Best and Worst States for Business

With a well-educated workforce and a high concentration of innovative startups, Massachusetts ranks as the best state for business. Of all adults 25 or older in the state, 44.5% have a bachelor’s degree or higher. Additionally, there were 660 venture capital deals in the state in 2018, or 9.6 for every 100,000 people, the highest rate of VC deals per capita of any state.

Massachusetts-based businesses and organizations were also granted over 7,600 patents in 2018, or 111.4 per 100,000 people, the most of any state and well above the national average rate of 49.5 patents per 100,000.

Four of the top five states for business are located west of the Mississippi River, and of them, Utah ranks the highest. Startup companies in the state are also drawing far more venture capital investment than those in most other states. Utah companies drew in nearly $1.2 billion in VC funding in 2018, equal to $369 per state resident, more per capita than all but four other states.

Colorado ranks just behind its neighbor, Utah, among the best states for business. As one of the top states, Colorado boasts a highly-educated workforce. Nearly 42% of adults in the state have a bachelor’s degree or higher, well above the 32.6% share of adults nationwide. There will also not likely be a shortage of labor in the state anytime soon. Over the next decade, the number of working-age state residents is projected to climb by 10.5%, more than double the comparable projected national growth rate of 4.6%.

Businesses in Washington likely benefit from lower costs of operation in some areas. For example, the average price of electricity in the state is 8 cents per kilowatt-hour, less than in all but two other states. The tax climate in the state is also more favorable to businesses than in most other states, according to analysis conducted by the Tax Foundation.

Washington’s economy expanded by 5.8% between 2017 and 2018, more than any other state economy in the country. The state’s tech sector likely was partially responsible for this growth. There were about 99 patents granted in the state for every 100,000 people in 2018, nearly double the comparable national rate of 50 per 100,000.

North Dakota ranks as the best state for business in the Midwest and fifth best nationwide. Businesses in the state benefit from reliable infrastructure. Just 7.8% of roads are in poor condition, well below the 21.8% share nationwide. Additionally, roadway congestion is less costly to the trucking industry in North Dakota than it is in all but a handful of other states.

According to the U.S. Chamber Institute for Legal Reform’s 2019 Lawsuit Climate Survey, businesses consider North Dakota’s liability systems to be one of the most favorable.

North Carolina ranks as the best state for business in the South and the sixth best nationwide. Part of the reason the state ranks so highly is the relatively low cost of doing business. The average retail price of electricity per kilowatt-hour is lower than in most other states and, according to the Tax Foundation, North Carolina has a more favorable business tax climate than most states.

Rapid economic growth is partially why Idaho ranks among the top 10 best states for business. Between 2017 and 2018, Idaho’s economy expanded by 4.0%, faster than all but five other states and the comparable national economic growth of 2.9%. Typical earnings for workers in Idaho are relatively low, which means the state may be less attractive to potential workers, but also could mean lower costs for some business owners.

Virginia ranks as one of the best states for business thanks in part to its regulatory environment and the presence of technology and innovation in the state. Nearly 9% of workers in the state are employed in STEM fields, the fourth highest share of any state. Virginia also has some of the highest bachelor’s and professional degree attainment rates of any state.

Employers in Maryland benefit from access to one of the most skilled labor forces in the country. Nearly 41% of adults in the state have a bachelor’s degree or higher, a larger share than in all but two other states. Similarly, 18.9% of adults in Maryland have a graduate or professional degree, the second largest share of any state after Massachusetts.

Like several of the top 10 best states for business, Wyoming’s high ranking on this list is due in large part to its business costs. The Tax Foundation ranked the state as having the most favorable tax climate for businesses in the country. The state’s infrastructure is also a positive for businesses and workers alike. Wyoming has the shortest average commute time to work, and among the lowest cost to the trucking industry from road congestion.

Operating in a state where workers are happy and would be more likely to choose to live there if recruited is important for businesses, and Vermont ranks as the second best state in measures of quality of life. The state has a high concentration of arts, entertainment, and recreation establishments. It also has the second lowest share of residents who lack health insurance and the second lowest violent crime rate.

Delaware’s business climate ranks higher than most states due in part to several measures of innovation. Companies in Delaware drew in 48 venture capital deals in 2018, equal to five for every 100,000 people, more than in all but four other states. Delaware also has some of the most favorable corporate laws in the country. The majority of Fortune 500 companies are incorporated in the state.

California ranks as the second best state in the country after only Massachusetts in the technology and innovation component of the index. There were over 3,000 venture capital deals in the state in 2018, and even after adjusting for the state’s nation-leading population, California had the second most venture capital deals per capita. The state also had the most total venture capital monetary investment per capita and the second most patent grants awarded per capita that year.

Connecticut ranks worse than most states in business costs thanks to its business tax climate and utilities prices. But the state ranks as one of the best in terms of quality of life for workers, as well as for having one of the most highly educated workforces, with above average shares of adults with bachelor’s and professional degrees.

A high quality of life in New Hampshire contributes to the state’s better than average business environment. One of the safest states in the country, New Hampshire has a violent crime rate of just 173 incidents per 100,000 people, the third lowest in the country and well below the national rate of 381 violent crimes per 100,000.

Minnesota ranks in our index as one of the states where workers are the most likely to be healthy and happy. The state ranks seventh overall in United Health Foundation’s health rankings in 2019, which is likely related to the high health insurance coverage in the state. Just 4.4% of state residents lack health insurance, the fifth smallest share among states and less than half the national share of 8.9%.

Businesses and workers alike in South Dakota benefit from the state’s low cost of living. Goods and services in the state are about 12% less expensive than they are nationwide, on average.

The business climate in Texas ranks better than that of most states due largely to pro-business regulations. A so-called right-to-work state, Texas has a lower union membership rate than all but three other states. Additionally, the Texas tax code is more business friendly than that of most other states, according to the Tax Foundation.

According to the Tax Foundation’s 2020 State Business Tax Climate Index, Montana has the fifth most favorable tax climate for businesses. The state also ranks relatively well in categories like infrastructure and quality of life. However, the state ranks below average in some measures of technology and innovation, with relatively little venture capital investment in the state, even after adjusting for the state’s small population.

According to the Tax Foundation, Florida has one of the most business friendly tax policies of any state. Employers also benefit from having more control over their workforce. Florida is a right-to-work state, and just 5.6% of the labor force belongs to unions, well below the comparable national share of 10.6%.

Iowa has a relatively low cost of living, which both can reduce the cost of doing business and also make the state more attractive to potential employees. Homeownership costs as a percentage of the median household income ranks second lowest among states. Workers also benefit from shorter average commute times and good road quality.

Georgia ranks among the top 10 states in the economy component of our index, thanks to rapidly falling unemployment and relatively strong growth in the number of businesses in the state. The state does not rank as well in measures of quality of life. Georgia has a relatively low concentration of arts, entertainment, and recreation centers, and also has the third-worst rate of health insurance coverage in the country.

Like neighbors California and Washington, Oregon ranks relatively well in the technology and innovation component of our index. The state ranks among the top 10 in patent grants and venture capital deals per capita. It also ranks 10th in the Milken Institute’s 2018 State Tech and Science Index ranking. It ranks less favorably for businesses in matters of regulation and state infrastructure, which pushes the state down the ranking.

Arizona ranks better than the majority of states in the economy component of our index, thanks in part to recent healthy GDP growth and growth in the number of businesses in the state. The state compares less favorably to others in the quality of life component of our index thanks to a low concentration of arts, entertainment, and recreation establishments as well as a relatively high property and violent crime rates.

The Tax Foundation ranks New York’s tax climate as the second least favorable for business. The state also boasts the highest average earnings per job in the country, which is good for workers but less favorable for the companies that must pay the salaries. Cost of living is also quite high in the state. New York rates much more favorably for business in areas like technology and innovation and state economy.

Nevada’s business climate ranks towards the middle of all states. While certain conditions, like a far higher than average violent crime rate, can discourage new businesses from coming to an area and reduce overall quality of life, Nevada excels in other areas. For example, between 2017 and 2018, the state’s economy expanded by 4.2%, faster than all but two other states.

Economic growth has been relatively slow in Nebraska in recent years. Between 2013 and 2018, the state’s economy grew by just 8.7%, slower than the comparable 13.0% national growth rate.

Economic growth has not been particularly strong in Michigan. Between 2017 and 2018, the state’s GDP expanded by just 2.5%, slightly slower than the comparable 2.9% national economic growth over the same period.

While weak economic growth is not ideal, employers in the state benefit from factors like the state tax code. According to the Tax Foundation, Michigan’s tax structure is better for business than that of the majority of other states.

According to the Tax Foundation, Alaska has a more favorable business tax climate than all but two other states. While businesses in Alaska may get a break on their tax bill, many other expenses are higher than average in the state. For example, the average retail price of electricity in the state is about 19 cents per kilowatt-hour, nearly double the average national price.

Employers in Indiana benefit from a low cost of living. Goods and services in the state are about 10% less expensive than average. Some other conditions in the state are not as favorable for certain kinds of businesses, however. For example, finding qualified workers may not be as easy as in many other states, as just 27.1% of adults in the state have a bachelor’s degree or higher, a smaller share than the 32.6% share of adults nationwide.

As a right-to-work state, South Carolina has the second lowest union membership rate of any state. Just 2.8% of the labor force is in a union, well below the 10.6% national union membership rate. While this gives some employers in the state more control over their workers, other factors related to the state’s labor force and human capital might not. For example, just 28.3% of adults in the state have a bachelor’s degree or higher, below the 32.6% national share. This may make it more difficult for some employers to find qualified workers.

Roadway congestion is a considerable problem for many businesses in New Jersey. Traffic delays cost the trucking industry more on a per mile basis in New Jersey than they do in any other state. There are also several advantages for businesses operating New Jersey, however. One of them is the relatively skilled talent pool for employers to draw from. Over 40% of adults in the state have at least a bachelor’s degree, and over 90% have a high school diploma, each higher than the respective 32.6% and 88.3% national shares.

High crime rates can reduce overall quality of life and make an area less attractive to new businesses. In Tennessee, there were 624 violent crimes for every 100,000 people in 2018, the third highest rate of any state and well above the national rate of 381 violent crimes per 100,000. Still, economic growth has been strong in the state. Between 2017 and 2018, Tennessee’s economy grew by 3.1%, faster than most states and the 2.9% national GDP growth rate.

New and growing businesses in Wisconsin may face hiring difficulties in the coming years. Over the next decade, Wisconsin’s working-age population is projected to contract by 1.3%, even as the number of Americans between the ages of 15 and 55 is projected to expand by 4.6%. Still, a larger share of workers in Wisconsin meets basic prerequisite for employment as 92.1% of adults in the state have a high school diploma, a larger share than the 88.3% share of adults nationwide.

Economic growth has been relatively sluggish in Arkansas. Between 2017 and 2018, the state’s GDP expanded by just 1.7%, slower than most states and below the 2.9% national GDP growth. Finding qualified workers may not be as easy as in many other states, as just 23.3% of adults in the state have a bachelor’s degree or higher, a much smaller share than the 32.6% share of adults nationwide.

Rhode Island is the second most densely populated state in the country after only New Jersey. Partially as a result, roadway congestion is a significant liability for certain businesses in the state. Traffic delays cost the trucking industry more on a per mile basis in the state than in every other state except New Jersey. Economic growth is also sluggish in Rhode Island. In the last year, the state’s economy grew by just 1.2%, well below the comparable 2.9% national GDP growth.

High crime rates can reduce overall quality of life and make an area less attractive to new businesses. In Kansas, there were 439 violent crimes for every 100,000 people in 2018, a higher rate than in most states and above the comparable national rate of 381 violent crimes per 100,000. Also, the state’s 2.1% GDP growth between 2017 and 2018 was relatively modest compared to the 2.9% national GDP growth.

New and growing businesses in Maine may face hiring difficulties in the coming years. Over the next decade, the state’s working-age population is projected to contract by 6.1%, even as the number of Americans between the ages of 15 and 55 is projected to expand by 4.6%. Additionally, according to the Tax Foundation, Maine’s tax code is not as business friendly as that of the majority of other states.

For certain businesses in Oklahoma, finding qualified candidates may be more challenging than it would be in many other states. Just 25.6% of adults in the state have a bachelor’s degree, and 9.0% have a graduate or professional degree, below the comparable 32.6% and 12.6% national shares, respectively.

High crime rates can reduce quality of life and potentially make an area less attractive to business. In Oklahoma, there were 466 violent crimes for every 100,000 people in 2018, well above the national violent crime rate of 381 per 100,000.

Pennsylvania ranks poorly on this list due to a number of measures of growth. The state ranks poorly in recent business growth and building permits issued, and is one of only 13 states with projected declines in working-age populations between 2020 and 2030. This may make hiring difficult for new and growing businesses.

Economic growth has been sluggish in Ohio. Over the last year, the state’s economy expanded by just 1.9%, well below the comparable 2.9% national GDP growth. Many businesses are also at a slight disadvantage in Ohio as the state does not have right-to-work laws on the books. Partially as a result, 12.7% of the state’s labor force belongs to a union, a larger share than the 10.6% national share.

Illinois does not compare well to other states in measures of growth. While nationwide the working-age population is projected to increase by 4.6% between 2020 and 2030, it is expected to decrease by 3.9% in Illinois, the fifth-largest decrease among states. The state also ranks below average in measures of recent growth in the number of establishments and in new building permits issued.

Kentucky’s one year GDP growth of 1.4% is less than half the comparable 2.9% national economic growth rate. For certain businesses in Kentucky, finding qualified candidates may be more challenging than it would be in many other states. Just 24.8% of adults in the state have a bachelor’s degree, and 10.3% have a graduate or professional degree, below the comparable 32.6% and 12.6% national shares, respectively.

The cost of doing business and the cost of living in Alabama are relatively low, likely partly because of the relatively low cost of goods and services in the state. However, Alabama ranks relatively poorly in many other measures, including technology and innovation and quality of life. The state’s workforce is also less likely to have a bachelor’s degree or a professional degree than the workforces in most other states.

Missouri ranks as the worst state for business in the Midwest. Part of the reason for the low ranking is the major decline in the number of state businesses in recent years. The number of establishments in the state fell by 6.2% in 2017, the largest decline of any state. The state’s working-age population is expected to increase by just 0.9% in the next decade, less than the majority of states and well below the 4.6% national increase in the working-age population.

Mississippi’s low ranking is partially due to the fact that it has the worst score of any state in the technology and innovation component of our index. Just 3.2% of all jobs in the state are in STEM fields, and total venture capital invested in the state in 2018 comes to just $3.21 per capita, each the smallest figures of any state. The Milken institute gives the state the lowest ranking in its State Tech and Science report.

In our index, New Mexico ranks poorly in measures of the skill and size of the state’s labor force, as well as quality of life in the state. New Mexico has among the highest property and violent crime rates in the country, as well as a low concentration of arts, entertainment, and recreation establishments per capita. Additionally, just 27.7% of adults in the state have a bachelor’s degree, one of the smaller shares among states.

The cost of goods and services in Hawaii are higher than in any other state, meaning the state is one of the most expensive to live and do business, which may deter some workers from choosing to live in the state for work. Hawaii also ranks relatively poorly in measures of technology and innovation, with among the lowest STEM employment as a share of total employment of any state, as well as among the fewest patents granted or venture capital deals per capita in 2018.

Compared to many states, Louisiana is a relatively inexpensive state to do business. It has the lowest electricity prices in the country and workers are paid less on average compared to workers nationwide.

However, in other measures the state ranks among the worst for business. For example, the state ranks among the 10 worst states in every measure considered in the technology and innovation component of our index, including STEM employment, and per capita venture capital deals and patents. Quality of life is also relatively poor in the state — the state has one of the least healthy populations in the United States as well as among the highest property and violent crime rates.

West Virginia ranks as the worst state for business because of poor ranking n a number of different categories in our index, including the economy, infrastructure, and labor and human capital measures. The state has the smallest share of adults who have a bachelor’s degree. It also is one of just a handful of states with a projected population decline over the next decade, as well as one of the largest expected declines in working-age residents. The state has the second highest annual unemployment rate in the country.