Study Identifies High Costs of Doing Business in Mass.

October 30, 2006

A new study by a Boston-based think tank shows that Massachusetts firms in nine selected industries including financial services have costs that are on average 20 percent to 30 percent higher than similar companies in Texas, North Carolina and New Hampshire. One result is that average after-tax profit levels in those three states are about twice as high as in Massachusetts.

In fact, of the six other states studied, Massachusetts beats out only New Jersey and New York, where costs are typically 5 percent and 15 percent higher, respectively, according to the Pioneer Institute for Public Policy Research.

The study compares Massachusets to six states: two neighboring (New Hampshire and Rhode Island); two large regional competitors(New York and New Jersey); and two national competitors (North Carolina and Texas).

Among the nine industries analyzed, the financial services-securities sector was more profitable in all competitor states except New York. The aerospace/defense, biotech, semiconductor equipment, software, medical devices, and search/navigation instrument sectors had lower costs in four of the six competitor states.

The main areas of high costs in the Bay State are in wages, commercial rent/land costs, and unemployment insurance, according to the Pioneer report.

High land costs are cited as the Bay State’s biggest disadvantage. They push up the rental and building costs for businesses and may also be undercutting one of the state’s main strengths β€”its skilled workforce β€” because residents can’t afford homes, according to the study.

“While improvements in health premiums, energy costs, and taxes would help, those are all secondary to the major factor: land prices, which affect business costs, standard of living, and affordability,” the study’s executive summary notes. “The latter is perhaps the most important, as it is imperative that Massachusetts maintain its main competitive advantage β€” a skilled labor force – to offset its higher costs elsewhere. Without a pool of highly educated workers, the state may have difficulties in business retention and development.”

Somewhat surprisingly, insurance costs for healthcare and workers’ compensation are not among the problem areas in the Bay State, the study finds.

The state has an advantage over a number of competing states in workers’ compensation costs, despite its high wages costs. However, the differential is too small to affect the overall results much.

According to the study, an infotech/semiconductor firm pays about $112,000 annually for workers’ compensation coverage in Massachusetts, but would pay nearly 50 percent more, $165,000, in Manchester, N.H. The largest advantage for Massachusetts is over New York, where the annual cost would be $192,000.

Also, despite the impression that is healthcare costs are the highest in the nation, health premiums for businesses in Massachusetts are not tops. Health care premiums for manufacturing firms are lower, on average, in Massachusetts than in New Hampshire, New Jersey, Rhode Island and Texas. Healthcare costs are lower in New York and North Carolina.

Source:The Pioneer Institute
www.pioneerinstitute.org

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