24/7 Wall St. recently examined all 50 states to discover the entire spectrum of those that were best and worst for business.

Here we look at the top five and what they have in common. These states are Utah, Massachusetts, Colorado, Washington and Minnesota. The methodology was complete — unusually complete for this type of research.

To determine the best and worst states for business, 24/7 Wall St. compiled 47 measures into eight categories: business costs, cost of living, economy, infrastructure, labor and human capital, quality of life, regulation and technology and innovation. Each category aimed to capture the essential elements that businesses consider when deciding where to locate.

Each category also consists of several measures. Because many of the measures were interrelated, we created an index for each category using a geometric mean rather than the traditional arithmetic mean. We then used the geometric mean of each index score to calculate a state’s overall score. Potential scores ranged from 1 to 50, with lower values indicating better scores. 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 offers a diverse look at the immediate expenses of a business. One of the category’s measures is the Tax Foundation’s 2016 Tax Climate Index, which captures the impact of state-level taxes on business. We also looked at 2014 commercial prices of electricity from the Energy Information Administration (EIA) and the 2013 costs of purchasing and renting industrial, office, and retail space per square foot from CoStar Group. From the Bureau of Economic Analysis (BEA), we included average compensation per job in 2014 computed as a percentage of average wages and salaries, as well as average wages and salaries in each state.

The cost of living index was designed to encapsulate costs to both households and businesses. We included a housing affordability ratio, calculated using median annual ownership costs as a percentage of median household income. Both measures are from the U.S. Census Bureau’s 2014 American Community Survey (ACS). Also included was regional price parity, a measure of the cost of living, for 2013 from the BEA, and the average state and local tax burden as a percent 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 in real GDP from the BEA, as well as annual and average five-year unemployment rates from the Bureau of Labor Statistics (BLS). We also included data on the number of population-adjusted building permits issued in 2014 from the Department of Housing and Urban Development, and the percentage of 2014 employment that was hired to fill new positions rather than replace older workers. These data were from the Quarterly Workforce Indicators, a subsidiary of the Census.

Because many businesses benefit from higher consumer spending, the economy index includes state poverty rates and the individual earnings gap between men and women, both from the 2014 ACS. We added the value of goods shipped from each state in 2012 from the Commodity Flow Survey, as well as the growth of non-government establishments between 2012 and 2013 from the County Business Patterns (CBP). Both datasets are produced by the Census. Small business lending per employee in 2013 came from the Small Business Administration, and 2010 population density per square land mile from the Census. Finally, we created a composite rank of each state’s credit ratings from Standard & Poor’s and Moody’s Investor Service.
The infrastructure index captures the importance of transportation to businesses and employees. From the Federal Highway Administration (FHWA) we looked at the percentage of bridges deemed structurally deficient or functionally obsolete as of the end of 2014. Also from the FHWA, we used the percentage of rural and urban interstate miles in poor condition. Poor was defined as interstate roads with an International Roughness Index score greater than 170, or 220 for widely used rural principal arterial roads. We also considered FHWA data on state investments per road mile in 2013. From the Federal Aviation Administration, we looked at the number of public use airports in each state, as well as estimated costs to commercial trucking due to traffic congestion in 2013 from the American Transportation Research Institute. Lastly, we used workers’ average commute time in each state from the 2014 ACS.

While the economy index provides an overview of general labor market health, 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 2014 ACS. We also looked at per-pupil education expenditures in each state for 2013 from Education Week. Finally, we incorporated our own population projections from 2010 through 2020, using both the growth in total population as well as the projected growth in the working-age population. Population 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 2014 violent crime rate from the Federal Bureau of Investigation, and the percentage of people without health insurance in 2014 from the ACS. We also used the United Health Foundation’s 2015 State Health ranking. From the Department of Education, we incorporated the total number of post-secondary schools in each state. We also looked at the number of art, entertainment, and recreation establishments per 100,000 state residents in 2013 from the CBP.

The regulation index includes each state’s status as a right-to-work state, as well as the share of non-agricultural workers who were union members as of 2014 from UnionStats. Additionally, the index includes the 2013 Regulatory Freedom Index from the Mercatus Center and the Institute for Legal Reform’s 2015 Lawsuit Climate Index, 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 average venture capital investment in businesses in each state, as well as the frequency of venture capital deals. Both metrics are from the National Venture Capital Association and are for 2014. From the U.S. Patent and Trade Office, we included the number of patents issued to state residents in 2014. We used the Milken Institute’s 2014 State Technology and Science Index and the number of science, technology, engineering, and mathematics (STEM) jobs as a share of all jobs from the Brookings Institution’s 2013 Hidden STEM Economy report.

These are the top five states for business.

5. Minnesota
> Real GDP growth, 2013-2014: 1.8% (25th highest)
> Average wages and salaries, 2014: $50,712 (14th highest)
> Pct. of adults with bachelor’s degree, 2014: 34.3% (10th highest)
> Patents issued to residents, 2014: 4,626 (9th highest)
> Projected working-age population growth, 2010-2020: 1.7% (21st lowest)

Minnesota is one of the most business friendly states in the country. Employee salaries are a major expense for businesses, and they are slightly lower than average in Minnesota. Likely due to the state’s lower than average cost of living, employers can pay Minnesotans about $50,712 a year, slightly less than the $51,552 the average American worker earns.

For businesses to thrive, infrastructure needs to be dependable and Minnesota’s infrastructure is among the best in the country. Only about 9% of bridges in the state are structurally deficient, the smallest share of any state and a far smaller share than the 24% of all bridges in the country in need of repair. Additionally, only 6.7% of miles of roadway in Minnesota are in poor condition, a considerably smaller percentage than the corresponding national share of 10.7%.
4. Washington
> Real GDP growth, 2013-2014: 3.1% (7th highest)
> Average wages and salaries, 2014: $55,428 (8th highest)
> Pct. of adults with bachelor’s degree, 2014: 33.1% (11th highest)
> Patents issued to residents, 2014: 6,448 (5th highest)
> Projected working-age population growth, 2010-2020: 7.5% (14th highest)

The cost of doing business in Washington is among the lowest in the country. In particular, electricity costs are low in the state, at 8 cents per kilowatt hour, compared to a nationwide average of close to 11 cents per kwh. The high levels of innovation and venture capital investment in Washington are indicative of a healthy business climate and confidence in the future of state businesses. The most innovative companies often operate in scientific and technology fields. In Washington, nearly one in four jobs are STEM professions, the highest concentration nationwide. There were also more venture capital deals made in Washington in 2014 than in all but a few states. The average value of these investments, at $11.8 million, was higher than in all but of a handful of states.

Some of the world’s largest technology companies are based in Washington. Microsoft, the largest software company in the world, is based in Richmond. The online retail behemoth Amazon.com is based in Seattle.

3. Colorado
> Real GDP growth, 2013-2014: 5.0% (3rd highest)
> Average wages and salaries, 2014: $53,401 (11th highest)
> Pct. of adults with bachelor’s degree, 2014: 38.3% (2nd highest)
> Patents issued to residents, 2014: 3,184 (14th highest)
> Projected working-age population growth, 2010-2020: 8.6% (11th highest)

Businesses in Colorado are unlikely to face a shortage of workers in the near future as the labor force is growing at a considerably faster pace than it is nationwide. By 2020, the share of working-age Coloradans will have increased by 8.6% from 2010 levels, much faster than the national growth rate of 4.6%.

Colorado’s workforce is also among the most educated in the country. More than 38% of adults in the state have a bachelor’s degree, the highest college attainment rate of any state other than Massachusetts. Furthermore, more than 14% of adults in Colorado have earned a graduate or professional degree, also one of the highest such shares in the country. It appears many companies are taking advantage of Colorado’s skilled work force as nearly 22% of jobs in the state are in science, technology, engineering, or mathematics. Highly skilled workers often demand higher paying jobs, and workers in Colorado are relatively well compensated. The average worker’s salary in Colorado is $53,401 a year, slightly higher than the $51,552 the typical American worker earns annually.

2. Massachusetts
> Real GDP growth, 2013-2014: 2.1% (22nd highest)
> Average wages and salaries, 2014: $62,608 (3rd highest)
> Pct. of adults with bachelor’s degree, 2014: 41.2% (the highest)
> Patents issued to residents, 2014: 6,725 (4th highest)
> Projected working-age population growth, 2010-2020: -0.6% (12th lowest)

Massachusetts trails only Utah in this year’s ranking of best states for business. The state is particularly accommodating to scientific and technology sector businesses. For every 100,000 state residents, 100 patents were awarded in 2014, higher than in every state except for California. Another strong indication of the state’s healthy business climate is the high number of venture capital investments made that year. The 393 deals, valued at $11.9 million each on average, were the third highest number of deals and the fifth highest average value nationwide.

A well-educated and qualified labor force, while generally driving up the cost of labor, is also often extremely beneficial for businesses. About 41% of state adults have at least a bachelor’s degree, and 18% have a graduate or professional degree, each the highest of any state.

1. Utah
> Real GDP growth, 2013-2014: 2.7% (11th highest)
> Average wages and salaries, 2014: $43,856 (17th lowest)
> Pct. of adults with bachelor’s degree, 2014: 31.1% (15th highest)
> Patents issued to residents, 2014: 1,374 (23rd highest)
> Projected working-age population growth, 2010-2020: 20.5% (2nd highest)

Utah is the best state for business largely because of its strong economy. Over the past five years, Utah’s GDP grew the fifth fastest of any state, and between 2012 and 2013, the number of new private establishments grew at more than double the national pace. The strong economy has likely contributed to increased entrepreneurial activity in Utah — another indicator of the state’s strong business climate. The average venture capital deal was valued at $18.9 million in Utah, the second highest average funding nationwide.

Just 3.8% of the state’s workforce is unemployed, the fourth lowest unemployment rate in the country. The healthy labor market is attractive to prospective employees and reflects favorable economic conditions for businesses in Utah. The state’s workforce is undergoing massive growth. By the end of the decade through 2020, Utah’s working-age population will have expanded by 20.5%, the second highest projected growth of any state.

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