Introduction

In macroeconomics, the economic performance of a state is generally measured by economic growth (GDP), unemployment, and labor force participation, among other metrics. Common Sense Institute developed the Economic Performance Index to assess the overall economic performance of Iowa relative to other states. Seven metrics comprise the index: GDP per capita, labor force participation rate for people aged 18 to 64 years, net business creation, inequality as measured by the Gini Index, the percentage of people of all ages in poverty, the median household income, and net interstate migration.

The index starts in 2011 and is calculated annually. It ranks each of the seven component metrics across 50 states and D.C. for each year and subtracts the rank from 100. Therefore, higher (or lower) index values indicate the state is more (or less) competitive. The index weighs each of the component metrics evenly. It then ranks the indices for each state and D.C. with 1 equaling the highest index value and 51 equaling the lowest index value.

Common Sense Institute's Free Enterprise Indices rely on the data available as of October of the previous year. Therefore, current data across policy areas may be different than that reported in the annual Free Enterprise Report. CSI updates and releases the report in December every year.

Key Findings

• Measured by GDP per capita, Iowa’s economy has grown 56% since 2011 and ranks 25^th
• The percentage of all people in poverty has decreased by 1.7%, from 12% in 2011 to 11% in 2023. Iowa has nonetheless fallen in the index relative to other states, standing at 18^th lowest nationally.
• Median household income increased by 44.2% between 2011 and 2023, from $50,219 to $72,429, outpacing the 32.2% increase in inflation over the same period. Iowa ranks 13^th highest in median household income nationally.
• Labor force participation decreased by 1.3%, from 82.2% in 2011 to 80.9% in 2023. Despite this, Iowa ranks 9^th
• Inequality has increased by 3.9% from 2011 to 2023. Despite this increase, Iowa has the 10^th lowest level of inequality nationally.
• Net business creation per capita has increased from 12.6 in 2018 to 47.2 in 2023; however, Iowa ranks 46^th
• Net interstate migration continues to increase on average, and Iowa ranks 31^st
• Iowa’s overall relative economic performance ranks 17^th

Iowa’s Economic Performance Index

The Economic Performance Index measures Iowa’s performance relative to 49 other states and the District of Columbia, not the performance of Iowa in isolation. As shown in figure 1, the Iowa Economic Performance index was 80.2 in 2011, peaked in 2012 at 87.3, and averaged 84.2 from 2011 to 2020 before declining 6.3% from 2020 through 2023 to 78.3.

While Iowa’s overall economic performance has improved since 2011, the state has fallen in the Economic Performance Index relative to other states and D.C. Better economic performance in 16 other states reduced the state’s rank despite improvements in its economic environment. As discussed in the section “The Composition of Iowa's Economy” later in this report, the industrial composition of Iowa’s economy makes it difficult for the state to rank at the top of the index. For instance, the agricultural sector comprises a much larger share of Iowa’s economy than in many states, and this sector trends among the lowest for income derived from salaries and wages. Similarly, Iowa’s professional-scientific-technical and information sectors make up a smaller share of the economy than in many states, and these sectors trend among the highest for income derived from salaries and wages.

Iowa’s Economic Performance Index Component Metrics

Between 2011 and 2023, Iowa’s rank in CSI’s Economic Performance Index declined in five of the seven metrics: GDP per capita, labor force participation rate, inequality, poverty, and median household income. Net business creation per capita remained unchanged; interstate migration increased by 4.6%. The index value for net business creation per capita was 54 in 2011. It peaked in 2012 and 2013 at 90 before falling to 54 in 2023. As shown in figure 3, the 29% decline after 2020 accounted for most of the decline over the period. The drop in Iowa’s Economic Performance Index metrics, however, is not the result of negative changes in the data specific to Iowa.

The underlying data deteriorated in only one of the seven metric categories—the labor force participation rate. The underlying data in the other six categories improved from 2011 to 2023. Thus, the Economic Performance Index metrics—excepting net interstate migration—declined because Iowa’s performance  lagged 16 other states, not because economic conditions worsened. Figure 2 shows the evolution of the performance index component metrics between 2011 and 2023.

Figure 3 describes the percentage changes in the Economic Performance Index component metrics. From 2011 to 2023, all metrics declined except net business creation per capita and net interstate migration. The greatest declines occurred in the percentage of people of all ages in poverty (-5.8%), median household income (-5.4%), and labor force participation (-3.2%).

The Composition of Iowa’s Economy

The composition of a state’s industry significantly impacts the performance of its economy relative to other states. Figure 4 shows the share of Iowa’s GDP versus the total U.S. GDP attributable to different industrial sectors. Additionally, it compares Iowa’s industrial share distribution to the U.S. share distribution in the column labeled “Relative Share,” with a higher number indicating a larger relative share for Iowa in that sector. The manufacturing sector is the largest single contributor to GDP at a 17.2% share, followed by finance and insurance at 13.3%, government and government enterprises at 10.4%, real estate & rental & leasing at 9.1%, and agriculture at 6.8%.

Iowa’s current industrial composition differs from the U.S. overall in some key sectors where GDP and wage growth are high. Professional, scientific, and technical services comprise 4.1% of Iowa’s GDP compared to 9.2% nationally; the information sector stands at 3.2% in Iowa versus 7.1% nationally. Conversely, the state’s manufacturing sector’s share of the economy is 69% larger than that of the U.S. overall, and the finance & insurance sector is 91% larger than the U.S. share. Because real GDP has grown more slowly in these two sectors than in professional services and information sectors, Iowa’s economy does not grow as fast as states with a larger share of GDP derived from professional services and information.

Figure 5 shows the share of employment by each industrial sector for Iowa and the U.S. Notably, Iowa’s share of employment in farming is 3.6 times larger than for the U.S. Average income from salaries and wages tends to lag in this sector, as shown in figure 6. Commensurate with its share of GDP shown in figure 4, employment in professional, scientific, and technical services in Iowa equals only 60% of the U.S. share. Employment in the information sector in Iowa equals 70% of the U.S. share. These sectors tend to have high levels of income from wages and salaries, as shown in figure 6.

Economic Performance Index Components

The following sections of this report break down each metric in the Economic Performance Index, illustrating that a state’s score on the index is a relative measure.

Net Business Creation per Capita

Net business creation per capita in Iowa increased dramatically from 2011 to 2014 before dropping through 2020. It has picked up since 2021. Based on the competitiveness metric index relative to other states, however, it declined from 90 in 2013 to 54 in 2023, putting it near the bottom today. One can conclude that net business creation per capita in other states was much more robust.

Net Interstate Migration

Net interstate migration fluctuates from year to year, but it has been increasing on average in Iowa over the past 14 years. Relative to all other states and D.C., however, based on the competitiveness metric index Iowa has improved only slightly relative to all other states and D.C., rising from 66 in 2011 to 69 in 2023.

Inequality

CSI utilizes the Gini coefficient to measure inequality. A Gini coefficient of 0 reflects perfect equality, where all income or wealth values are the same. A Gini coefficient of 1 (or 100%) reflects maximal inequality among values—a situation where a single individual has all the income, and all others have none.

Inequality in Iowa as measured by the Gini coefficient has increased by 3.9% from 0.434 in 2011 to 0.451 in 2023. Despite this, Iowa’s performance in terms of inequality remains in the top quintile of all fifty states and D.C.

Percentage of People of Ages in Poverty

The percentage of all people in poverty in Iowa has improved since 2011, falling from 12.7% in 2011 to 11% in 2023. Relative to the 49 other states and D.C., however, it has fallen behind. The state has decreased from 87 in 2011 to 82 in 2023 in this component of the Economic Performance Index.

Median Household Income

Median household income in Iowa has increased by 44.2% from $50,219 in 2011 to $72,429 in 2023. This exceeds the 32.2% increase in inflation in the Midwest over the same period.

Relative to 49 other states and D.C., however, as measured by the competitiveness metric Iowa has fallen from 92 in 2011 to 87 in 2023. Median household income in other states has increased more.

GDP per Capita

Iowa’s per capita GDP increased 55% from $51,571 in 2011 to $75,177 in 2023. This resulted in a slight decrease in their competitiveness metric from 76 to 75, meaning relative GDP per capita growth remained unchanged.

Labor Force Participation

Labor force participation in Iowa decreased by 1.3% from 82.2% in 2011 to 80.9% in 2023. Compared to 49 other states and D.C., Iowa’s labor force participation rate is in the top quintile despite the competitiveness metric falling from 94 to 91.