North Carolina and Massachusetts by the numbers

Theme: Low cost states don’t win
Conventional wisdom is that so-called business friendly places have the best economies. That the way to grow a state’s or region’s economy is to lower business costs with lower taxes, less regulation and weaker unions. Don’t believe it. On just about every measure that matters to people––whether you have a job and how much you earn––low business costs either don’t predict better outcomes or so-called high costs states and regions do better.

More evidence that low business cost states don’t have the best economies comes from the Business Leaders for Michigan’s 2012 Economic Competitiveness Benchmarking Report. State business cost is one of their metrics. To their credit, unlike many policy makers and business leaders, BLM uses a wide variety of metrics to determine how well Michigan is doing. Rather than claim that business costs are the predominant determinate of a state’s economic well being.

Using 2010 data from the report provides rankings for Michigan and twelve states they consider to be Michigan’s peers. The business cost index consists of 75% labor costs, 15% energy, 10% state/local taxes.

Of the BLM peer states North Carolina has the lowest business costs –– 17% below the national average –– and Massachusetts has the highest business costs –– 22% above the national average. In the Moody’s Economy rankings North Carolina is the top ranked state with the lowest business costs in country, Massachusetts has the second highest business costs in the country. If low business costs lead to jobs and higher personal income residents of North Carolina should be at or near the top in both categories and residents of Massachusetts near the bottom. Lets see how reality compares to the theory.

Lets start with the statistic that is the most used measure of economic well being, the monthly  unemployment rate. North Carolina in December 2012 ranks 46th with an unemployment rate of 9.2%. Massachusetts ranks tied for 22nd at 6.7% To us a far better measure of employment –– whether a resident of a state is working or not –– is the employment rate. The proportion of residents 16 or older who have a job. The employment rate in North Carolina in 2011 was 56.4%, 39th in the country. Massachusetts ranked 19th at 60.6%.

Across the board North Carolina is a low prosperity state, Massachusetts a high prosperity state:

  • Per capita income (the best and broadest metric of economic well being): North Carolina 36th, Massachusetts 2nd
  • Private sector employment earnings per capita: North Carolina 37th, Massachusetts 1st  (Excluding natural resources industries: 36th and 1st)
  • Average wage: North Carolina 29th, Massachusetts 3rd
  • Proportion of households with incomes 1.5 times the poverty rate or lower (a good measure of low income households): North Carolina 39th, Massachusetts 6th (1st being the place with the lowest proportion of low income households)
  • Proportion of households with income four times the poverty rate or higher (a good measure of middle class or better): North Carolina 38th, Massachusetts 4th
The two defining characteristics of high prosperity states is they are over concentrated in the high education attainment sectors of the economy and the proportion of adults with a four year degree or more:
  • Proportion of adults with a four year degree or more: North Carolina 27th, Massachusetts 1st
  • Proportion of wages from high education attainment industries: North Carolina 17th, Massachusetts 2nd
  • Proportion of jobs from high education attainment industries: North Carolina 22nd, Massachusetts 2nd
So much for low costs states have the best economies!
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