Friday, December 3, 1999

Survey: Hawaii’s
business costs fall

Lower labor expenses and a
booming mainland economy have
dropped the state to 4th in the U.S.

By Rob Perez


Art Hawaii no longer is the most expensive state in the country for operating a business, according to an annual survey.

After spending several years at the top, Hawaii last year slipped to second and this year became the fourth most costly state, says Regional Financial Associates, an economic research firm in West Chester, Pa., that annually surveys business costs.

Hawaii's improvement was due largely to falling labor costs here and surging expenses in other states, where a booming economy and tight job market have pushed up wages, said Sara Moreno, an economist with the company.

But if Hawaii's business costs are becoming less burdensome, Don Davis, who owns several small businesses, hasn't seen evidence of that.

"I'm finding it's getting worse," Davis said.

Bette Tatum, state director of the National Federation of Independent Business, likewise questioned whether the situation is improving, especially with politicians talking about proposing more mandates for businesses.

"I certainly can't say there's great improvement in the cost of doing business here," Tatum said.

But after being the most costly state in the nation for three consecutive years, from 1995 through 1997, falling to No. 4 is at least moving in the right direction, she said.

New Jersey edged out Massachusetts for the top spot this year.

The survey focuses on three major components affecting businesses: labor costs, tax burden and energy (mostly electricity) costs. Hawaii has been the nation's most costly energy state for at least the past two years, and it has ranked among the top three in tax burden, according to the survey.

But Hawaii's relative labor costs have plunged, Regional Financial said. In 1997 Hawaii was the most expensive state for labor, but over the past two years it has plummeted to No. 27, according to the survey.

And because labor costs easily represent the most significant part of the cost index, Hawaii has dropped a few notches in the overall ranking, Moreno said.

She said the state's improving labor picture has resulted mainly from a boost in productivity, which helps keep labor costs down.

Pearl Imada Iboshi, the state's chief economist, said Hawaii's productivity actually was a drag on economic growth in the first half of this decade, but that has changed markedly.

From 1995 to 1998, the productivity factor contributed 0.3 percentage points to Hawaii's economic growth of 1.8 percent, Iboshi said.

Hawaii's productivity improved because workers made better use of technology and companies became more efficient, she said.

Iboshi also said state reforms, like changes in worker's compensation insurance, have lowered costs to businesses the past few years.

Business costs, particularly as they affect profitability, play a significant role in companies' decisions on where to relocate or expand. Areas with high business costs are much more likely to have below-average or even negative job growth, according to Regional Financial.

Hawaii has lost jobs in recent years.

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