Study: State Governments Play Key Role in Job Creation

August 10, 2011

The Wall Street Journal

Sarah E. Needleman

There’s a reason why some U.S. employers, especially small businesses, do less hiring than others: Certain states make it tougher to create jobs than others, a recent study concludes.

Labor policies and regulations vary across the country, accounting for the discrepancy, finds a report released last week by the U.S. Chamber of Commerce. It ranks the nation’s 50 states according to how employer-friendly they are based on several criteria, including labor laws, unemployment rates and business-formation data.

States with labor rules that are unfavorable to employers such as high minimum wages and onerous layoff-notification requirements ranked the lowest. Among these were California, Connecticut, New York, Illinois, Massachusetts and Michigan, while states such as Florida, North Carolina, North Dakota, Texas and Virginia ranked the highest.

Such mandates typically discourage small businesses in particular from hiring – or ever starting up – because such firms typically can’t afford to spend as much on compliance as large firms, says Jeff Eisenach, a managing director at global advisory firm Navigant Economics and the researcher behind the study.  Even the added paperwork, can end up costing more for a small firm without a personnel department, he says. (For more on this topic, please see “Small Businesses Decry Regulation.”)

Meanwhile, the study suggests that if every state were to adopt policies and regulations akin to those mandated by the top-ranking states identified, the effect would be equivalent to creating a one-time boost of approximately 746,000 net new jobs nationwide. In addition, the rate of new business formation would increase by more than 12%, resulting in the creation of more than 50,000 new firms nationally each year.

State governments “can make it easier for private-sector employers to create jobs by just lowering the burdens on business,” says Eisenach.

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