Special Report

Best and Worst States for Business

Methodology

To determine the best and worst states for business, 24/7 Wall St. compiled 42 measures into eight categories: economic conditions, business costs, state infrastructure, the availability and skill level of the workforce, quality of life, regulations, technology and innovation, and cost of living. Each category aims to capture essential elements that businesses consider when deciding where to locate and operate.

Each category consists of several measures. We created an index for each category using a geometric mean. We then used the geometric mean of each index score to calculate the overall score.

Two categories — labor and human capital and technology and innovation — received double weight, and quality of life and cost of living were given half weights. Cost of business, infrastructure, economy, and regulation received full weight.

The business costs index includes business expenses that can vary between states, such as taxes and salaries. A state’s ranking in the Tax Foundation’s 2020 State Business Tax Climate Index was included to capture the impact of state-level taxes on business. We also looked at 2018 average commercial prices of electricity from the Energy Information Administration. From the Bureau of Economic Analysis, we included average compensation per job in 2018 as well as other forms of compensation, like retirement and insurance benefits as a percentage of salaries and wages per job.

The cost of living index considers costs to both households and businesses. We included a housing affordability ratio, calculated using median annual homeownership costs as a percentage of median household income. Both measures are from the U.S. Census Bureau’s 2018 American Community Survey. Also included are regional price parity, a measure of the cost of living for 2017 from the BEA, and the average state and local tax burden as a percentage of per capita income from the Tax Foundation. Tax Foundation figures are for the 2012 fiscal year.

Economy is the broadest category and was designed to measure each state’s productivity, growth potential, and labor market. We included both one- and five-year growth rates — 2017 and 2013 through 2018 — in real GDP from the BEA, as well as one- and five-year changes in the annual unemployment rate from the Bureau of Labor Statistics. We also included data on the number of population-adjusted building permits issued in 2018 from the Department of Housing and Urban Development.

The economy index includes state poverty rate and the individual earnings gap between men and women, both from the 2018 ACS. We added the growth of non-government establishments between 2016 and 2017 from County Business Patterns. Both datasets are produced by the Census. The total number of small business loans $1 million or less and the total amount of small business lending activity per small business employee come from the Small Business Administration and are for the year 2016, the most recent data available. Data on population density come from the Census Bureau’s 2010 Decennial Census. Finally, we included data on each state’s most recent credit rating and outlook from Moody’s Investor Service.

The infrastructure index captures the cost and efficiency of transportation to businesses and employees. From the Federal Highway Administration we looked at the percentage of roads in poor condition in 2018. Poor was defined as rural roads with an International Roughness Index score greater than 170 and urban roads with an International Roughness Index score greater than 220. We also included the estimated costs to commercial trucking due to traffic congestion in 2018 from the American Transportation Research Institute. We also included the number of public-use airports per 1,000 square miles of land area from the Federal Aviation Administration. Lastly, we used workers’ average commute time in each state from the 2018 ACS.

The labor and human capital index offers a look at the quality of a state’s labor force. We included data on high school, bachelor’s, and graduate educational attainment rates from the 2018 ACS. We also looked at per-pupil education expenditures in each state for 2016 from Education Week. Finally, we incorporated our own population growth projections from 2020 through 2030, using both the growth in total population as well as the projected growth in the working-age population. Population growth projections were calculated using the cohort component method and used population data from the ACS and birth and survival rates from the Centers for Disease Control and Prevention.

The quality of life index was constructed to offer insight into why employees may decide to reside in particular areas. We included each state’s 2018 violent crime rate from the FBI and the percentage of people without health insurance in 2018 from the ACS. We also used each state’s overall score from the United Health Foundation’s 2019 America’s Health Rankings report. From the Department of Education, we incorporated the number of primarily associates degree-granting and primarily bachelor’s degree-granting colleges and universities per 100,000 residents in each state. We also looked at the number of art, entertainment, and recreation establishments per 100,000 state residents in 2017 from the CBP.

The regulation index includes each state’s status as a so-called right-to-work state as well as the share of non-agricultural workers who were union members as of 2018 from UnionStats. Additionally, the index includes each state’s score from the Institute for Legal Reform’s 2019 Lawsuit Climate Survey, an indication of how fair and reasonable a state’s legal system is perceived to be by businesses.

The technology and innovation index includes data on the amount of venture capital investment per capita in each state as well as the frequency of venture capital deals. Both metrics are from the National Venture Capital Association and are for 2018. From the U.S. Patent and Trade Office, we included the number of patents issued per every 100,000 state residents in 2018. We used the Milken Institute’s 2018 State Technology and Science Index and the number of science, technology, engineering, and mathematics (STEM) jobs as a share of all jobs calculated from 2018 BLS occupation data.