Are These States to Blame for Stunting Job Growth?

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While the recession is technically over, millions of Americans are still out of work and the rate of new job creation has remained at historically low levels. The U.S. Chamber of Commerce believes that heavy state regulation is greatly to blame.

Dozens of studies have demonstrated that, in general, laws and regulations that inhibit the ability of workers and firms to negotiate and enforce efficient contracts make it more difficult for employers to create jobs and hire new workers, raise the cost of labor, reduce productivity, and slow economic growth.


President Obama also stated in the Wall Street Journal that "Sometimes ... rules have gotten out of balance, placing unreasonable burdens on business -- burdens that have stifled innovation and have had a chilling effect on growth and jobs.

However, many states have chosen to enact their own labor and employment statutes on top of federal standards.

Based on a comprehensive survey of employment policies in the 50 U.S. states in 2009, the U.S. Chamber of Commerce developed an Employment Regulation Index (ERI) to measure state labor and employment regulation on a scale of 1 (least regulated) to 100 (most heavily regulated). The results suggest that higher levels of regulation result in higher unemployment rates and lower rates of new business formation. In other words, the greater the regulation, the fewer the jobs.

The U.S. Chamber of Commerce asserts that if all 50 states improved their scores by minimizing their regulations, it could create up to 746,000 new jobs and decrease the national average unemployment rate from the current 9.0 percent to 8.7 percent. To put this in perspective, only 105,000 new private-sector jobs were created per month in 2010.

So which states were called out for having policies that inhibit job creation (or have the greatest room for improvement and potential job growth)? Here are the top culprits.


Worst states for job creation

1. California

Major industries: Agriculture

Unemployment rate: 12.5%

Contributing factors: Complex wage and hour laws, privacy-based employee screening


2. Connecticut

Major industries:Insurance, Manufacturing

Unemployment rate: 9%

Contributing factors: Multiple state level protections beyond federal requirements, restrictions on independent-contractor relationships


3. Hawaii

Major industries: Tourism, Agriculture, Commercial Fishing

Unemployment rate: 6.4%

Contributing factors: Extensive leave requirements, complex wage and hour laws


4. Illinois

Major industries: Manufacturing, Agriculture

Unemployment rate: 9.3%

Contributing factors: Not a right-to-work state, high rate of labor and employment lawsuits, restrictions on employer inquiries into employee history


5. Maine

Major industries: Tourism, Shipbuilding, Fishing, paper, Lumber, Bio-technology, Agriculture

Unemployment rate: 7.3%

Contributing factors: High workers' compensation premiums, not a right-to-work state


6. Massachusetts

Major industries: Commercial Fishing, Shipping, Manufacturing, Electronics, Communications, Pharmaceutical, Health Care

Unemployment rate: 8.2%

Contributing factors: Extensive restrictions on pre-hire background checks, three-hour reporting pay requirement


7. Michigan

Major industries: Manufacturing, Agriculture, Wood-Products, Tourism, Recreation

Unemployment rate: 11.7%

Contributing factors: not a right-to-work state, uncapped damages available in employment discrimination claims


8. Montana

Major industries: Agriculture, Lumber, Mineral Extraction, Tourism

Unemployment rate: 7.2%

Contributing factors: Tough restrictions on independent contractors, not a right-to-work state


9. Nevada

Major industries: Gaming, Tourism, Mining, Agriculture

Unemployment rate: 14.5%

Contributing factors: Additional overtime, minimum wage and discrimination statutes


10. New Jersey

Major industries: Pharmaceutical, Chemical Development, Telecommunications, Food Processing, Tourism

Unemployment rate: 9.2%

Contributing factors: High rate of labor and employment-related lawsuits, not a right-to-work state


11. New York

Major industries: Financial Services, Manufacturing, Tourism, Agriculture

Unemployment rate: 8.2%

Contributing factors: High rate of labor and employment-related lawsuits, not a right-to-work state


12. Oregon

Major industries: Manufacturing, Agriculture

Unemployment rate: 10.6%

Contributing factors: Tough restrictions on employee screening, limitations to the employment at-will doctrine


13. Pennsylvania

Major industries: Oil, Coal, Steel, Manufacturing, Agriculture, Tourism

Unemployment rate: 8.5%

Contributing factors: Significant limitations on the employment-at-will doctrine, restrictive qualifications for white collar and sales professionals to be exempt from overtime.


14. Washington

Major industries: Fishing, Agriculture, Food Production, Lumber, Information Technology, Aircraft Production, Shipbuilding

Unemployment rate: 9.2%

Contributing factors: Very high workers' compensation benefits, high wage ceiling for income subject to unemployment insurance tax, no right-to-work protections


15. Wisconsin

Major industries: Manufacturing, Agriculture, Health Care, Tourism

Unemployment rate: 7.5%

Contributing factors: Employment-related department provisions, significant additional positing and notice requirements


Best states for job creation

1. Alabama

Major industries: Manufacturing, Mining, Agriculture

Late 2010 unemployment rate: 9.1%

Contributing factors: No separate state minimum wage or overtime, no restrictions on applicant screening, right-to-work state


2. Florida

Major industries: Tourism, agriculture, mining, aerospace

Unemployment rate: 12%

Contributing factors: Recognition of the at-will employment doctrine, strong right-to-work guarantees, general acceptance of independent-contractor relationships


3. Georgia

Major industries: Trade and Service, Manufacturing, Agriculture, Bioscience

Unemployment rate: 10.2%

Contributing factors: Strong at-will employment doctrine, strong right-to-work guarantees, acceptance of independent-contractor relationship


4. Idaho

Major industries: Tourism, Agriculture, Health Care, Food Processing, Mining

Unemployment Rate: 9.4%

Contributing factors: Strong right-to-work guarantees, no overtime requirements, no additional state-imposed leave requirements


5. Kansas

Major industries: Agriculture, Manufacturing, Mining, Petroleum

Unemployment rate: 6.8%

Contributing factors: Right-to-work state, low workers' compensation premiums


6. Mississippi

Major industries: Petroleum and Coal Products Manufacturing, Transportation Equipment Manufacturing, Food Manufacturing, and Chemical Manufacturing

Unemployment rate: 9.9%

Contributing factors: Right-to-work state, employers given latitude to screen applicants


7. North Carolina

Major industries: Agriculture, Wood Products, Textiles, Furniture Manufacturing, Banking, Financial Services

Unemployment rate: 9.8%

Contributing factors: Overtime and minimum wage set by federal law, right-to-work state


8. North Dakota

Major industries: Agriculture, Food Processing, Truck Accessories, Machinery, Mining, Tourism, Fishing, Hunting

Unemployment rate: 3.8%

Contributing factors: Right-to-work state, minimal restrictions on pre-employment screening, voluntary verification process for independent contractors


9. Oklahoma

Major industries: Energy, Manufacturing, Aerospace, Food Processing, Agriculture

Unemployment rate: 6.8%

Contributing factors: Acceptance of independent-contractor relationships, minimum wage and overtime set by federal law, right-to-work guarantees


10. South Carolina

Major industries: Agriculture, Manufacturing

Unemployment rate: 10.7%

Contributing factors: prohibition on establishing higher prevailing wages, right-to-work state, few restrictions on employee screening


11. South Dakota

Major industries: Agriculture, Manufacturing

Unemployment rate: 4.6%

Contributing factors: Minimum wage and overtime set by federal law, few restrictions on employer inquiries into employee history, right-to-work state


12. Tennessee

Major industries: Agriculture, Manufacturing, Tourism, Health Care

Unemployment rate: 9.4%

Contributing factors: Strong right-to-work guarantees, acceptance of independent-contractor relationships


13. Texas

Major industries: Oil, Natural Gas, Agriculture, Information Technology, Manufacturing, Petroleum Products, Chemicals

Unemployment rate: 8.3%

Contributing factors: Strong right-to-work protections, support for at-will employment doctrine


14. Utah

Major industries: Mining, Agriculture, Timber, Defense, Aerospace

Unemployment rate: 7.5%

Contributing factors: Right-to-work state, few restrictions on employer inquiries into employee history.


15. Virginia

Major industries: Agriculture, Fishing, Manufacturing, Shipping, Technology

Unemployment rate: 6.7%

Contributing factors: Low workers' compensation premiums, right-to-work state, relatively low number of labor and employment lawsuits


Next:Are Unemployment Rates Really Going Down?

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