The Best States For Business 2018: Behind The Numbers

By: Kurt Badenhausen

North Carolina ranks on top of Forbes’ Best States for Business for the second straight year. Our 13th annual ranking measures six categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We factor in 41 metrics from 17 sources to determine the ranks across the six main areas. The overall ranks are based on a combination of ranks in the six main categories. Below is a breakdown of each category with the best and worst performer, along with the data sources.

Business Costs
No. 1 State: South Dakota; No. 50 State: Massachusetts

Business costs incorporate Moody’s Analytics Cost of Doing Business index which includes labor, energy and taxes. Moody’s weighs labor costs the most heavily in its index. We also included a state tax index from the Tax Foundation that launched in 2012 and was updated in 2016. The “Location Matters” study looks at the tax burden on businesses in each state across different industries. Business costs, labor supply and regulatory environment are equally weighted in the overall rankings.

Labor Supply
No. 1 State: Colorado; No. 50 State: West Virginia

Labor supply measures college and high school attainment based on figures from the Census Bureau. We also consider net migration over the past five years and the projected population growth over the next five years. Other factors are the percentage of the workforce that is represented by a union and the percent of the population between the ages of 25 and 34.

Regulatory Environment
No. 1 State: Virginia; No. 50 State: Alaska

Regulatory environment includes metrics influenced by the government. We incorporate the regulatory component of the “Freedom in the 50 States” report from the Cato Institute. It considers the liability system, property rights, health insurance, and the labor market. We also factor in an index from Pollina Corporate Real Estate that measures tax incentives and the economic development efforts of each state. Other data points include Moody’s bond rating on the state’s general obligation debt and the transportation infrastructure including air, highway and rail.

Other factors in the regulatory component are a measure of the best and worst legal climates for businesses compiled by the U.S. Chamber Institute for Legal Reform. Seventy percent of general counsels who participate in the survey say a state’s lawsuit environment impacts decisions such as where to locate or expand. Another factor was a state’s fiscal health based on a study from the Mercatus Center that examines short and long-term debt and other key fiscal obligations.

Finally, we measured laws that protect people from employment discrimination based on sexual and/or gender identity. The state ratings were supplied by the Movement Advancement Project

Economic Climate
No. 1 State: California; No. 50 State: Alaska

The economic climate category gauges job, income and gross state product growth as well as average unemployment during the past five years. Other metrics include the average 2018 unemployment rate and the number of the 1,000 biggest public and private companies by revenue headquartered in the state.

Growth Prospects
No. 1 State: Texas; No. 50 State: Mississippi

Growth prospects measures job, income and gross state product growth forecasts over the next five years from Moody’s Analytics. We also factor in Emsi’s “bottom-up” job forecasting approach, which compliments Moody’s “top-down” forecasts. Another metric was venture capital investments per the PricewaterhouseCoopers MoneyTree survey with data from Thomson Reuters. The final data point in the category is startup activity as tracked by the Kauffman Foundation.

Quality of Life
No. 1 State: Virginia; No. 50 State: Alaska

Quality of life takes into account cost of living from Emsi, school test performance via the Department of Education and crime rates from the FBI. We factored in the mean temperature in the state as a proxy for the weather and the number of top-ranked four-year colleges in the state from Forbes’ annual college rankings. We considered the culture and recreational opportunities in the state based on an index created by Bert Sperling, as part of our annual Best Places for Business and Careers. Other factors: commute times from the U.S. Census and the United Health Foundation’s America’s Health Rankings.