Communications of the ACM
The Best in the .s. For Entrepreneurship: How States Rank
Credit: Social Studies for Kids
It's been said that entrepreneurship is neither a science nor an art, it's a practice. But which parts of the United States are getting the most practice? According to a new state-by-state measurement of entrepreneurial activity, New York is at the top, followed by Washington, Massachusetts, New Jersey and Oregon.
The Empire State topped the newly released State Entrepreneurship Index, a nationwide analysis and ranking method that evaluates how states stack up in terms of business formation and innovation. State-by-state rankings are available online in graphical format and in tabular form.
Economists at the University of Nebraska-Lincoln's Bureau of Business Research and Department of Economics developed the State Entrepreneurship Index, or SEI, by combining five key components — a state's percentage growth and per capita growth in business establishments, its business formation rate, the number of patents per thousand residents and gross receipts of sole proprietorships and partnerships per capita.
The result is a comprehensive look at the levels of entrepreneurship in each state, says Eric Thompson, UNL associate professor of economics and director of the Bureau.
"The SEI uses a broad group of indicators rather than just raw counts of business starts," Thompson says. "This ensures that the index reflects sales and innovation among a state's businesses as well as the business formation rate."
A state index for each component is assigned based on how much each state's performance is above or below the average of all state data, which has a value of 1.0. For example, a component one standard deviation above the average gets a value of 2.0, while a component one below is assigned a value of zero. A state's overall SEI number is the average of the five index values.
For 2010, the latest year for figures, New York's score was 2.34, thanks to its strong performance in gross receipts per capita and substantial improvement in two other components: growth in establishments and establishments per capita. Washington (2.17), Massachusetts (2.04), New Jersey and Oregon (both at 1.93) completed the top five.
Oregon was the biggest climber in the rankings, to No. 5 from No. 45 in 2008, while Delaware moved up 28 spots to No. 14. The drastic changes were largely caused by growth in establishments and establishments per capita. Kentucky, Texas and Rhode Island also saw marked improvement, jumping 26, 25 and 25 spots, respectively.
South Carolina, with an index of 0.07, was No. 50 and Arizona (0.11) was No. 49, behind Mississippi (0.32), Nevada (0.33) and Alabama (0.41). Nevada, which was No. 7 in previous rankings, highlighted a handful of states that experienced steep drops. Arkansas, Tennessee and Utah also saw significant ranking drops, mostly because of sharp declines in growth of establishments and establishments per capita in those states.
The State Entrepreneurial Index combines detailed data from the U.S. Bureau of Labor Statistics, the IRS Statistics of Income Bulletin, the U.S. Census Bureau and the U.S. Statistical Abstract.
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