Unleashing growth in 2016, state by state

As 2016 approaches and the U.S. concludes another year of unimpressive economic growth — a situation we’ve, unfortunately, become accustomed to — it’s a perfect time to reflect upon the importance of economic freedom. Does economic freedom matter and, if so, how can one tell?

Countries and even states have different levels of economic freedom, determined by their unique set of policies but can one really perceive the difference between economic freedom in, say, Virginia and West Virginia?

{mosads}Tuesday’s release of the 2015 Economic Freedom of North America (EFNA) annual report and its ranking of the 50 U.S. states offers some solid clues into the connection between each state’s unique set of economic policies, and human wellbeing and opportunity.

Virginia and West Virginia share nearly 400 miles of border, both have a rich heritage of coal mining, and both are within a very short distance to the nation’s capital in Washington DC. For the most part, that’s where the similarities end and, unfortunately, that’s not a good thing for West Virginia. 

According to the EFNA ranking, Virginia ranks 6^th in the U.S., while West Virginia plods along at an unimpressive 43^rd. The repercussions are real: per capita income in West Virginia is nearly $11,000 less than Virginia’s, the unemployment rate is nearly 3 percent higher, West Virginians can expect to live, on average, nearly four years less, and the drug overdose death rate in West Virginia is nearly four times higher. 

When we drill down into the report’s three main categories — government spending, taxation, and labor market freedom — we get a clearer picture of how policies that restrict freedom, limit economic growth and opportunity. The differences between West Virginia and Virginia are stark.

Let’s take the most striking difference: labor market freedom — West Virginia ranks 49^th in this area and Virginia is 1^st.  Several factors account for this difference. Virginia is a Right-to-Work state, which means workers are not forced to pay union dues as a condition of employment, while West Virginia has forced unionism. West Virginia also has a higher minimum wage: $8.00/hour compared to Virginia’s $7.25/hour. As a result, West Virginia (remember it is 49^th in labor market freedom) has the highest unemployment rate in the United States at nearly 7 percent while Virginia stands at a healthy 4.2 percent

West Virginia also has the unpleasant distinction of being last in the nation in labor force participation and has an employment-to-population ratio of less than 50 percent, while Virginia’s is well above 60 percent in both categories. Put another way, less than half of West Virginia’s adults have a job. This is a crisis, indeed. 

When it comes to government spending, Virginia also beats West Virginia in the ranking — 8^th compared to 37^th!  Well over 11 percent of West Virginians — more than double Virginia’s percentage — are employed by the government. These government workers must be paid, and they’re all paid through taxation. More taxation means less money in people’s pockets to spend as they see fit and invest in their own futures.

But this lesson here is bigger than Virginia and West Virginia. Many economists have been lamenting our nation’s decline in economic freedom for years. Unfortunately, we’ve all become accustomed to a lackluster economy. We don’t need to.

Both West Virginia and Virginia can do better! Using the EFNA as a tool to compare the two offers a powerful reminder that not only does economic freedom matter, but that it is a powerful catalyst to improve all areas of our lives, from job opportunities, to higher incomes to better health and happiness.

All states can take note of this lesson and use the EFNA to offer direction for making policy improvements that lead to a stellar 2016!

Ballengee is the executive director for the Cardinal Institute for West Virginia Policy.