2005 Rankings Report
What Will Your Workforce Cost?
South Dakota and three states from the Southwest lead the pack in cost of labor.
The “true” cost of your workforce is probably impossible to measure—how do you quantify the cost of a substandard education or a local work ethic? Still, we know what issues rise to the top these days when you’re selecting a workforce, particularly within manufacturing, call centers, or other labor-intensive sectors. You need to of course take a look at how much you’ll have to pay employees to attract a decent workforce, but we identify three other things employers like you are looking at very carefully: unemployment insurance tax rates, workers’ compensation rates, and unionization. The last item is a bit controversial, as many companies work happily with unions. By and large however, we find the trend today is shifting away from organized labor as employers seek shelter in “right-to-work” states.
Here are the categories we measured for Cost of Labor:
- Category 1: Unionization percentage, 2003
- Category 2: Average unemployment Insurance Tax Rate on Taxable Wages, 2004
- Category 3: Comparative workers compensation rate per $100 of payroll for manufacturing, 2004
- Category 4: Average hourly earnings of production workers on manufacturing payrolls, 2003
Categories 3 and 4 were given full weighting; Category 2 was weighted at three-quarters, and Category 1 was weighted one-half. The data used comes from analysis provided by the Nebraska Department of Economic Development on its Web site.
The results don’t turn the world on its head, but it’s certainly revealing to see a state the size of Arizona have such a competitive finish at number two. It’s clear the Southwest is leading the rest of the country in labor laws as they apply to employers’ costs. Arizona, New Mexico, and Utah all have unemployment insurance tax rates of 1% or less (Virginia leads with 0.2%). Each is well under $3.00 of workers’ compensation rate per $100 of payroll (by comparison, California is at $12.45). And wages are lower than at least half of the states in Arizona, New Mexico, and Utah.
It’s also encouraging to see North Carolina ranked so high—the state is increasingly becoming an important place on the map for companies throughout the East, but it hasn’t let costs get out of control.
South Dakota, while not a state that can meet every company’s needs, cannot be overlooked for its affordability. It ranked no worse than 13th in any of the four categories examined. You might expect the winner of our ranking to have very high unemployment, but that’s not the case in South Dakota where the unemployment rate was 4% as of May 2005. Its relatively small labor force of 428,300 is kept busy.
In fact, only two of the states in our top 15 have unemployment rates greater than 6%, the old standard for “full employment:” Mississippi (7.1%) and South Carolina (6.3%). Though both of these states are in the South, higher unemployment is not endemic to the region; Georgia has 5.2% unemployment, North Carolina has 5.1%, Arkansas has 5%, Alabama has 4.4%, and Virginia has a piddling 3.6% unemployment rate. The average unemployment rate among the 15 states is 4.82%; the U.S. average unemployment for May 2005 was 5.1%. Clearly, the correlation between a low cost of labor and a high unemployment rate is not established in this data. While states can control workers’ compensation rates and unemployment insurance to a degree, they can’t affect wage rates as directly, so it remains to be seen whether states like South Dakota with especially low unemployment rates will be able to maintain their position in our ranking as the economy improves.
It’s likely that many of the employed in each of these states is underemployed—working at jobs they are overqualified for, for example, or not working as many hours as they would like. In an economy that seems to be undergoing a “jobless recovery,” it probably won’t be as difficult to find qualified workers for your next project as unemployment rates would suggest.
That makes the employees in these states an especially good bargain.
