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Alabama’s pro-business reputation takes a hit in Forbes rankings

Open for Business

Forbes Magazine has just released its ninth annual Best States for Business list and Alabama’s pro-business reputation has taken a little bit of a hit. Forbes ranked the Yellowhammer State 44th in the nation, only placing higher than Hawaii, Rhode Island, New Mexico, West Virginia, Maine and Mississippi. Utah topped the list this year, taking the place of 2013’s winner Virginia.

To reach these numbers, Forbes takes into account data from six different categories: business costs, labor supply, regulatory environment, economic climate, growth prospects and quality of life. Here’s how Alabama ranked nationally:

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Forbes’ Kurt Badenhausen went into detail about how the numbers are calculated:

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.

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.

The Forbes rankings differ significantly from other recent studies that have ranked Alabama as one of the better states in the nation for businesses. For example, in Area Development’s annual “Top States for Doing Business” survey, Alabama has ben ranked in the top five for the past five years.