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Ranking The Best States For Business 2014: Behind The Numbers

Our ninth annual Best States for Business is headed by Utah, which previously finished on top between 2010 and 2012.

The ranking measures six vital categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. We factor in 36 points of data to determine the ranks across the six main areas. Below is a breakdown of each category, along with the sources.

Business Costs

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 looks at the tax burden on businesses in each state across different industries. Business costs are the most heavily weighted component in the Forbes Best States for Business.

Labor Supply

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. Lastly we included the percentage of the workforce that is represented by a union.

The Best And Worst States For Business 2014. 1 of 20 - See where Oklahoma lands in the rankings

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Utah moves back to the top spot where it ranked for three straight years from 2010 through 2012. The state has a very pro-business climate and companies benefit from energy costs that are 26% below the national average and third lowest in the U.S.

Regulatory Environment

Regulatory environment includes metrics influenced by the government. We incorporated the regulatory component of the Freedom in the 50 States report from the Mercatus Center at George Mason University. It considers labor regulations, health-insurance coverage mandates, occupational licensing, the tort system, right-to-work laws and more. 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.

Economic Climate

The economic climate category measures job, income and gross state product growth as well as average unemployment during the past five years. Other metrics include the 2013 unemployment rate and the number of the 1,000 biggest public and private companies by revenue headquartered in the state.

Growth Prospects

The growth prospects category measures job, income and gross state product growth forecasts over the next five years from Moody’s Analytics. This year we added a second component for employment growth (it was the only change to the 2014 methodology). EMSI’s “bottom-up” forecasting approach compliments Moody’s “top-down” forecasts. Other factors in the growth prospects category include business opening and closing statistics in each state based on data from the Small Business Administration. We also measured venture capital investments per the MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association.

Quality of Life

Quality of life takes into account poverty rates per the Bureau of Economic Analysis and crime rates from the FBI. Other factors include cost of living from Moody’s, school test performance via the Department of Education and the health of the people in the state per the United Health Foundation. We considered the culture and recreation opportunities in the state based on an index created by Bert Sperling, as part of our annual Best Places for Business. We factored in the mean temperature in the state as a proxy for the weather. Lastly, we included the number of top-ranked four-year colleges in the state from Forbes’ annual college rankings..