Best & Worst State Economies

2019 | Adam McCann, Financial Writer

U.S. economic growth depends heavily on the performance of individual states. But some contribute more than others. California, for instance, blossomed in 2017 as the fifth largest economy in the world, boasting a GDP larger than that of countries like the U.K., France and India.

Meanwhile, Alaska, a state with valuable natural resources, is struggling with the highest unemployment rate in the country, at 6.5%.

In order to determine which states are pulling the most weight, WalletHub compared the 50 states and the District of Columbia across 28 key indicators of economic performance and strength. Our data set ranges from GDP growth to startup activity to share of jobs in high tech industries.

State Economy Rankings

Overall rank (1=Best)	State	Total Score	’Economic Activity’ Rank	’Economy Health’ Rank	’Innovation Potential’ Rank
1	Washington	77.60	1	4	2
2	Utah	73.51	2	1	10
3	Massachusetts	70.23	5	20	1
4	California	69.13	3	35	3
5	Colorado	63.79	9	3	8
6	District of Columbia	58.97	4	15	15
7	Idaho	58.23	13	2	18
8	Oregon	56.83	16	22	7
9	New Hampshire	56.75	20	17	5
10	North Carolina	55.90	15	11	12
11	Arizona	55.54	12	10	14
12	Texas	55.17	10	7	20
13	Michigan	53.87	22	31	4
14	Georgia	53.27	6	18	26
15	Minnesota	51.84	28	16	11
16	Maryland	51.71	18	37	9
17	Virginia	51.33	14	13	25
18	Florida	50.74	8	5	37
19	New York	49.88	11	41	17
20	Nevada	47.06	7	8	48
21	New Jersey	46.85	19	44	13
22	Tennessee	46.48	17	6	39
23	Wisconsin	45.96	29	21	24
24	Missouri	45.95	30	25	16
25	Delaware	45.94	30	25	16
26	Pennsylvania	44.92	21	38	19
27	Connecticut	42.66	42	49	6
28	Indiana	42.58	31	24	30
29	Iowa	42.41	37	14	27
30	North Dakota	42.01	26	27	34
31	Kansas	41.74	24	29	33
32	Nebraska	41.36	36	12	35
33	Illinois	39.06	23	48	29
34	South Carolina	39.02	32	23	41
35	Alabama	38.87	34	30	36
36	Ohio	38.84	25	43	32
37	Vermont	38.57	48	34	22
38	Montana	38.39	46	19	31
39	Oklahoma	35.97	35	33	42
40	South Dakota	35.78	47	9	44
41	New Mexico	35.41	41	51	23
42	Maine	34.42	38	36	43
43	Rhode Island	33.52	50	39	28
44	Wyoming	32.52	45	40	40
45	Kentucky	31.74	33	45	46
46	Arkansas	30.17	43	32	50
47	West Virginia	28.92	40	42	51
48	Hawaii	28.80	51	28	47
49	Mississippi	28.63	44	46	45
50	Louisiana	28.53	39	47	49
51	Alaska	28.49	49	50	38

Ask the Experts

Not all economic growth strategies are effective. For the best ways to stimulate the economy and achieve lasting prosperity, we asked a panel of experts to share their thoughts on the following key questions:

1. What are the most effective ways for state and local officials to boost their local economies?

2. What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?

3. States often compete for business investment by offering tax breaks and other incentives. Do such efforts more often result in a net positive or net negative impact on state economies? Do such efforts create a “race to the bottom” across states?

4. What makes a state attractive to potential entrepreneurs?

5. In evaluating the states with the best economies, what are the top five indicators?

John L. Campbell
Ph.D. – Professor, Department of Sociology, Dartmouth College

What are the most effective ways for state and local officials to boost their local economies?

There is no one “most effective” way to do this. For example, Massachusetts offers a highly educated labor force. New Hampshire offers low tax rates. Other states, often in the south, offer low wages given their adoption of “right to work” legislation making it hard for unions to organize effectively.

What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?

It’s hard to say. One thing would be to fund education and encourage universities and technical schools to work with business to create effective training and re-skilling programs to keep workers’ skills up to date. A more aggressive approach is that of Vermont, which is now offering financial incentives for people to move into the state for work.

States often compete for business investment by offering tax breaks and other incentives. Do such efforts more often result in a net positive or net negative impact on state economies? Do such efforts create a “race to the bottom” across states?

Sometimes there is evidence of a race to the bottom when, for example, states are competing for an automobile plant and try to out do each other by offering low taxes or limited term tax holidays where the firm pays no taxes for some period of time. You see the same thing sometimes when cities are competing for a professional sports franchise.

But remember that tax rates are not the only thing firms consider when making decisions about where to go or entrepreneurs are making decisions about where to start a company. Other things include, for instance:

quality of the labor force,
infrastructure,
housing availability for prospective employees,
cultural amenities which influence how easy it is to attract workers to the state,
the quality of the school system,
potential for public private partnerships, etc.

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Arthur I. Cyr
Director, Clausen Center, Clausen Distinguished Professor, Carthage College

What are the most effective ways for state and local officials to boost their local economies?

State and local government officials, and for that matter others, should do disciplined in depth research on the comparative advantages – and disadvantages of their economy, society, and government as well as other institutions.

Every state has distinctive characteristics and strengths. Part of the genius of the Founding Fathers was to recognize this in creating our federal system.

What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?

State and other governments should analyze distinctive strengths as well as challenges in retaining as well as attracting workers. This applies across the board occupationally, not just to “skilled workers”, and in terms of generations.

Wisconsin overall is an example of a state with sustained success in attracting business. The long term migration from Illinois is dramatic proof that an environment with relatively low taxes, no debt and a genuinely welcoming approach can succeed.

States often compete for business investment by offering tax breaks and other incentives. Do such efforts more often result in a net positive or net negative impact on state economies? Do such efforts create a “race to the bottom” across states?

Infrastructure and related understanding of the importance of transportation also provides crucial advantage. Governor Mike Pence of Indiana, for example, led comprehensive planning for improved quality and better integration of transportation resources across the board. Neither Indiana nor Wisconsin has experienced a “race to the bottom.”

What makes a state attractive to potential entrepreneurs?

Entrepreneurs by definition are idiosyncratic and independent. Sensible investment incentives by government are useful, but an open, diverse and law abiding environment are important. American culture and history, not government, foster entrepreneurship.

In evaluating the states with the best economies, what are the top five indicators?

Americans, or at least some Americans, are obsessed with finding insight through data. Basic indicators such as education, unemployment and crime are important. Beyond that, human insight and talent are key, and not easily quantified. Each state is different.

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Nathan Jensen
Ph.D. – Professor in the Department of Government, McCombs School of Business at The University of Texas - Austin

What are the most effective ways for state and local officials to boost their local economies?

This is a difficult question and I am afraid that there isn’t a simple answer. Communities all have different problems as well as assets so there is no one size fits all policy. But one simple idea is that the first principal should be similar to doctors. Do no harm.

Many of the problems, economic or non-economic, for communities require considerable resources. These communities should be very careful with the tax base and expenditures so as not to divert resources away from schools, roads, or public goods.

What can states do to prevent “brain drain” and develop, attract and retain highly skilled workers?

This is another good question. First, it does require jobs in the area. A few states such as Vermont and Oklahoma have programs to attract teleworkers (those with jobs out of state) but these programs are rare. You need employers.

Second, it really does require a place that people want to live. This can mean the coasts, but many coastal cities have become so expensive that there are a number of affordable cities that attract the best and brightest. The research triangle in North Corolina and Austin, TX (where I live) are good examples.

Related to the last question, one huge advantage is a university or college in the area. This attracts human capital, and many of these graduates may choose to stay. But it also generates a lot of the amenities that makes a place desirable to live.

States often compete for business investment by offering tax breaks and other incentives.

Do such efforts more often result in a net positive or net negative impact on state economies?

Do such efforts create a “race to the bottom” across states?

The academic literature is very critical of these incentives. A recent piece by Tim Bartik at the Upjohn Institute finds that between 75%-98% of incentives goes to companies that were coming anyway. Another study notes that these incentives harm the fiscal health of communities.

What makes a state attractive to potential entrepreneurs?

These are many of the same factors that make a city attractive to anyone. But, an existing startup ecosystem, complete with incubators and accerators can be really helpful.