What's Happening With Business Costs?

Business costs are important determinants of where firms invest in expanded or new facilities. They don't tell the whole story, but remain vitally important to economic development success.

According to a recent study by Economy.com, business costs account for 35 percent of the differences in employment growth across all states over the past 15 years. Business costs are dynamic and therefore change over time. Research by Economy.com indicates that those states that have either maintained lower costs of doing business or posted the biggest declines in business costs are the states experiencing the biggest employment gains. The study cites Arizona, New Mexico and Utah as examples of states that have held the line on business costs relative to the nation and also seen major job gains in the past decade.

Which states have have seen the greatest relative business cost gains and declines in the last decade?

Biggest Business Cost Gains:

1. Hawaii.
2. Washington.
3. Louisiana.
4. Delaware.
5. Vermont.
6. Kansas.
7. Montana.
8. Washington DC.
9. Maine.
10. Iowa

Which have posted the biggest relative cost declines?

Biggest Relative Cost Declines:

1. New Mexico.
2. Rhode Island.
3. Arizona.
4. Utah.
5. Nebraska.
6. Georgia.
7. Pennsylvania.
8. Alaska.
9. Oregon.
10. New York.

Here is the overall conclusion of the Economy.com study: "It is true that costs are not the only factor driving growth, and that their impact is much more measurable over longer time spans such as decades, rather than years. Nonetheless, the long-term significance of business costs makes them an important metric to keep track of. This is particularly true in times of economic uncertainty such as today. As the typical drivers of short-term growth falter and cash-strapped firms grope for ways to widen margins and regain profitability, relative business costs loom very large in both downsizing and relocation plans."

If you subscribe to Economy.com, you can find the article here.

What is our opinion? Business costs have always been important to economic development and they will continue to play a major role in the future. However, as we look at the knowledge economy, we see "net value creation" as the leading indicator for tracking business and industry competitiveness. As they say, cost is only one side of value.