Report: N.J.’s innovative economy ranks in middle of Northeast states

Gov. Phil Murphy has made creating an innovative economy one of his top priorities since taking office. Three years after he was elected, you can say he’s halfway there … in the Northeast.

The New Jersey Business & Industry Association’s updated 2020 Indicators of Innovation report, which bills itself as an examination of how the state’s innovation economy compares to other states in the region, shows New Jersey’s overall innovation score remains stuck in the middle of the pack.

The study, released Tuesday, analyzed data for 12 indicators in three major areas that are key to a robust innovation ecosystem — capital, talent and business — and makes a series of recommendations to improve New Jersey’s competitiveness in building a more robust innovation economy.

Nicole Sandelier, the director of economic policy research at NJBIA, said the state isn’t taking full advantage of its potential.

“New Jersey has the capacity to be an innovation leader, but isn’t capitalizing on its substantial assets and addressing existing obstacles,” she said. “Government, academia and business can revitalize New Jersey’s innovation ecosystem by working together to focus on the areas where New Jersey lags significantly behind its regional competitors.”

Sandelier said the report found New Jersey’s innovation ecosystem is challenged by high taxes; the loss of too many first-time New Jersey college students to other states; and significantly less venture capital investment and federal research and development awards than some of its competitor states.

Massachusetts and New York remain the regional leaders in innovation, just as they were in NJBIA’s study last year. In the 2020 study, New Jersey edged out Maryland in the seven-state comparison by 1 point, for an overall No. 4 ranking, which dropped Maryland to No. 5.

Sandelier said some data sources used to calculate indicator scores are new or modified from those used in the NJBIA report released in 2019. Therefore, while a state’s individual score in each of the 12 indicators should not be directly compared to its scores in that category in the prior year, the scores are useful for comparing how the states stack up against one another.

The full report and graphics can be found here.

Key takeaways from the latest report include:


  • New Jersey has seen a 43% decline over an 11-year period in venture capital investment, which plays a major role in bringing innovative concepts and startups to the marketplace. In 2019, Massachusetts ($60.2 billion) and New York ($57.1 billion) led the region in total Assets under Management, a measurement of the value of all assets being managed in those states by venture capital funds. New Jersey, with an AUM of $3.3 billion in 2019, ranks No. 4.
  • New Jersey receives significantly less money than regional competitors from two of the nation’s largest sources of early stage/high risk funding for startups and small businesses: the federal Small Business Innovation Research and the Small Business Technology Transfer programs. Massachusetts ($199.8 million) and New York ($102.7 million) led the region in total SBIR/STTR awards in 2019. New Jersey is fifth in the region, receiving $38.2 million in 2019.
  • New Jersey has increased its state R&D expenditures by 157% over an 11-year-period. However, New York’s state R&D investment still far exceeds the spending of the other six states combined. In 2018, the most recent comparative data available, New York spent $450.2 million, followed by Pennsylvania ($101.6 million), Connecticut ($54.5 million) and New Jersey ($51.3 million).
  • New Jersey is the only state in the region to experience a decline in National Science Foundation funds, which dropped to $138.8 million in 2019, a loss of 12% since 2010. Regional leader Massachusetts received $550.4 million in NSF funds in 2019, followed by New York ($483.9 million), Maryland ($426.4 million), Pennsylvania ($313.3 million) and New Jersey.

Recommendations: New Jersey can be more competitive by partnering with venture capital funds to invest in early-stage companies; increasing the R&D tax credit to incentivize R&D spending; and increasing funding for the state’s Commission on Science, Technology & Innovation so that it can provide direct grants to small business, implement new programs and continue to help small businesses with the federal SBIR/STTR grant process.


  • Educated employees are key to a successful innovation ecosystem, and Massachusetts leads the region with 20.1% of its population holding a graduate or professional degree. Maryland ranks second (18.9%), followed by Connecticut (17.8%), New York (16.4%) and New Jersey (16%).
  • New Jersey leads the region, and the nation, in net loss of first-time college students who leave to attend schools in other states. According to the National Center for Education Statistics, New Jersey had a net loss of 28,259 students in the fall of 2018, the most recent NCES data available.  Pennsylvania (+13,360), New York (+8,912), Massachusetts (+7,623), and Delaware (+1,371) all experienced gains in net migration of first-time college students.
  • In New Jersey, 0.31% of the people meet the criteria of a “new entrepreneur,” an indicator that uses U.S. Census data to estimate the percentage of a state’s population that starts a business. This is the highest rate of any state in the region. Maryland and New York tied for second in the region with a new entrepreneur rate of 0.30%.

Recommendations: Increase public-private partnerships to pool financial resources and build relationships between industry professionals, academic researchers and government officials to create cutting-edge technology, life-saving medical treatments and new products. Annualize and increase funding for the state’s Innovation and Research Fellowship Program to support more promising researchers. Form a state-level partnership with Global EIR, a nonprofit that works with communities and universities to help international students and college-educated entrepreneurs secure visas to build U.S. based businesses and create jobs.


  • Patent activity is an indicator of a healthy innovation ecosystem, and New Jersey ranks No. 4 in the region, with 8,311 patents granted to investors and assignees in 2019. Massachusetts was No. 1 with 16,564 patents, followed by New York (15,924), and Pennsylvania (9,210).
  • New Jersey ranks No. 4 in the region in its new employer actualization rate, an indicator used by the Ewing Marion Kaufmann Foundation to calculate the percentage of businesses that make their first payroll within two years of a business application. In 2018, the most recent data available, Massachusetts was No. 1 in the region, with a 13.5% new employer actualization rate, followed by New York (12.5%), Pennsylvania (11.6%) and New Jersey (9.9%).
  • Net business growth, which subtracts the total number of companies that went out of business from the total number of new businesses created, is also used to assess whether a state’s economy is growing. In 2018, the last year of available data, New Jersey ranked No. 2 in the region in net business growth (+1,431), ahead of Delaware (+574), Connecticut (+426) and Maryland (+107). Massachusetts led the region with a net business growth of +3,387.
  • New Jersey has the worst business tax climate in the nation, according to the Tax Foundation’s Business Tax Climate Index, which takes into account the individual income tax, the state sales tax, the corporate business tax, property taxes and unemployment insurance taxes. New Jersey has ranked No. 49 or No. 50 in the foundation’s annual index for the past 10 years. Delaware and Pennsylvania have the most business-friendly tax climate in the seven-state region.

Recommendations: Amend New Jersey’s Angel Investor Tax Credit to provide additional incentives for investments in smaller, high-growth companies; reinstate corporate tax incentive programs to spur innovative economic activity; implement structural reforms to improve New Jersey’s tax climate; establish the proposed Government Efficiency and Regulatory Review Commission to identify rules and regulations creating outsized burdens on businesses.