A new US national migration study for 2020 was released this week by United Van Lines and this post uses the report’s state-to-state migration patterns based on household moves last year to answer the question: What differences are there between America’s top ten inbound and top ten outbound states in 2020 when they are compared on a variety of measures of business climate, individual and corporate tax burdens, state fiscal health, electricity and housing costs, economic performance, and labor market dynamism? This analysis is a variation of my annual analyses using state-to-state migration flow data from the US Census Bureau, see my November CD post based on 2019 Census data here.
Since 1977 United Van Lines “has annually tracked migration patterns on a state-by-state basis. The 2020 study is based on household moves handled by United within the 48 contiguous states and Washington, D.C. and ranks states based on the inbound and outbound percentages of total moves in each state.” The top ten inbound and top ten outbound states in 2020 are displayed in the table above.
Q: Based on the 2020 state-to-state household moving data from United Van Lines, what significant differences are there between the top ten inbound and top ten outbound states when they are compared on a variety of measures of business climate, business and individual taxes, fiscal health, electricity and housing costs, economic performance, and labor market dynamism? Assuming that Americans and US companies “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving into states that are relatively more economically vibrant, dynamic, and business-friendly, with lower tax and regulatory burdens, lower energy and housing costs, with more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations, higher energy and housing costs, and with fewer economic and job opportunities?
The table above (click to enlarge) summarizes a comparison between the two groups of US states (top ten inbound and top ten outbound) on 11 different measures of economic performance, labor market dynamism, business climate, electricity and housing costs, tax climate, and fiscal stability for those ten states. And on each of those 11 measures, there is empirical evidence that the top ten inbound states are on average out-performing the top ten outbound states, suggesting that household migration patterns in the US do reflect Americans and firms “voting/moving with their feet” from high-tax, business-unfriendly, fiscally unhealthy, economically stagnant states with relatively high electricity and housing costs to lower-tax, more business-friendly, fiscally healthy and economically vibrant states with lower electricity and housing costs. Let’s review those 11 measures, one at a time:
1. Right-to-Work. Nine of the top ten inbound US states in 2020 were Right-to-Work (RTW) states (all except Oregon), while eight of the top ten outbound states are forced-unionism states (all except Kansas and North Dakota). According to many studies like this one by my AEI colleague Jeff Eisenach (emphasis mine):
There is a large body of rigorous economic research on the effects of
RTW laws on economic performance. Overall, that research suggests that RTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.
Therefore, it would make sense that American businesses and workers
are leaving low-growth, forced-unionism states for higher-growth, RTW
states with more dynamic labor markets and greater job opportunities.
2. State Tax Burden. Earlier this year, Wallet Hub released a study on the “2020’s Tax Burden by State” that measured the percentage of each state’s total personal income that goes to state and local taxes in the form of a) individual income taxes, b) property taxes, and c) sales and excise taxes. The average state tax burden for the top ten inbound states was estimated to be 7.90% compared to a 9.54% average tax burden for the top ten outbound states. Six of those top outbound states — New York at No. 1, Connecticut at No. 6, New Jersey at No. 7, Illinois at No. 9, Maryland at No. 11 and California at No. 13 — ranked among the 13 highest-tax US states in 2020.
3. Income Taxes. a) According to the Tax Foundation, the average top individual income tax rate in the top ten inbound states was 4.6% in 2020 compared to an average top tax rate of 6.9% in the top 10 outbound states. Two of the top 10 inbound states — South Dakota and Florida — have no state individual income tax.
b) Similarly, the average top corporate tax rate based on Tax Foundation data in the top ten inbound states was 5.1% last year compared to 7.0% in the top ten outbound states. South Dakota, the No. 4 inbound state in 2020 has no state corporate income tax. It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore, no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states.
4. Forbes Best States for Business. Based on its most recent annual state ranking that measures six business categories: business costs, labor supply, regulatory environment, current economic climate, growth prospects, and quality of life, Forbes rated North Carolina, the No. 6 inbound state in 2020, again as the best US state for business last year. Three of the other US states in the top ten inbound states (Idaho, Florida and Tennessee) ranked in the top ten best US states for business according to Forbes, and all of the top ten inbound US states in 2020 except for Alabama and Arkansas ranked in the top half of Forbes’ best states for business. The average Forbes ranking for the top ten inbound states last year was 16 out of 50 compared to the average ranking of 32 out of 50 for the top ten outbound states. For the category “Business Cost” in the Forbes study South Dakota ranked No. 1 (lowest costs), North Carolina and Tennessee ranked No. and No. 10 respectively. Not surprisingly, four of the top outbound states in 2020 – New Jersey at No. 49, Massachusetts at No. 48, California at No. 47, and Connecticut at No. 45 — were among the six US states with the highest business costs according to Forbes.
5. Business Tax Climate Rankings. Every year The Tax Foundation calculates and reports its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. In the most recent Tax Foundation rankings, four of the top ten outbound states (New York, New Jersey, Connecticut, and California) are the four US states with the worst business tax climates. For the top ten inbound states, seven of those states were in the top half of states for the best (lowest) tax climate. The average business tax climate ranking for the top ten inbound states was 21 (top half) compared to an average ranking of 40 (bottom one-quarter) for the top ten outbound states.
6. State Fiscal Stability Rankings. US News and World Report recently ranked US states by “fiscal stability” based on both on a short-term and long-term basis. State credit ratings and public pension liabilities measure long-term financial health, while asset liquidity and a state’s budget management (spending vs. revenue) are used to measure short-term health. According to the report, “The fiscal stability of a state’s government is vital to ensuring the success of government-sponsored programs and projects and the quality of life of the state’s residents.”
The average fiscal stability ranking for the top ten inbound states was 16 (top one-third of states) compared to an average ranking of 35 (bottom one-third) for the outbound states. Tennessee (No. 7 inbound state in 2020) is currently ranked as the top US state for fiscal stability and it’s followed by other states among the top ten inbound states including Florida (No. 2 for fiscal stability) and North Carolina (No. 4). Four of the top ten outbound states were among the ten US states with the worst fiscal stability rankings – Illinois (No. 50 for fiscal stability), New Jersey (No. 49), Connecticut (No. 46) and California (No. 42).
7. Average Electricity Cost by state is another factor that might contribute to businesses and households moving from states with relatively high energy costs to states with lower energy costs. According to data from the Energy Information Administration on the “Average Price of Electricity to Ultimate Customers,” the average price of electricity for all sectors (residential, commercial, industrial, and transportation) in October 2020 was 9.43 cents per kilowatt-hour for the top ten inbound states last year. For the top ten outbound states, the average cost of electricity in 2020 was 13.32 cents per kilowatt-hour, which is more than 41% higher than the top ten inbound states. Three of the top outbound states – California at No. 50, Connecticut at No. 49 and Massachusetts at No. 47 — were among the top four US states with the highest electricity costs. Because electricity costs affect both the cost of living for households and operation costs for businesses, it’s not surprising that the states with the highest electricity costs are losing population to states with lower energy costs.
8. Median Home Price by state is another measure that could affect US migration patterns, and it does appear that Americans are leaving states with high housings costs to move to states with lower median home prices. The median home prices by state in the table above are from Zillow and show that for the top ten inbound states, the average of the median home prices for those states is $233,419 compared to $305,703 for the top en outbound states. The median home in the top ten outbound states is $72,284 (and 31%) higher on average than for the top ten inbound states, which could partly explain the outbound migration from states with high housing costs to states with lower housing costs. Based on a 10% down payment and a 4%, 30-year fixed-rate mortgage, annual housing costs in the top ten inbound state would be nearly $4,000 lower than the top ten outbound states.
9. Economic Performance. The last two categories above show economic performance measures for each of the 20 states for a) state real GDP growth rate in 2019 b) and the annual employment growth in 2019. For the top ten inbound states, the average real GDP growth rate in 2019 was 2.4% and the average annual job growth was 2.0%. In contrast, the average figures for the ten outbound states were 1.7% for real GDP growth and 0.9% for annual job growth. In other words, compared to the top outbound states, annual real output growth was 0.7% higher in the top inbound states in 2019 (2.4% vs. 1.7%) and annual employment growth was more than two times higher (2.0% vs. 0.9%).
Those two important economic indicators suggest that the top ten inbound states are stronger economically on average than the top ten outbound states with greater economic growth and more robust labor markets with higher rates of job creation.
Bottom Line: Based on state-to-state migration data in 2020 from United Van Lines, the migration patterns of US households (and businesses) followed predictable patterns, reflecting differences among states in economic growth, tax burdens, business climate, energy and housing costs, labor market robustness, and fiscal stability. To answer the questions posed above, there are significant differences between the top ten inbound and top ten outbound US states when they are compared on 11 measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal stability, electricity and housing costs, and labor market dynamism. There is empirical evidence that Americans and businesses “vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving away from states that are economically stagnant and fiscally unhealthy, with higher tax burdens, unfriendly business climates, higher energy and housing costs and fewer job opportunities, to fiscally sound states that are more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens, and lower energy and housing costs and greater job opportunities.