. 2010-2020: +1.3% (19th lowest)

Indiana is fairly unremarkable across most measures of business friendliness. The state’s talent pool is relatively shallow compared to the national labor force. An estimated 25% of adults in the state have at least a bachelor’s degree, and 9% have a graduate or professional degree, two of the smallest shares nationwide. On the Annual Survey of Entrepreneurs, an estimated 29.5% of businesses claimed that their inability to find qualified labor has negatively impacted their profits, one of the larger shares in the country.

Indiana’s working-age population is projected to grow by just 1.3% between 2010 and 2020, roughly one-fourth the national growth rate. In 2013, the number of private establishments in Indiana grew by just 0.2%, among the least of any state. The relatively slow population and business growth reflects weak economic growth and more generally a low level of confidence in the state’s economy.

Wisconsin Welcome sign at Marinette WI
Source: Thinkstock

37. Wisconsin
> 1-yr. real GDP change: 1.1% (14th lowest)
> Avg. salary: $45,966 (19th lowest)
> Adults w/ bachelor’s degree: 28.4% (23rd lowest)
> Patents issued: 2,039 (20th highest)
> Working-age population chg. 2010-2020: +0.5% (16th lowest)

Starting up a business in Wisconsin appears to be less expensive than in most states. Goods and services on the whole cost about 93 cents on the dollar compared to average prices nationwide. The price of commercial real estate in the state is also among the most affordable in the country.

On the other hand, Wisconsin’s tax structure may be less favorable to both business and potential employees. In the Census Bureau’s Annual Survey of Entrepreneurs, 51.6% said their business had been negatively impacted by the state’s tax policies. High taxes for individuals may also discourage workers from moving to the state. As of fiscal 2012, the average state and local taxes paid in Wisconsin amounted to 11% of state income per capita, the fifth highest proportion in the country.

Mobile, Alabama Skyline
Source: Thinkstock

38. Alabama
> 1-yr. real GDP change: 0.9% (11th lowest)
> Avg. salary: $43,622 (13th lowest)
> Adults w/ bachelor’s degree: 24.2% (7th lowest)
> Patents issued: 473 (17th lowest)
> Working-age population chg. 2010-2020: +2.6% (25th highest)

Incomes are low in Alabama, and serious financial hardship is common. The typical Alabama household earns only $44,765 a year, about $11,000 less than the typical American household. Additionally, 18.5% of state residents live in poverty, a far larger share than the 14.7% of Americans. Low incomes often translate to lower consumer spending, and 47.1% of business establishments in Alabama report struggling with slow sales, one of the highest shares in the country.

Employers in Alabama may also find it hard to fill positions in the coming years. The state’s working-age population is projected to increase by only 2.6% between 2010 and 2020, well below the corresponding 4.6% national growth.

Maui County, Hawaii
Source: Thinkstock

39. Hawaii
> 1-yr. real GDP change: 2.3% (16th highest)
> Avg. salary: $48,371 (23rd highest)
> Adults w/ bachelor’s degree: 31.4% (18th highest)
> Patents issued: 127 (6th lowest)
> Working-age population chg. 2010-2020: +5.7% (17th highest)

Hawaiians routinely report a high quality of life, with near-universal health insurance coverage, top scores in national health rankings, and high incomes. The typical household earns $73,486 a year, second only to Maryland. Despite these advantages, Hawaii is not especially business friendly. The cost of living in the state is 16.8% higher than the national average, the highest of all states.

The value of exports from a state can show whether businesses are flourishing and is reflective of a state’s business climate. The total value of Hawaii’s annual exports, at just $1.3 million per capita, is the lowest of all states.

Chicago, Illinois skyline aerial view at dusk
Source: Thinkstock

40. Illinois
> 1-yr. real GDP change: 1.8% (24th highest)
> Avg. salary: $57,037 (9th highest)
> Adults w/ bachelor’s degree: 32.9% (12th highest)
> Patents issued: 5,028 (7th highest)
> Working-age population chg. 2010-2020: -0.8% (11th lowest)

Slow economic growth is indicative of a poor business climate in Illinois. Between 2010 and 2015, the state’s GDP has grown at an average of 1.3% annually, less than the 1.9% national growth rate. The state’s average five-year unemployment rate of 8.2% is the sixth highest of any state.

Additionally, Illinois is in the middle of a budget crisis that has left the state without a formal budget for 19 months as state lawmakers could not agree on one. As a result, the three major credit rating agencies downgraded Illinois’ credit score to the worst of any state. Without a state budget, businesses operate in an environment of uncertainty. An estimated 46.6% of surveyed business owners in Illinois claimed the unpredictability of conditions had a negative impact on profits, one of the largest shares of any state.