Special Report

The Best (and Worst) States for Business

Detailed Findings

A number of region-specific policies, costs, and regulations affect a state’s business climate, including liability and oversight laws, utility costs, insurance requirements, and tax policy.
For many businesses, the most important consideration for choosing one place over another is human capital. Corporations will often choose to locate in major metropolitan area, where costs are higher but where the workforce tends to be more skilled. States that have high shares of adults with bachelor’s and advanced degrees, and states that show growth among the working-age population present a greater diversity of potential hires for corporations.

For many corporations, the potential livability of an area is just as important as the talent pool to be found there. Workers might be more willing to relocate to or stay in a city or state with a lower cost of living, with easier access to airports, less congestion, and more cultural and recreational opportunities. We considered all of these measures in our index.

Another reason businesses choose to locate to a given city or state is to be near other related operations and close to innovation and growth opportunities created and shared by related industries. Such interaction and focus on new technologies can be found in California’s Silicon Valley and North Carolina’s Research Triangle.

Many of the best states for business foster a healthy entrepreneurial atmosphere, with high volumes of venture capital deals and patents issued. Many of these states have a high share of jobs in STEM fields — science, technology, engineering, and math — allowing them to better facilitate technologically advanced business activity. The high presence of STEM jobs, patents, and venture capital indicate the potential for growth and innovation that can allow local businesses to adapt and thrive.

It is important to note that while this index is an attempt to measure the best states for businesses, this list should by no means be treated as the best states for workers. In states with more lax regulations on businesses, workers are more likely exposed to risks and have fewer rights. In our index, we favored states where wages tend to be lower compared to the average compensation across the country, but lower wages are of course a significant negative for workers.

A common argument is that what is good for business is also, in the end, good for workers. Indeed, incomes tend to be higher and unemployment lower in the higher-ranked states on our list, and keeping workers happy is an important consideration for many businesses. But the recent economic recovery appears to have favored corporations more than individuals. While business incomes are higher than ever, the national poverty rate has increased. At the very least, the relationship between what is good for business and what is good for workers is complicated.

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