Special Report

The Best (and Worst) States for Business

41. Hawaii
> 1-yr. real GDP change: +1.9% (15th largest growth)
> Avg. salary: $49,601 (21st highest)
> Adults w/ bachelor’s degree: 31.9 (18th highest)
> Patents issued: 8.9 (6th fewest)
> Working-age population chg. 2010-2020: +3.7% (12th smallest growth)

While Hawaii is an attractive place to live, it is also one of the most expensive places to do business. On Average, goods and services cost 18% more in the state than they do nationwide, the most expensive state in the country. Housing, as measured by home ownership costs relative to incomes, is one of the least affordable in the country.

Perhaps due to the state’s expensive real estate, relatively few new businesses have started in Hawaii recently. The number of private businesses in the state increased by just 0.4% in 2015, the fifth smallest increase in of all states. Just 236 new building permits were issued in the state per 100,000 residents, compared to a national average of 373 per 100,000 residents.

Source: Thinkstock

42. Ohio
> 1-yr. real GDP change: +1.1% (17th smallest growth)
> Avg. salary: $48,486 (24th highest)
> Adults w/ bachelor’s degree: 27.5 (14th lowest)
> Patents issued: 30.9 (23rd most)
> Working-age population chg. 2010-2020: -3.3% (8th largest decrease)

A struggling economy is not conducive to good business environment, and Ohio’s economy shows signs of continued stagnation in a number of measures. Both in the most recent year and on aggregate over the last five years, the state’s economy grew at a slower pace than the national economy. The number of non-government establishments in the state has grown one of the smallest annual growth rates. Ohio was also one of just seven states with fewer than 200 building permits issued per 100,000 residents in 2016. Nationally, there were 373 building permits issued for every 100,000 residents.

In the most recent American Survey of Entrepreneurs, Ohio businesses were among the most likely to report a lack of access to qualified labor. Just 27.5% of the state’s adults have a bachelor’s degree, compared to 31.3% of American adults.

Source: Thinkstock

43. Illinois
> 1-yr. real GDP change: +1.0% (15th smallest growth)
> Avg. salary: $57,505 (8th highest)
> Adults w/ bachelor’s degree: 34.0 (13th highest)
> Patents issued: 39.3 (15th most)
> Working-age population chg. 2010-2020: -3.9% (5th largest decrease)

Compared to other states, Illinois’ new businesses and those looking to expand may find it more difficult, as the state’s working-age population is projected to decline by 3.9% between 2020 and 2030, the fifth largest decrease of any state. The state’s declining population is indicative of many other economic problems that reflect a poor business environment. Illinois has one of the highest unemployment rates in the country, a below average GDP growth rate, and the fifth fewest building permits issued per 100,000 people. Illinois also has the worst credit rating of any state from both Moody’s and S&P. Its BBB- rating from S&P is just one level above junk status. A state credit default could have serious and wide-reaching effects on Illinois’ private sector.

Source: Thinkstock

44. Rhode Island
> 1-yr. real GDP change: +0.5% (8th smallest growth)
> Avg. salary: $52,109 (16th highest)
> Adults w/ bachelor’s degree: 34.1 (12th highest)
> Patents issued: 30.7 (24th most)
> Working-age population chg. 2010-2020: -3.7% (7th largest decrease)

Growth in Rhode Island’s private sector is at a virtual standstill relative to most states. There were just 116 building permits issued in the state per 100,000 people, the fewest of any state and well below the nationwide average of 373 permits issued per 100,000 residents. Small business lending in the state may also contribute to a less positive business environment. The average loan amount in the state is the fourth smallest, at just $1,545 lent per employee. In the most recent American Survey of Entrepreneurs, state businesses were among the most likely to report a negative effect on their businesses from a lack of access to financial capital.

Source: Thinkstock

45. Alabama
> 1-yr. real GDP change: +1.5% (20th largest growth)
> Avg. salary: $44,211 (13th lowest)
> Adults w/ bachelor’s degree: 24.7 (7th lowest)
> Patents issued: 9.7 (7th fewest)
> Working-age population chg. 2010-2020: +0.4% (2nd smallest growth)

The typical Alabama household earns only $46,257 a year, or about $11,000 less than the typical American household. Additionally, 17.1% of state residents live in poverty, a far larger share than the 14.0% of Americans. Low incomes often translate to lower consumer spending, and in the Census’ American Survey of Entrepreneurs, 45.8% 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 0.4% between 2020 and 2030, well below the corresponding 4.6% national growth.