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Making sense of state business-climate reports

It isn’t enough to ask what the numbers say. We need to know what the numbers mean.

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“Businesses go where there is infrastructure and where people want to live.”

No need to jump for joy or hunker in despair, but Minnesota either has the fourth best business climate among states in America, or the fifth worst business climate.

Lee Egerstrom

These wildly contradictory findings are revealed in a new study, Grading Places: What Do the Business Climate Rankings Really Tell Us? issued by the Good Jobs First nonprofit, nonpartisan research organization in Washington, D.C.

Economist Peter Fisher compares data and known methodologies from several state business climate reports and called them “politicized grab-bags of data.”

No ‘predictive value’

As such, Good Jobs First said, these alleged studies have no “predictive value” and shouldn’t be used in public policy formation. While the studies they analyzed set out to collect a wide range of data, they typically boil down to a limited number of tax-related metrics.

States that attempt to make tax systems more progressive, or generally more equitable, are always attacked as anti-business, anti-jobs, anti-family or anti-anything that might resonate better with the public than anti-tax haven.

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As if on cue, the (anti) Tax Foundation group in Washington issued yet another state business tax climate report on the same day Good Jobs First announced its finding, intentionally for political purposes and unintentionally for what it also revealed.

First, it identified the 10 worst states in its skewed index that included Maryland, Iowa, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, and, in the bottom three positions, California, New Jersey and New York. The 10 best states on its index included Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, New Hampshire, Montana, Texas and Utah.

With a few exceptions that can be attributed to microeconomic factors, what the tax group shows is a linkage between taxes and where businesses want to locate and where people want to live. The “bad” business climate states in general have businesses and people; the “good” business climate states tend to be remote, under-developed states or have resource or other variables that make them anomalies.

Importance of infrastructure

There is an undeniable linkage between taxes and the infrastructure and amenities that support business success and quality of life, said Alex Marshal, senior fellow with the Regional Plan Association think-tank in New York.

“Businesses go where there is infrastructure and where people want to live,” he said.

That point is driven home in several chapters of his book, “The Surprising Design of Market Economies,” published by University of Texas Press in the past year. It focuses on the importance of infrastructure.

Measures of such pro-business and pro-quality of life factors are not included in most state business climate rankings.

In releasing the Good Jobs critique, Fisher said his researchers found significant and elementary errors. “We found effects presented as causes,” he said. “We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”

Again, ideological organizations selectively use data to produce desired results. The study found Massachusetts ranks No. 1 in one index, 38th in another; Alabama drags in as 49th in one index, 7th in another; and Alaska varies from 4th in one list to 38th in another. As a result, Fisher discovered, 22 states “can brag they are in the top 10” while business lobbyists seeking business tax cuts can claim 24 states are in the bottom 10 for worst business climates.

Representative of this disparity, Minnesota ranks 4th, 10th, 13th, 18th, 35th, 35th, 39th, 40th and 45th on nine different ranking systems. As Good Jobs First said at the beginning of its report, that doesn’t shed helpful light on real business climate conditions.

Many influences

Kevin Ristau, education director for the Jobs Now Coalition in Minnesota (not related to Good Jobs First), said measures of business conditions are influenced by demographics, uniqueness of business mix, resources and other factors. Even comparisons of basic measures such as state unemployment data can be misleading.

The U.S. Bureau of Labor Statistics shows Minnesota with has one of the lowest unemployment rates in the nation, at 5.4 percent – a drop of 0.3 percent from March a year ago. Texas, for comparison, was at a higher 6.4 percent; Wisconsin was a 7.1 percent, South Carolina was at 8.4 percent, and North Carolina — another state that has battled labor’s rights to organize — had March unemployment at 9.2 percent.                   

The neighboring Dakotas are anomalies given boom times in North Dakota with the Bakken energy fields, the chronically unemployed not being counted on South Dakota Indian reservations, and continuing out-migration from many rural counties.

What’s more, Ristau said, “Unemployment data count jobs as if all jobs are equal. They aren’t.”

In March, he said, data from the Minnesota Department of Employment and Economic Development (DEED) showed Minnesota job openings were up 127 percent in three years. However, job seekers still outnumbered job openings by four-to-one.

A fourth of openings in two sectors

A fourth of all openings were in two industry sectors. Retail trade accounted for 183 percent, and hospitality (accommodation and food services) accounted for 224 percent of opening growth in the three-year comparison. The median wage for these two sectors was $8.31 per hour. Cost of Living research shows both parents in a family of four would need to earn $14.03 per hour to meet basic family needs.

This is why Jobs Now and its religious, nonprofit and community organization allies promote increasing the minimum wage law in Minnesota. It is also why lawmakers and people of conscience should carefully examine reports from interest groups on how data is assembled, how it skews results, and if it reveals anything of social or economic importance.

It isn’t enough to ask what the numbers say. We need to know what the numbers mean. Good Jobs First researchers show the latter can mean anything.

Lee Egerstrom is an Economic Development Fellow at Minnesota 2020, a nonpartisan, progressive think tank based in St. Paul. This article first appeared on its website.


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