Study: CT not that costly for manufacturers
(9/8/2010) (From Hartford Business Journal)
Connecticut, long criticized as a costly place for manufacturers to do business, is not that expensive after all, according to a new University of Connecticut study, The Associated Press reports.
Instead, Vermont, New Hampshire and Rhode Island are the most expensive states in the country for manufacturers to operate, while Connecticut ranked 43rd, the study found.
The study was presented Wednesday during the Fairfield County Economic Summit & Outlook symposium co-sponsored by the Connecticut Business & Industry Association, the Stamford Chamber of Commerce and UConn.
"The November election will bring a new round of claims about Connecticut's high wages, exorbitant rents, burdensome taxes, overall lack of competitiveness and resulting job losses," the study's authors wrote. "Such claims have become so common, even during non-election years, that many voters accept the mantra of Connecticut's `unfriendly' business environment as fact."
In March, Greg Hayes, chief financial officer at industrial conglomerate United Technologies Corp., told investor analysts that "any place outside of Connecticut is low cost." His comment led to an argument between Republican Gov. M. Jodi Rell and Democratic leaders of the legislature about whether state policies are hostile to business and job growth.
However, authors Subhash Ray, Lei Chen and Dennis Heffley said in the study, "High Wages, Low Costs: A Connecticut Paradox?" that manufacturers in the state economize on more expensive contributors to costs such as rent, labor and energy, make greater use of less expensive ways to manufacture and develop more efficient production methods.
In Connecticut, a dollar's worth of manufactured goods costs 79.3 cents to produce, which is below the national average of 83.3 cents.
In contrast, the cost is 95.9 cents in Vermont, 93.5 cents in New Hampshire and 93 cents in Rhode Island, the study said. Oregon is the least expensive state for manufacturing, costing 70.6 cents to produce a dollar's worth of manufactured goods.
To make their calculations, the authors included the costs of labor and materials used in production, taxes and license fees, and annual capital costs that include depreciation, rental payments and interest.
Connecticut fares better in manufacturing costs than Massachusetts or New Jersey, "often seen as two of our key competitors for Northeast manufacturing," the authors said.
Ray, Chen and Heffley say some perceptions of Connecticut, such as its status as a high-wage state, are accurate. But high wages are among many influences on the cost of production.
Businesses that have high wages have an incentive to use labor more efficiently, such as technology that improves productivity, the study said.
In addition, Connecticut's 7.5 percent corporate income tax rate is in the middle range among state tax rates, below that of Massachusetts, which is 8.75 percent, and Rhode Island, which is 9 percent.
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