Research by the Economic Innovation Group aimed at identifying the states that have emerged from the pandemic with the most dynamic economies finds that New Jersey ranked 26th in the nation in 2021, a change of –10 places from five years ago.
The EIG’s Index of State Dynamism assesses each state’s performance on eight core measures of dynamism – the process through which the economy renews itself. These metrics capture underlying churn in the economy and include the new business startup rate, the changing composition of firms, the movement of workers across businesses and geographies, the pace of innovation and more.
“Without dynamism, economies trend toward stagnation,” wrote EIG research and policy analysts Daniel Newman and Connor O’Brien, who co-authored the report. New Jersey’s dynamism score was 31.1, which was slightly below the national average of 33.1. Relative to the average, New Jersey performed best on inventors per capital, but worse on growth in total firms, the report said.
The report found that in 2021, states with the most dynamic economies were predominantly in fast-growing places in the West and South, with five of the Top 10 concentrated in the Mountain West. The state with the highest dynamism score (56) was Utah, followed by Idaho, Delaware, Colorado, Florida, Arizona, Texas, Nevada, Washington, and Georgia.
New York, which has the third-largest largest economy is the U.S., earned a dynamism score of only 23.4, significantly under the 33.1 national average. Compared to other states, New York was ranked No. 46 in dynamism in 2021, plunging –24 places from its position in 2018.
California, another state that suffered from business closures and an exodus of workers to other states during the pandemic, fell –7 places to the No. 11 position with a total dynamism score of 40.
Breaking down the eight components used to calculate New Jersey’s dynamism score, the report found that the Garden State performed better than the national average in these metrics: startup rate of new businesses; percentage of workers at young businesses (defined as companies in existence for less than five years); number of investors per 1,000 residents; and the labor force participation rate.
New Jersey received dynamism scores that were less than the national average in these metrics: total growth in all businesses; housing permits per 1,000 residents; worker churn; and migration rate.
The report said dynamism has declined in virtually every state over the past three decades, falling most precipitously during the 2007-09 economic crisis and has been struggling to recover since. While the 2021 data shows average state dynamism scores rose to a 13-year high, they remain, for the most part, far below levels observed in the 1990s or early 2000s.
“Americans’ response to the pandemic rejuvenated some of these forces in the form of increased worker turnover, an historic boom in new business applications, and the accelerated adoption of new technologies,” the report said. “Nevertheless, the country’s dynamism rebound remains fragile, and its continued progress is not guaranteed.”
The Economic Innovation Group’s dynamism dashboard with data for each state can be found here.
