Commercial Real Estate News / Insight / Here Are the Country's Most Productive States

Here Are the Country's Most Productive States

Published: 08-30-23 Category: Insight

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

A construction hat sitting on a construction site.

Labor Day, celebrated on the first Monday of September in the United States, is more than just a long weekend heralding the end of summer: It's a tribute to the American labor movement and the contributions that workers have made to the country's strength, prosperity, and well-being.

The origins of Labor Day can be traced back to the late 19th century, a tumultuous time for workers facing long hours, unsafe conditions, and low pay. Labor activists pushed for a federal holiday to recognize the many achievements of the American workforce, and this push for better working conditions led to the establishment of Labor Day, a time to recognize American labor in its entirety.

The Core of Productivity

At its essence, productivity measures value addition per unit. This could be per worker, per hour worked, or based on costs involved. The recent rankings of U.S. states incorporate several factors, from real value added, worker output, and output per worker to unit labor costs and other factors.

The U.S. Bureau of Labor Statistics paints a comprehensive picture of the state of productivity in the nation today. Using its data, our report offers a detailed examination of the performance of states in various metrics, emphasizing their progress from 2017 to 2022.

Here's a detailed overview of the metrics used to evaluate each state's productivity:

Employment Rank: Measures the employment levels in relation to the state's population.
Real Value Added Rank: Captures the net output of the state after adding up all outputs and subtracting intermediate inputs.
Labor Productivity Rank: Represents the output produced per hour of labor.
Worker Output Rank: Quantifies the total output produced by the workforce.
Output Per Worker Rank: Measures the average output per individual worker.
Hours Worked Rank: Assesses the average number of hours worked by employees in the state.
Unit Labor Costs Rank: Examines the average cost of labor in producing one unit of output.
GDP Per Capita Rank: Analyzes the state's GDP divided by its population, providing insights into economic health and average income.

We used these metrics to calculate productivity on a state-by-state basis.

Most to Least Productive States

Let's take a look at the most productive states in 2023 so far, from most to least productive, based on the metrics above.

Productivity Rank	State
1	Washington
2	California
3	Colorado
4	Utah
5	Oregon
6	Massachusetts
7	Idaho
8	Georgia
9	Tennessee
10	New Hampshire
11	Texas
12	Florida
13	Arizona
14	Nebraska
15	Kansas
16	Ohio
17	Virginia
18	New York
19	Minnesota
20	Maine
21	North Carolina
22	New Jersey
23	South Carolina
24	Iowa
25	Nevada
26	Wisconsin
27	Pennsylvania
28	Michigan
29	Maryland
30	Arkansas
31	Montana
32	Connecticut
33	North Dakota
34	Illinois
35	Indiana
36	South Dakota
37	Kentucky
38	New Mexico
39	Oklahoma
40	Delaware
41	Vermont
42	Alabama
43	Missouri
44	West Virginia
45	Hawaii
46	Rhode Island
47	Wyoming
48	Mississippi
49	Alaska
50	Louisiana

Let's take a closer look at the top performers.

Top Tier States: The Leaders

Examining the top ten most productive states uncovers persistent trends, linking attributes and regions. Leading states, like Washington and California, are propelled by robust technology sectors and excel in labor productivity and output.

Also notably, the West Coast and Southern regions have emerged as prominent hubs of productivity, with many of the nation's most productive states coming from those regions. The significance of education and innovation resonates in states like Utah and Colorado, highlighting the pivotal role that a skilled workforce plays in economic output.

In all, these patterns show how technological advancement, education, and well-rounded economies unite to nurture high productivity levels across a diverse set of states.

#1 – Washington

Washington's final rank of 1 is attributed to high rankings in labor productivity, worker output, and output per worker. The state ranked 1st in both labor productivity and output per worker. Real value added is strong with a ranking of 2, and GDP per capita stands at 3rd.

#2 – California

California secured the 2nd position overall primarily due to strong performance in real value added, labor productivity, and output per worker. The state ranked 2nd in output per worker and 3rd in labor productivity, and its 5th-place spot in both real value added and worker output contributed significantly to its ranking.

#3 – Colorado

Colorado ranked 3rd, benefitting from its number 2 spot in labor productivity and 4th spot in real value added and worker output. While GDP per capita landed at 8th, unit labor costs are slightly higher at 16th.

#4 – Utah

At 4th place, Utah stands out for its top rankings in employment, real value added, and worker output. Employment and real value added both ranked 1st. However, the state has lower ranks in unit labor costs and GDP per capita, at 26th and 19th, respectively.

#5 – Oregon

Oregon's 5th-place spot can be linked to its performance in output per worker (4th) and real value added (7th). Labor productivity and worker output both secured a 7th-place rank, and the state's GDP per capita ranking is a bit lower at 22nd.

#6 – Massachusetts

Massachusetts secured the 6th-place spot largely due to its 2nd-place rank in GDP per capita. While output per worker is commendable at 7th, most other indicators are ranked in the mid-teens or higher.

#7 – Idaho

Idaho's 7th-place rank is bolstered by its 2nd-place rank in employment and 3rd-place rank in real value added and worker output. However, the state has a high unit labor cost ranking at 35th and a low GDP per capita rank at 45th.

#8 – Georgia

Georgia, at 8th, sees balanced labor performance with most metrics ranked around the 9th to 15th range. However, unit labor costs and GDP per capita are on the higher side, ranking 23rd and 26th, respectively.

#9 – Tennessee

Claiming the 9th-place position, Tennessee's strengths lie in real value added and worker output, both ranked 10th. Despite this, labor productivity is at 20th and GDP per capita at 30th.

#10 – New Hampshire

Rounding out the top 10, New Hampshire stands out with its 3rd-place rank in output per worker. Labor productivity is also strong at 8th. The state's employment and hours-worked rankings are on the higher side, at 31st and 24th, respectively.

Now, let's take a look at where labor productivity has improved the most.

The Ten Most Improved States

Here are the 10 states that have improved the most in overall productivity by each factor over the last 5 years. The percentage change of each factor from 2017 to 2022 is listed below.

Improvement Rank	State	Employment	Real Value Added	Labor Productivity	Worker Output	Output Per Worker	Hours Worked	Unit Labor Costs	GDP Per Capita
1	Idaho	32.6%	32.6%	14.9%	32.6%	12.7%	15.4%	18.0%	25.5%
2	Washington	25.7%	25.7%	19.3%	25.7%	17.8%	5.3%	15.4%	20.8%
3	Utah	27.9%	27.9%	15.0%	27.9%	10.5%	11.2%	18.9%	24.0%
4	California	16.8%	16.8%	12.6%	16.8%	11.9%	3.7%	14.5%	13.7%
5	Oregon	16.8%	16.8%	12.8%	16.8%	11.1%	3.5%	15.2%	14.2%
6	Arizona	22.0%	22.0%	8.0%	22.0%	7.9%	12.9%	18.3%	17.4%
7	Tennessee	18.8%	18.8%	10.1%	18.8%	9.6%	7.9%	17.2%	15.3%
8	Maine	16.2%	16.2%	14.7%	16.2%	13.9%	1.3%	16.5%	14.7%
9	Colorado	19.7%	19.7%	11.3%	19.7%	9.7%	7.6%	19.7%	17.0%
10	Massachusetts	14.8%	14.8%	12.8%	14.8%	12.7%	1.7%	13.4%	12.6%

Overall Growth Leaders

This data indicates a clear trend: Productivity improvement has been dominated by the Western region in recent years. Seven out of the top 10 emerging states, in terms of productivity, are from the Western US, with the leading 5 spots occupied by states from this region. To dive deeper into the numbers:

Idaho: Tops the list with a uniform 32.6% increase in employment, real value added, and worker output. The state also witnessed a significant boost in labor productivity (14.9%) and GDP per capita (25.5%).
Washington: A 25.7% enhancement in employment, real value added, and worker output. The state stands out with an impressive 19.3% increase in labor productivity and a 20.8% rise in GDP per capita.
Utah: Demonstrated a growth of 27.9% in employment, real value added, and worker output. The state also experienced a commendable growth in labor productivity (15.0%) and GDP per capita (24.0%).
California: With a 16.8% increase in both employment and real value added, the state demonstrated consistent expansion across these indicators. Worker output also saw a notable uptick by 16.8%, showcasing the state's active economic landscape.
Oregon: Like California, the state experienced a 16.8% growth in both employment and real value added, reflecting its commitment to overall economic expansion. Worker output also increased by 16.8%, underlining the state's active economic pursuits. With a labor productivity change of 12.8%, Oregon showcased its dedication to improving efficiency in resource utilization. This efficiency translated to a 14.2% rise in GDP per capita, indicating that economic growth was being channeled into increased prosperity for its residents.

Ultimately, what does this data mean for the future of U.S. labor productivity?

Implications for the Future

Our research provides revealing insights into how the landscape of labor productivity in the U.S. is continuing to evolve.

Investment in Technology & Education: States with higher productivity often have robust technological infrastructures and prioritize education. To boost national productivity, there's a need for investments in technology adoption and educational reforms.
Policy Reforms: Recognizing that high employment doesn't always result in high productivity can guide policy reforms. Focusing on the quality of jobs, worker training, and ensuring businesses have the tools to succeed can be game-changers.
Work Culture Evolution: The traditional 9-to-5 work schedule might not be the most productive model for all sectors. Embracing flexible work schedules, remote work, and emphasizing results over hours can redefine productivity.

Labor Day's significance remains as a moment to honor the hard work and dedication of American workers. It serves as a reminder of the struggles faced by earlier generations and the progress that's been made in labor rights over the years.

The day encapsulates the spirit, resilience, and tenacity of countless individuals who have shaped the nation's labor landscape. Their struggles for fair wages, reasonable hours, and safer workplaces has paved the way for the labor rights we benefit from today. In this context, Labor Day is not just a holiday: It's a testament to the enduring spirit of the American workforce.

Methodology

We began by identifying eight pivotal factors believed to impact and represent a state's productivity. Labor productivity data was taken from private, non-farm sectors from the U.S. Bureau of Labor Statistics released on May 25, 2023.

Employment Rank: Measures the employment levels in relation to the state's population.
Real Value Added Rank: Captures the net output of the state after adding up all outputs and subtracting intermediate inputs.
Labor Productivity Rank: Represents the output produced per hour of labor.
Worker Output Rank: Quantifies the total output produced by the workforce.
Output Per Worker Rank: Measures the average output per individual worker.
Hours Worked Rank: Assesses the average number of hours worked by employees in the state.
Unit Labor Costs Rank: Examines the average cost of labor in producing one unit of output.
GDP Per Capita Rank: Analyzes the state's GDP divided by its population, providing insights into economic health and average income.

The individual ranks for each of the eight factors were summed for every state to get a cumulative score. States were then ranked based on their aggregate scores. Those with the lowest consolidated scores (indicating top performance across most factors) were ranked higher (better), while those with higher scores were placed lower (worse) in the final rankings.