North Carolina has built one of the country’s strongest business climates over the past two decades, fueled by low business costs, incentives and a young, educated workforce, many of whom have been trained at the strong universities in the state and Research Triangle Park. Migration rates into the state are among the highest in the U.S. annually. The Tar Heel State is the only one to rank among the top five on FORBES’ Best States for Business for 12 straight years, but it never reached the top rung until now.
An improved employment outlook and the second lowest business costs (labor, energy and taxes) have propelled North Carolina to first in our annual ranking, a spot previously only attained by Utah and Virginia since we launched the list in 2006.
North Carolina ranked second last year, but its status as a business-friendly locale was threatened by the passage of the controversial “Bathroom Bill” in 2016, which required people to use the public facility that corresponds with their biological gender. The cost of the bill was estimated to be more than $500 million in lost economic activity, as Deutsche Bank and PayPal halted expansions in the state and the NBA, NCAA and ACC pulled sporting events.
The N.C. legislature partially repealed the bathroom law in March and businesses immediately announced plans to return. The NBA awarded Charlotte the 2019 All-Star Game and Credit Suisse moved forward with an expansion with 1,200 new jobs paying an average of more than $100,000.
“We opposed that law," said Credit Suisse Vice Chairman Wilson Ervin. "During the period that HB2 was on the books, we had to put our plans on hold. We did not think that expansion could be done in a way that was consistent with our core values.”
The Movement Advancement Project, which tracks whether states are adequately protecting people from employment discrimination based on sexual and/or gender identity, pegged North Carolina as “hostile” and among the worst states last year, before bumping it to a middling rank in 2017. Protections for LGBT people is one of 41 metrics FORBES uses in its Best States ranking.
Another plus for North Carolina: the second smallest union workforce in the U.S. in terms of percent of total employment (South Carolina is first). The resulting benefit is labor costs that are 10% below the national average and fifth lowest in the country.
To come up with our list, we assess states across six broad categories: business costs, labor supply, regulatory environment, economic climate, growth prospects and quality of life. North Carolina is the only state to rank among the top 20 states in all six categories (click here for a detailed methodology).
Texas moved up two spots to second this year, the state’s best showing since 2006 (also second). The $1.6 trillion Texas economy is the second biggest in the U.S., behind only California. Texas ranks first for current economic climate thanks to strong employment and gross state product growth over the past five years. The outlook is equally bright. In addition, 100 of the 1,000 largest public and private companies in the U.S. based in Texas, including giants like AT&T, ExxonMobil and Dell.
Startup activity in the Lone Star State is also best in the nation among larger states, per the Kauffman Foundation. One of the only things holding Texas back from the top overall ranking is education. Only 83% of adults have a high school degree, which is second lowest among the states.
Utah, which occupied the No. 1 ranking six times in the past seven years (Virginia in 2013 was the lone outlier), fell to third this year due to rising labor costs and a softer economic outlook. The state still has a very pro-business climate and companies benefit from energy costs that are 16% below the national average, according to Moody's Analytics.
Rounding out the top five states are Nebraska and Virginia. Nebraska’s average unemployment rate in 2017 of 2.9% ranks among the lowest in the country. Virginia ranks second for its regulatory climate because of its strong incentive offerings and business-friendly government policies.
West Virginia ranks as the worst state for business for the third straight year, behind New Mexico, Vermont and Alaska. West Virginia’s population growth and college attainment rate both rate as the lowest in the country. Labor market data firm EMSI projects the state’s employment growth to be the worst in the U.S. at a 0.2% annual rate over the next five years. West Virginia's legal climate ranks among the worst when measuring business friendliness, according to the Institute for Legal Reform. One plus: the cost of living is the lowest in the U.S. at 11% below the national average.
