The concept of dynamism captures the intrinsic vitality of an economy: how quickly it changes, how efficiently it redeploys its resources to the most productive use, and how successfully it translates experimentation into opportunity. In The Case for Economic Dynamism, EIG chronicled the troubling decline in dynamism in recent decades and made the case that rekindling it should be a central organizing principle for American economic policy. Here, we extend those insights to states, measuring and ranking their performance across multiple different measures of economic dynamism over time. States matter because they hold so many policy levers that influence the course of dynamism, from labor market regulations to permitting processes, R&D funding, and economic development policy.

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Dynamism lies at the heart of a well-functioning economy, but it has been in retreat for decades.

Change in average score on the Index of State Dynamism since 1992

1992

2021

Higher

Lower dynamism

Economic dynamism has fallen by more than 24 percent in the average state since the early 1990s.

The downsides of declining dynamism are not always immediate or obvious — the U.S. economy has made notable gains over this period and many states have thrived. But a less dynamic economy tends to be less resilient to shocks, less innovative, less productive, and poorer in opportunity over the long-term.

We calculate the Index of State Dynamism (ISD) for each state by combining eight measures — each capturing a distinct element of economic dynamism — into a single summary score.

Across states, falling dynamism scores largely stem from a sustained drop in new business activity and associated impacts on the labor market.

Five of eight ISD indicators follow steady downward trajectories: core startup rates, jobs in young firms, labor force participation rates, migration rates, and reallocation rates.

Of the other indicators, changes in the number of firms and housing permits are trending downwards over the long-term but still tend to be somewhat responsive to the business cycle.

Only one indicator, inventors, solidly bucks the trend with an upward trajectory over time.

The ISD is calculated annually and captures a dramatic period of economic evolution in the United States, from the dot-com crash of the 1990s through the housing bubble of the 2000s to the Great Recession and its aftermath.

A major drop in the index came with the dual housing and financial crises of the Great Recession, which resulted in a dramatic, persistent, and pervasive reduction in economic dynamism — a key factor in the slow and uneven recovery that followed.

Visualizing the decline through a color gradient paints the sharp divergence in higher dynamism scores before the Great Recession and lower dynamism scores after in a different light.

Dynamism has declined in virtually every state over the past three decades, falling precipitously during the 2007-09 economic crisis and struggling to recover since.

Even so, it’s clear that states in the West and parts of the South have maintained their relative advantage as the most dynamic state economies since the 1990s.

Many states in the country’s traditional industrial heartland across the Midwest and Northeast, however, have seen their economic status erode over this time.

The Index of State Dynamism provides a unique assessment of the underlying health of the economy. Its decline in virtually every state over the past three decades should be a wake-up call.

Explore state-level variation in how dynamism and its components have evolved over time in the interactive below.

For more in-depth analysis of the latest scores and geographic trends, visit our articles here. Information on data sources and the methodology for calculating the ISD can be found here.