A Guide to the 50 States and the New Economy

Measuring the states and propensity for economic innovation.

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What is the new economy? Robert Atkinson, lead author of the 2008 State New Economy Index and president of the Information Technology and Innovation Foundation, says that the index is not meant to measure economic performance—which is why rust belt Michigan can come in at 17th in states that have adapted to the new economy and Sun Belt North Carolina comes in at 24th. Instead, it is about which states have the economic structures in place that will allow their entrepreneurs to create long-term innovation: knowledge jobs, globalization, dynamism, and technology.

That's not to say that the index is disconnected from quality of life in the states. In fact, there is some correlation. "As a general rule, states that do well on the index also do well on per capita income," says Atkinson.

Here are the three indicators out of the 29 (besides the overall) we highlighted in our map:

Entrepreneurial Activity

This indicator shows where the states rank in terms of adjusted number of entrepreneurs starting new businesses. According to the report, "Competitive advantage increasingly is based on innovation and the generation of new business models." Why? As more countries are competing for the same jobs from the same multinational companies, it is important for the United States to produce new ways of doing business. That's where entrepreneurial activity comes in. Based on Kauffman's index of entrepreneurial activity, each state's score is based on the average total number of entrepreneurs starting a new business in 2006 and 2007, adjusted to account for differing growth rates between states. The state's growth is not part of the score because an overall stronger growth rate means more entrepreneurial opportunities generally—not because of any tendency of that state's residents to be entrepreneurial. Tennessee is the state that made the biggest jump in entrepreneurial activity from 2007 to 2008; it was ranked 41st in the nation in 2007 and this year ranked 12th.

Migration of U.S. Knowledge Workers

Americans often vote with their feet—which states are they moving to, and which states are losing people? More important, to which states are the most important workers for economic innovation moving? This indicator tries to answer that question. Who are these knowledge workers? "A knowledge worker is somebody who makes money by thinking rather than using their hands," says Robert Litan, vice president of research and policy at the Kauffman Foundation. Rather than manufacturing jobs, the category of knowledge workers includes managerial, professional, and technical jobs such as those in the information technology and health industries. This indicator looks at the census data regarding the educational attainment of these workers who have recently moved from one state to another. The higher a state's ranking, the more years of education of the knowledge worker who has migrated to that state within a year.

Immigration of Knowledge Workers

But it's not just knowledge workers from within the country who matter. "There is a pretty strong relationship" between the success of immigrant entrepreneurs and the success of an economy as a whole, says Atkinson. This indicator tries to gauge which states are attracting the most highly educated of these immigrant entrepreneurs. In other words, what states are presenting the most opportunities to the brightest from around the world? "If you care about innovation and job growth, you'll attract those people," says Litan. Somewhat unexpectedly, North Dakota takes the top spot in this category, possibly because of its close connection to Canada. Delaware made the biggest stride in attracting immigrant knowledge workers, jumping from 42nd in last year's report to 11th this year.