Over the past three decades, “economic dynamism” — an aggregate measure of an array of factors — has fallen across the U.S., with the average state dropping by 30 percent between the early 1990s and the start of the pandemic in 2020.
The measure was created by the Economic Innovation Group (EIG), a think tank based in Washington, D.C., and updated most recently in May in a report called Dynamism in the West, Stagnation for Much of the Rest.
While New York is the fourth most populous state, it has not fared well compared to Florida, Texas and California. New York has dropped 24 spots on EIG’s index in the past five years and is now at No. 46. The other three states have been consistently in the top 10. (The most dynamic state economy is in Delaware, followed by Utah and Idaho.)
The index includes components such as the rate of new startup companies; the share of workers at firms less than five years old; housing permits per 1,000 residents; and worker churn. The highest dynamism rankings are for states with the most aggressive rates of building. New York has created 1.2 million jobs over the past 10 years but only 400,000 homes, driving up costs and leading many to leave the state.
The dynamism measure also includes the business-growth rate; the labor-force participation rate; how many inventors with patents are residents; and the migration rate, which reflects the desire of people to move to New York. The state suffers in all these measures, and its ratings have fallen like a rock over the past decade.
One large reason for this is population. According to the Fiscal Policy Institute, from 2010 to 2020 New York’s population grew by 4.2 percent, or 823,100 people, mostly in New York City. But in 2020-21, the state lost 2.1 percent of its residents, or 431,100 people. The people leaving are those who are less well-off and can’t afford the rising costs. These are the sort of working- and middle-class people who would stay if the economy were creating better-paying jobs.
It appears from other data that the millionaires who fled during the pandemic are returning and perhaps could play a role in sparking higher dynamism. But historically, the largest growth comes from the creation of small businesses, and the conditions in New York — the housing crisis, workers leaving and high taxes — do not point to an immediate turnaround.
The trend might turn because of outside forces such as the Federal Reserve lowering interest rates, but it will require major shifts in other factors, especially housing and the departure of workers, for New York to return to the top 20 in the economic dynamism index.
As goes New York City, so goes New York. We’ll have to see if conditions bedeviling the city retreat over the next decade, but we should remain pessimistic about the next few years.
