Choosing another state in which to expand a business is primarily a financial decision.
Things such as proximity to customers, available labor force and quality of life are measured in financial terms. Getting closer to a customer, but losing money is hardly a good solution for any company. So let’s take a look at how a business views a relocation decision in financial terms.
Labor costs are extremely important because they are so expensive. For example, which would you choose: an additional $45,000 employee or a new $500,000 addition to your building? Since $45,000 per year is close to the capitalization cost of a new building, they both cost about the same.
Here is a list of the states with the lowest and highest wage rates, according to the Bureau of Labor Statistics:
1996 Average Annual Pay of Workers
(51) South Dakota , $20,724
(50) Montana, $21,146
(49) North Dakota, $21,242
(48) Mississippi, $21,822
(47) Arkansas, $22,294
(5) Massachusetts, $33,940
(4) New Jersey, $35,928
(3) Connecticut, $36,579
(2) New York, $36,831
(1) District of Columbia, $42,453
So how do employers moving to low average annual pay states recruit above-average employees without incurring additional expense? One way is to relocate an employee to an area where housing costs are lower. If an employee can reduce his or her housing expense then the employee is effectively getting a raise, but at no cost to the employer.
Not surprisingly, the cheapest construction costs are in the Southeastern United States.
By way of example, let’s say that an employee makes $45,000 per year and owns a $100,000 house in his company’s headquarters city of St. Louis, which has construction costs that are the national average. He is given a choice of transferring to Columbus, Mississippi or Long Island, New York. If he builds the identical house in Long Island, it will cost $116,000, according to the 1998 National Construction Estimator. The same house in Columbus, Mississippi will cost $83,000.
Therefore the employee gets a raise equal to the amount required to finance $17,000, which is the difference in the cost of the two houses.
Imagine the amount if the employee was transferred from Long Island to Columbus.
Here is a list of cities and their construction costs:
City% Above or Below National Cost
San Francisco, CA, 23%
Newport, MI, 15%
Boston, MA, 13%
Chicago, IL, 9%
Spokane, WA, 9%
Jackson, MS, -15%
Biloxi, MS, -15%
Spartanburg, SC, -16%
Asheville, NC, -18%
Augusta, GA, -19%
Here’s one way to look at our state:
If Mississippi were a village of 100 people —
• 63 would be white,
• 36 would be black,
• 32 would be 19 or under,
• 12 would be 65 or over,
• 77 would have been born here,
• 24 would be below poverty level,
• 5 would have been a victim of a crime in 1995,
• 10 would live in a home with no telephone,
• the females would live to be 76.39 years and the males would live to be 67.74 years.
Phil Hardwick’s column on Mississippi business appears every other week in the Mississippi Business Journal. His e-mail address is firstname.lastname@example.org.