How does Arizona rate when it comes to the knowledge economy?
For the past 20 years, the Milken Institute has produced the State Technology and Science Index to evaluate the knowledge economy within states. The report is released every other year, and the 2022 report is the latest available. This article will look at how Arizona fares when it comes to the knowledge economy, both currently and how its ranking has changed over the years. We will also look at other states in the West, specifically those tracked on the MAP Dashboard. These states may be close geographically, though there can be vast differences regarding the knowledge economy, science and technology employment, concentration, education, and innovation.
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Rankings are separated into five tiers, which can be used as a basis for comparing peer states. Arizona lands at the top of Tier Three for 2022, ranking 16th among all states. Arizona has been a Tier Three state for every report since 2012. Most states tracked on the MAP Dashboard consistently do well in the State Technology and Science Index. In fact, California, Colorado, Utah, and Washington have all been among the top 10 states throughout the entire history of the Index. Tier One states for the 2022 index included California, Colorado, Utah, and Washington. Oregon was among Tier Two states, while Arizona, Idaho, New Mexico, and Texas were in Tier Three. Nevada was the lowest-ranked MAP state, falling into Tier Four. This was an improvement over 2020 when it was in Tier Five. Nevada improved the most out of all MAP states between 2020 and 2022, moving up seven places in ranking to 39th, and was the only state to move to a different tier. Most MAP states rose or fell one to two places since the last report, though Oregon moved down four places from 10th in 2020 to 14th in 2022 (Exhibit 1).
Exhibit 1. State Technology and Science Index Rankings, MAP Dashboard States
The State Technology and Science Index is comprised of five sub-indexes, each representing elements vital to having a strong knowledge economy and science and technology economy within a state. The overall ranking is based on the average of standings for the five sub-indexes. The five sub-indexes are Research and Development Inputs, Risk Capital and Entrepreneurial Infrastructure, Human Capital Investment, Technology and Science Workforce, and Technology Concentration and Dynamism. Indicators relevant to each sub-index come from both government and private sources and are used to calculate the rankings for each state.
Arizona does best in the Technology Concentration and Dynamism sub-index, ranking 8th in 2022 and showing progress over the long term. The 2022 rankings for Arizona were stable or improved in both Research and Development Inputs and Risk Capital and Entrepreneurial Infrastructure compared to 2020. Both had slight decreases compared to 10 years ago, however.
Arizona falls behind in the Technology and Science Workforce and Human Capital Investment sub-indexes. Arizona currently ranks 31st in Technology and Science Workforce. The state dropped from 11th in 2012 to 29th in 2020, then even lower to 31st in 2022. The state also ranks farther down in Human Capital Investment, though has improved over the last 10 years, moving up from 35th in 2012 to 29th in 2022.
Here are descriptions of the sub-indexes, along with which states rank highest and how Arizona and other western states compare.
Ranking states within the knowledge economy
Research and Development Inputs gauge innovation and includes indicators such as R&D expenditures. It also includes small business technology and National Science Foundation funding. Massachusetts has dominated this area, ranking at the top since the inception of the Index. Arizona ranked 18th in 2022, the same as it had in 2020. It has stayed in roughly the same position throughout its twenty-year history. Nevada ranked 49th for this sub-index in 2022 and has historically been near the bottom in this area. Utah was among the states with the biggest gains between 2020 and 2022 (moving up seven places), while Oregon and Texas were among those with the biggest drop in ratings, both falling five places according to the report. California and Colorado ranked fifth and sixth, respectively for this sub-index in 2022.
Risk Capital and Entrepreneurial Infrastructure looks at how well state attract capital to further business innovation and include measures such as venture capital, small business and other investment, patents, and business formation. California and Utah ranked second and third in 2022 following Delaware. California has consistently ranked well in this area, staying within the top five. Utah has made improvements, moving from 16th in 2012 to third in 2022. Washington ranks among the top ten states as well. Arizona ranked 14th in the most recent index, an improvement over 19th in 2020, but lower than it had been 10 years ago when it placed 12th. Nevada made an impressive jump in 2022, moving up 36 places to fifth, thanks primarily to improvements in venture capital. New Mexico and Oregon both lost ground between 2020 and 2022 in this sub-index.
Human Capital Investment focuses on education and training available in each state, particularly in science, technology, engineering, and mathematics (STEM) through all levels of education. Indicators include educational attainment, state spending for education, test scores, and access to computers and the internet. Massachusetts also excels in this area, ranking either first or second most of the years the Index has been in existence. Utah also does very well with this, ranking third in 2022, the same as it had in 2020. Nevada, on the other hand, ranks poorly. It was 48th in 2022, up from 49th in 2020, and has ranked at or near the bottom for most years. Arizona does not do particularly well in this area either, ranking 29th in 2022, up just one place from 30th in 2020. The highest Arizona has ever ranked in this area was 27th in 2018. California and Colorado both ranked within the top 10 states for this sub-index.
Technology and Science Workforce measures employment by occupation and looks at the concentration of science and engineering jobs in each state. Washington is the top state for this, ranking first in 2022 and 2020. It has been among the top five states for this sub-index since 2008. Colorado ranked second in 2022, up from fourth in 2020. California and Oregon rank fifth and sixth, respectively. Arizona has been trending down in this area, ranking 31st in 2022, down from 29th in 2020 after being 14th in 2018. Hopefully, the increase of semiconductor and battery manufacturers and related industries in the state will improve this standing. Nevada moved up from last place in 2020 to 48th in 2022.
Technology Concentration and Dynamism tracks the intensity of high-tech business growth by looking at growth in high-tech industries, the concentration of high-tech industries (location quotients higher than 1.0), percent of employment and payroll in high-tech NAICS codes, and the number of companies in rankings that look at fast-growing companies. Utah, California, and Colorado are the top three states in this area. Utah was also the top state in 2020 followed by Colorado and then California. These three states, along with Washington, have been at or near the top of the knowledge economy list for most of the years this Index has been published. This is an area where Arizona also does well. The state ranked eighth in 2022 after placing sixth in 2020.
Author: Valorie H. Rice is the Senior Business Information Specialist at the Economic and Business Research Center (EBRC) in the University of Arizona’s Eller College of Management.