B U S I N E S S C O S T S

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1 Introduction A company s success in today s highly competitive global economy is determined by its ability to produce the highest quality products and services at the lowest costs. This competitive imperative is what drives firms to eliminate operational inefficiencies and redundancies, invest in technology to improve performance, and relocate and expand in locations that offer lower tax rates and/or lower business costs. B U S I N E S S C O S T S Private corporations are driven by the need to meet investors earnings expectations and to persistently look for ways to cut costs. This section examines how states rank in their provision of a low cost business environment in two subcategories: Taxes Cost of Doing Business BENCHMARK RESULTS Strengths Low corporate income tax burden Inexpensive Class A office space Relatively low sales tax burden Competitive real estate taxes for commercial/industrial properties in key metro areas Neutral Factors o Comparable state and local property tax burden o Average unemployment insurance taxes o Average electricity and natural gas prices o Average healthcare premiums on a national basis o Average unit labor costs Weaknesses _ High personal income taxes _ High overall tax burden _ Unionized workforce _ Expensive workers compensation premiums B U S I N E S S C O S T S Benchmarking Ohio s Economic Competitiveness 73

2 Introduction Summary of Benchmarking Indicators National Ranking (out of 50) Benchmark Ranking (out of 16) Indicator Ohio Indicator Value Taxes State corporate income tax burden (total state corporate income tax revenues as a % of total state 0.57% 15 3 business income) Local real estate taxes for R&D space Cincinnati: $0.90 / sq.ft. Columbus: $0.75 / sq.ft. Cleveland: $1.00 / sq.ft Toledo: $0.45 / sq.ft. Local real estate taxes for industrial space Cincinnati: $0.40 / sq.ft. Columbus: $0.43 / sq.ft. (warehouses and factories) Cleveland: $0.60 / sq.ft Toledo: $0.43 / sq.ft. State and local property tax revenues as a % of personal income 3.3% 30 9 Maximum unemployment tax rate applied to state wage base as a share of state average annual pay 2.0% 22 8 State and local sales and gross receipts tax revenues as a % of personal income 3.3% 14 5 Personal income tax rate for highest bracket 7.5% State and local personal income tax revenues as a % of personal income 3.6% Total state and local tax revenues as a % of personal income 11.1% Costs of Doing Business Akron: 82.4 Columbus: 88.6 Class A office space rental price index (U.S.=100) Cincinnati: 75.4 Dayton: 69.6 Cleveland: 86.1 Toledo: 72.4 Average retail electricity price for commercial users 7.85 cents/kwh Average retail electricity price for industrial users 4.80 cents/kwh 19 4 Average natural gas price for commercial users $7.38 per thousand cubic ft Average natural gas price for industrial users $5.78 per thousand cubic ft % of workers represented by unions 18.1% Average annual employer contribution for employment-based health insurance (single coverage) Average annual employer contribution for employment-based health insurance (family coverage) $2, $6, Worker s compensation premium rate index $2.89 (per $100 payroll) Adjusted unit labor cost index (U.S.=100) Benchmarking Ohio s Economic Competitiveness

3 Taxes T axes are often a significant cost item for businesses. State-levied taxes, such as the corporate income tax, individual income tax, unemployment tax, real estate tax, sales tax, etc., vary widely by state. Since state efforts to attract firms to their regions have become increasingly competitive, some state and local policymakers have given tax reform a high priority on their agenda for investment attraction and business retention. This subsection benchmarks states in a number of tax categories. The state corporate tax burden, real estate Taxes tax, unemployment tax, and sales tax directly increase the cost of doing business and cut into the profitability of businesses. The personal income tax is a direct business cost for small business owners and the self employed and also may play into business location and expansion decisions, as it affects real compensation of employees. Finally, to provide a summary comparison, we computed total state and local tax revenues as a percentage of personal income, as an indicator of the overall tax burden in each state. Benchmarking Indicators Taxes Overall Tax Burden State Corporate Income Tax Burden Real Estate Tax Rates & Burden Unemployment Tax Burden State & Local Sales Tax Burden State & Local Personal Income Tax Rates & Burden Total state and local tax revenues as a % of personal income Total state corporate income tax revenues as a % of total state business income 1) Local real estate taxes for industrial and R&D space 2) State and local property tax revenues as a % of personal income Maximum unemployment tax rate applied to state wage base as a share of state average annual pay State and local sales and gross receipts tax revenues as a % of personal income 1) Personal income tax rate for highest bracket 2) State and local personal income tax revenues as a % of personal income Benchmarking Ohio s Economic Competitiveness 75

4 Taxes Overall Tax Burden Why is this indicator important? Considering the myriad of taxes imposed by state and local governments that affect the competitiveness and profitability of businesses, it is important to ascertain the overall level of state and local taxes levied within each state. This overall tax burden indicator measures total state and local tax revenues collected as a percentage of total personal income within a state, or the total effective tax burden across states. In 2001, Ohio had the 3 rd highest tax burden among the benchmark states, exceeded only by Minnesota and Wisconsin. Its state and local tax burden of 11.1 percent of personal income is higher than the national average of 10.3 percent and places Ohio 43 rd nationally on this indicator. Total state and local tax revenues as a % of personal income (2001) 14.00% 12.00% % 6.00% 4.00% 2.00% Florida (7) 4.07% 4.00% 4.89% 3.64% 4.27% 3.12% 4.03% 4.17% 4.68% 2.93% 4.28% 3.76% 5.30% 5.47% 4.63% 5.95% 5.71% 6.88% 6.06% 5.95% 5.51% 7.31% 6.11% 6.85% Virginia (8) Texas (9) Massachusetts (11) Georgia (17) North Carolina (18) Indiana (20) Pennsylvania (21) Illinois (22) Michigan (23) Arizona (30) California (35) Kentucky (36) 7.86% 2.77% 6.18% 4.92% Ohio (43) Minnesota (45) 3.21% 4.28% 8.13% 7.45% Wisconsin (46) Total state tax revenues as a % of personal income Total local tax revenues as a % of personal income Source: Census Bureau & Bureau of Economic Analysis 76 Benchmarking Ohio s Economic Competitiveness

5 Taxes State Corporate Income Tax Burden Why is this indicator important? Corporate income taxes are an important factor in a firm s decision to relocate or to establish new offices in a region. A high corporate income tax burden could potentially lower a company s real profits. It is important to note that marginal tax rates, income brackets, exemptions, allowable deductions, credits and other tax incentives vary significantly by state. In addition, many states levy taxes on businesses (e.g. inventory tax, franchise tax, intangible tax) that are not included in this analysis. SRI calculated the effective state corporate tax burden in each state by dividing its corporate income tax revenues by its gross business income. 26 With a corporate tax burden of 0.57 percent, Ohio has a relatively competitive corporate income tax structure. It has the third lowest corporate tax burden among the benchmarked states after Texas, which has no corporate tax, and Virginia. Nationally, Ohio has the 15 th lowest corporate income tax burden, far below the median tax burden of 0.85 percent among all 50 states. 26 Corporate income tax revenues are defined as taxes on corporations and unincorporated businesses (when taxed separately from individual income), measured by net income, whether on corporations in general or on specific kinds of corporations, such as financial institutions. See class_ch7_tax.html. Business income (or property-type income ) is defined as the sum of corporate profits, proprietors income, rental income of persons, net interest, capital consumption allowances, business transfer payments, and the current surplus of government enterprises less subsidies. See: doc.gov/bea/articles/2001/08august/0801gsp.pdf. State corporate income tax revenues as a % of state business income (2001) 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.46% 0.57% 0.70% 0.77% 0.90% 0.93% 1.04% 1.05% 1.07% 1.34% 1.37% 1.38% 1.42% 1.49% 2.50% Texas (1) Virginia (8) Ohio (15) Georgia (19) North Carolina (23) Kentucky (29) Wisconsin (31) Arizona (34) Pennsylvania (35) Florida (38) Minnesota (41) Indiana (42) Massachusetts (44) California (45) Illinois (46) Michigan (49) Source: Census Bureau & Bureau of Economic Analysis Benchmarking Ohio s Economic Competitiveness 77

6 Taxes Real Estate Taxes Why is this indicator important? Whether a business property is rented or purchased, real estate taxes must be factored in as part of the total overhead cost of doing business. Real estate markets tend to be highly localized, and city governments, in addition to state governments, often impose real estate taxes. Thus, the first indicator here measures real estate tax rates on a city basis and not by state. For Ohio, the metro real estate markets used in this comparison include: Cincinnati, Cleveland, Columbus, and Toledo. For the benchmarking peers, the largest metro areas and economic centers in each state are chosen as their representative markets. The comparison focuses on local property taxes for land and buildings used for R&D properties and for warehouse and factories. The real estate tax was calculated as an average of the reported central city and suburban areas rates in dollars per square foot. In addition to the tax rates, as an overall indicator of the burden of property taxes, we benchmark each state according to state and local property tax revenues collected as a percentage of state personal income. Ohio s major metropolitan areas have competitive property tax rates when compared with metro areas in the benchmarked states and nationwide. Cincinnati has both the lowest and highest property taxes in Ohio, at $0.40 per square foot for warehouses and factories and $1 per square foot for R&D facilities. Toledo has the lowest property taxes overall with $0.43 for industrial space and $0.45 for R&D facilities. These compare favorably among benchmarked states, where the average property tax rate was $1.76 for industrial facilities and $1.21 for R&D facilities. Ohio also compares favorably nationwide, where the average property tax across metro areas included in this analysis was $0.78 for R&D facilities and $0.47 for industrial uses. In terms of the overall burden of state and local property taxes, Ohio is in the middle of the pack among benchmarked states, placing 9 th at 3.27 percent in Ohio is slightly above the median state property tax burden of 3.12 percent. State and local property tax revenues as a % of personal income (2001) 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Kentucky (8) 0.17% 0.02% 0.01% 0.01% 0.24% 0.19% 1.52% 0.43% 2.40% 2.49% 2.73% 2.86% 2.92% 2.83% 3.02% North Carolina (11) California (16) Georgia (18) Virginia (20) Pennsylvania (22) Arizona (25) Minnesota (27) Local property tax revenues as a % of personal income Ohio (30) 3.26% 0.01% Michigan (31) 0.63% 0.09% 0.01% 0.06% 2.64% 3.20% 3.50% 3.54% 3.88% 3.96% 4.02% Florida (33) Massachusetts (34) Indiana (36) Illinois (39) State property tax revenues as a % of personal income Texas (41) Wisconsin (43) Source: Census Bureau & Bureau of Economic Analysis 78 Benchmarking Ohio s Economic Competitiveness

7 Taxes Average real estate taxes for high-tech/r&d space (2004) $16.00 $14.00 $14.40 $12.00 $ per square foot $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 $0.13 $0.30 $0.45 $0.48 $0.68 $0.75 $0.75 $0.85 $0.90 $1.00 $1.20 $1.25 $1.25 $1.35 $1.50 $1.50 $1.62 $1.80 $1.85 $3.04 Houston, TX Charlotte, NC Toledo, OH Raleigh/Durham, NC Source: Society of Industrial & Office Realtors Atlanta, GA Columbus, OH Richmond, VA Dallas, TX Cleveland, OH Cincinnati, OH Milwaukee, WI Indianapolis, IN Washington DC/Northern VA Phoenix, AZ Miami-Dade County, FL Boston, MA Philadelphia, PA San Jose/Silicon Valley, CA Austin, TX Minneapolis, MN Orange County, CA Average real estate taxes for warehouses and factories (2004) $14.00 $12.00 $11.52 $10.00 $ per square foot $8.00 $6.00 $4.00 $2.00 $0.00 $0.07 $0.28 $0.30 $0.40 $0.40 $0.43 $0.43 $0.48 $0.48 $0.55 $0.60 $0.67 $0.68 $0.70 $1.00 $1.00 $1.00 Houston, TX Louisville, KY Charlotte, NC Cincinnati, OH Source: Society of Industrial & Office Realtors Richmond, VA Columbus, OH Toledo, OH San Jose/Silicon Valley, CA Raleigh/Durham, NC Atlanta, GA Cleveland, OH Dallas, TX Philadelphia, PA Indianapolis, IN Miami-Dade County, FL Boston, MA Washington DC/Northern VA Milwaukee, WI $1.00 $1.27 $1.30 $1.35 $2.02 Austin, TX Phoenix, AZ Chicago, IL Minneapolis, MN Orange County, CA Benchmarking Ohio s Economic Competitiveness 79

8 Taxes Unemployment Tax Why is this indicator important? Unemployment taxes factor into business cost structures. Since unemployment taxes are levied as a percentage of salaries, labor-intensive industries in particular have an incentive to look to states with low unemployment tax rates when they make relocation and/or expansion decisions. This indicator looks at the maximum state unemployment tax rate as a share of each state s average annual pay. 27 Ohio has an unemployment insurance (UI) tax of 1.97 percent. This places Ohio near the national median of 2.17 percent, and in the middle of the benchmarked states (8 th place). California has the lowest UI tax of all benchmarked states, at 1.05 percent, while Minnesota has the highest UI tax, at 6.32 percent. 27 Calculated using latest data available from the U.S. Department of Labor: 2004 maximum rates and taxable wage base, and 2002 average annual wages. Maximum state unemployment tax rates, as a % of average annual pay (2004) California (1) Arizona (2) Florida (3) Indiana (4) Pennsylvania (6) Virginia (8) Georgia (16) Ohio (22) Texas (23) Illinois (24) Michigan (29) Kentucky (30) North Carolina (31) Wisconsin (34) Massachusetts (35) 1.05% 1.11% 1.16% 1.18% 1.38% 1.41% 1.67% 1.97% 2.05% 2.12% 2.43% 2.59% 2.82% 3.15% 3.41% Minnesota (49) 6.32% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% Source: Small Business & Entrepreneurship Council 80 Benchmarking Ohio s Economic Competitiveness

9 Taxes State & Local Sales Tax Burden Why is this indicator important? A high sales tax disadvantages businesses in two ways. First, sales taxes increase the cost of doing business by adding to the cost of procuring raw materials, equipment, supplies, and services in order to produce goods and services. Second, sales taxes increase the effective sales price of a firm s product or services to its customers, who must pay sales taxes. These sales tax impacts may be disincentives for certain businesses to move to cities or states with high sales taxes. Ohio s combined state and local sales tax burden, at 3.31 percent of personal income, puts it among the lower sales tax states. It ranks 5 th among benchmarked states and 14 th nationwide in this indicator, and below the national median level of 3.63 percent. It should be noted that this is an indicator with a wide range of values driven by a few extreme cases. At one extreme, there are a handful of states with extremely low sales tax burdens (Oregon, 0.9 percent, Delaware, 1.3 percent, and New Hampshire, 1.4 percent). At the other extreme are states with very high sales tax burdens (Hawaii, 6.4 percent, Louisiana, 6.3 percent). In the middle are the majority of states within the 3-4 percent range, including Ohio. State and local sales & gross receipts tax revenues as a % of personal income (2001) 6.00% 5.00% 4.00% 0.82% 0.73% 1.25% 3.00% 2.00% 1.00% Massachusetts (6) 0.75% 0.09% 0.06% 2.09% 0.06% 2.05% 2.94% 3.22% Virginia (9) Pennsylvania (10) 2.86% 0.44% Indiana (13) Ohio (14) Illinois (17) 0.64% 0.06% 0.57% 0.17% 0.09% 0.96% 0.20% 1.40% 2.76% 3.36% 2.91% 3.42% 3.54% 2.71% 3.69% 2.50% 3.81% 4.06% 3.86% Michigan (18) North Carolina (21) Wisconsin (23) Minnesota (26) California (27) Kentucky (31) Georgia (32) Texas (38) Florida (41) Arizona (43) State sales & gross receipts tax revenues as a % of personal income Local sales & gross receipts tax revenues as a % of personal income Source: Census Bureau & Bureau of Economic Analysis Benchmarking Ohio s Economic Competitiveness 81

10 Taxes State and Local Personal Income Tax Rates & Burden Why are these indicators important? While personal income taxes are not often thought of as directly affecting firm s profits, they do play a role in company s decisions. Many small business owners feel their personal income tax acutely, as they file their business taxes as individuals (applying personal income tax rates). Furthermore, since high personal income taxes reduce the disposable income of employees, companies in high-tax cities or states may need to pay higher gross salaries as they compete for skilled workers. These two indicators measure the top income tax bracket in each state and the overall burden of state and local income taxes as a percentage of state personal income. Ohio has one of the nation s highest personal income tax burdens in the country and among the highest tax rates for its top income bracket. With a personal state and local income tax burden of 3.6 percent, Ohio has the highest personal income tax burden of all benchmark states, and the 4 th highest nationwide. Ohio s 7.5 percent top state income tax rate also places it among the highest tax states, as compared with other states nationwide and the benchmark group. State and local personal income taxes ( ) 4.00% 1 Tax revenues as a % of personal income 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 1.51% 1.83% 2.05% 2.10% 1.81% 2.69% 2.87% 2.91% 3.13% 3.17% 3.22% 3.34% 2.64% 0.16% 0.34% 0.75% 0.81% 1.06% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% Personal income tax rates for highest bracket 0.50% 2.56% 1.00% Florida Texas Arizona Illinois Michigan Indiana Pennsylvania Georgia Virginia California Wisconsin Massachusetts North Carolina Minnesota Kentucky Ohio Source: Small Business & Entrepreneurship Council, Census Bureau, & Bureau of Economic Analysis Local personal income tax revenues as a % of personal income (2001) State personal income tax revenues as a % of personal income (2001) Personal income tax rates for highest bracket (2004) 82 Benchmarking Ohio s Economic Competitiveness

11 Costs of Doing Business T he costs of doing business can vary widely from state-to-state and region-to-region. This section benchmarks states along key operating and overhead cost items. To benchmark the cost of real estate/property, we compare the rental prices for class A office space in key metropolitan real estate markets in each state. To compare energy costs, we look at Costs of Doing Business average electricity prices and natural gas prices. To measure employee-related costs, we benchmark employer contributions for health insurance premiums, workers compensation insurance premiums paid by employers, and an index of labor costs. Unionization rates are also included as an indicator of business costs. Benchmarking Indicators Costs of Doing Business Property Costs Class A Office Rent Energy Costs Unionization Rate Employee-Related Costs Class A office space rental price index 1) Average retail electricity prices for industrial and commercial users 2) Average natural gas prices for industrial and commercial users % of workers represented by unions 1) Average annual employer contribution for employment-based health insurance (single coverage) 2) Worker s compensation premium rate index 3) Adjusted unit labor cost index Benchmarking Ohio s Economic Competitiveness 83

12 Costs of Doing Business Property Costs Why is this indicator important? All else equal, low-cost office and industrial space makes a region more attractive to businesses looking to start-up, relocate, or expand their operations. As real estate costs tend to be highly localized, this indicator makes comparisons between the major metro real estate markets in each state typically the largest city. It benchmarks states according to the average rental rates for Class A office space in metropolitan areas, relative to the average of all cities studied. An index score of 100 is average, and scores above 100 have higher than average rental rates. 28 Ohio has very competitive Class A office space rental rates. The average index of rental rates of all Ohio s metro areas covered is 79, significantly below the U.S. average index of 100. Dayton, OH, with an index of 69.6, has the second lowest office rental rate among all cities studied here (though it should be noted that typically only the largest metro area in each state was included). The most expensive office real estate market in Ohio is Columbus, with an index score of This index is developed by Economy.com in their North American Business Cost Review(2003). Class A office space rental price index (2002) Houston, TX Dayton, OH Source: Economy.com Louisville, KY Toledo, OH Cincinnati, OH 75.4 Indianapolis, IN 75.9 Richmond, VA 78.8 Akron, OH 82.4 Detroit, MI 83.9 Cleveland, OH 86.1 Dallas, TX 87.1 Raleigh/Durham, NC 87.2 Milwaukee, WI Columbus, OH Phoenix, AZ Austin, TX Atlanta, GA Charlotte, NC Philadelphia, PA Los Angeles, CA Minneapolis, MN Miami, FL Chicago, IL Washington DC/Northern VA Boston, MA San Jose/Silicon Valley, CA 84 Benchmarking Ohio s Economic Competitiveness

13 Costs of Doing Business Energy Prices Why is this indicator important? Energy is an important input in all economic sectors. These two indicators, of electricity prices and natural gas prices, provide a broad view of how expensive energy is to business entities in each state. Electricity prices are measured in cents per kilowatt hour for both industrial and commercial users. Natural gas prices are presented for industrial and commercial users and also as a weighted average price. The weighted average price is the average of commercial and industrial prices weighted according to each sector s share in Ohio s final consumption. In other words, this is the average price that would be observed in each state if they had Ohio s industrial/commercial composition. Since natural gas prices are highly variable, an average of the years was taken. Ohio has average to high electricity and natural gas prices relative to the benchmark states and all states. Ohio s commercial electricity prices of 7.85 cents/kilowatt-hour rank 10 th among the benchmark states and 29 th nationwide. Its industrial electricity prices of 4.80 cents/kilowatt-hour are slightly more competitive, ranking it 4 th among the benchmark states and 19 th nationwide. For natural gas prices, Ohio ranks in the middle of the pack for commercial prices ($7.38/thousand cubic ft.) and slightly lower for industrial prices ($5.78/thousand cubic ft.). Ohio s weighted average natural gas prices ($6.38/thousand cubic ft.) are slightly higher than the national average ($6.3/thousand cubic ft.) and rank 30 th in the nation. Average electricity prices for commercial users (2004) Source: Energy Information Administration Electricity prices (cents/kilowatt -hour) up to 6.5 Hawaii Alaska 6.6 to to and up Benchmarking Ohio s Economic Competitiveness 85

14 Costs of Doing Business Average electricity prices for industrial users (2004) Source: Energy Information Administration Electricity prices (cents/kilowatt -hour) up to 4.5 Hawaii Alaska 4.6 to to and up Average natural gas prices for commercial & industrial users ( ) $10.00 $9.00 $8.00 $7.00 $6.19 $6.29 $6.31 $6.37 $6.38 $6.52 $6.55 $6.71 $7.10 $7.14 $8.65 $6.00 $5.00 $4.70 $5.26 $6.28 $6.53 $4.00 $4.84 $3.00 $2.00 $1.00 $0.00 $3.99 $5.88 Texas $4.50 $5.40 Michigan $4.57 $6.40 Minnesota Kentucky $5.32 $7.63 Wisconsin $6.06 $6.66 $5.19 $8.11 Georgia $5.26 $8.04 Virginia California $5.61 $7.65 $5.78 $7.38 Ohio $5.84 $7.66 Arizona $6.21 $7.07 Indiana $5.90 $7.64 Illinois North Carolina $5.74 $8.33 $6.09 $8.79 Florida $6.20 $8.71 Pennsylvania Massachusetts Average industrial price Average commercial price Weighted average price for industrial & commercial users $8.07 $9.61 Source: Energy Information Administration 86 Benchmarking Ohio s Economic Competitiveness

15 Costs of Doing Business Unionization Rates Why is this indicator important? Unionization matters to employers. Employers whose workers are represented by unions may experience higher financial burdens and more uncertainty than non-union firms. This indicator measures the percentage of the state s workforce that is represented by unions (which includes not only members of a labor union or an employee association similar to a union, but also workers who report no union affiliation, but whose jobs are covered by a union or an employee association contract). With 18.1 percent of its workforce represented by unions in 2003, Ohio has a rather high unionization rate. The national average rate is 13.0 percent, and the average among benchmark states is 13.2 percent. North Carolina leads the benchmark states, with a low unionization rate of 3.8 percent. Ohio is clearly in the highest tier of unionized states with unionization rates around 20 percent, a group that also includes Michigan, Illinois, California and Minnesota. Percent of workers represented by unions (2003) North Carolina (1) 3.80% Arizona (4) Texas (7) Virginia (9) Georgia (12) Florida (13) 6.40% 6.80% 7.70% 8.00% 8.40% Indiana (26) Kentucky (27) 12.70% 12.80% Massachusetts (33) Pennsylvania (35) Wisconsin (39) Ohio (41) Minnesota (41) California (43) Illinois (44) 15.50% 16.10% 16.80% 18.10% 18.10% 18.40% 18.60% Michigan (47) 23.10% Source: Bureau of Labor Statistics 5.00% % % Benchmarking Ohio s Economic Competitiveness 87

16 Costs of Doing Business Employee-Related Costs Why are these indicators important? For most businesses, employee compensation constitutes the most important operating cost item. In recent years, many labor-intensive industries and plants have moved to states and regions with lower employee-related costs. Employee-related costs to companies are more than just the gross salaries paid; they also include fringe benefits, such as health insurance premiums and workers compensation premiums. The following charts depict how states stand along three employee-related cost items: Average annual employer contribution for employment-based health premiums (single coverage); Workers compensation premiums; and Unit labor costs. Employer healthcare costs are relatively low in Ohio compared to its competitor states. At $2,483 in 2002, the average employer contribution to single coverage health premiums is the 4 th lowest among benchmark states. Among all U.S. states, Ohio s single coverage health premiums are the 18 th lowest, below the national median of $2,556. For family coverage, Ohio s employer contribution of $6,322 is quite a bit higher relative to other states, ranking it 27 th in the nation, but is still fairly competitive among the peer states (ranking 5 th ). However, the rising cost of health premiums continues to be a major concern for Ohio s businesses. The workers compensation analysis uses assigned risk rates, the only national data that are widely available. Unfortunately, the complexity of the insurance markets across different states does not allow for an easy and equitable cost comparison that takes into account unique market characteristics, in addition to the assigned risk premium rates. This workers compensation analysis suggests that Ohio has relatively high workers compensation premiums of $2.89 per $100 of payroll in 2002, compared with a national median of $2.35. Ohio has the fourth most expensive workers compensation premiums among benchmark states and is among the most expensive states nationwide. The unit labor cost indicator is an index of labor compensation per dollar of output. By taking productivity into account, this measure provides a better indication of how labor costs factor into business decisions than looking at labor compensation alone. Furthermore, since labor costs vary greatly by industry, this indicator adjusts each state s average unit labor costs to reflect the average economic composition of the United States. With an index score of 101.2, Ohio has neither high nor low unit labor costs (the national average score is 100). Ohio has the 6 th lowest unit labor costs among benchmark states. 88 Benchmarking Ohio s Economic Competitiveness

17 Costs of Doing Business Avg. annual employer contribution for employment-based health premiums (2002) $3,000 $2,800 $2,600 $5,694 $6,500 $5,794 $5,308 $6,322 $6,384 $5,915 $6,866 $6,739 $6,693 $6,570 $6,561 $6,539 $7,091 $7,051 $7,133 $8,000 $7,000 $6,000 Single coverage $2,400 $2,200 $5,000 $4,000 $3,000 Family coverage $2,000 $2,000 $1,800 $1,000 $1,600 $2,360 $2,393 $2,439 $2,447 $2,483 $2,490 $2,592 $2,624 $2,645 $2,646 $2,689 $2,731 $2,738 $2,748 $2,843 $2,853 $0 Georgia Kentucky Arizona Virginia Ohio California North Carolina Minnesota Massachusetts Indiana Florida Pennsylvania Texas Michigan Illinois Wisconsin Source: Kaiser Family Foundation Single coverage Family coverage Workers compensation premium rate (2002) $5.50 $5.00 $4.50 $4.00 $ per $100 payroll $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 Indiana (2) $1.37 $1.50 $1.63 $1.98 $2.17 $2.22 $2.25 $2.32 $2.57 $2.60 $2.73 $2.87 Virginia (3) Arizona (6) Massachusetts (15) North Carolina (18) Wisconsin (20) Michigan (21) Georgia (25) Pennsylvania (30) Minnesota (31) Illinois (32) Kentucky (36) Ohio (38) $2.89 $3.29 $4.50 $5.23 Texas (45) Florida (49) California (50) Source: Oregon Departmant of Consumer & Business Services Benchmarking Ohio s Economic Competitiveness 89

18 Costs of Doing Business Adjusted unit labor cost index ( ) Kentucky (4) North Carolina (8) Georgia (22) Texas (24) Arizona (26) Ohio (30) Wisconsin (31) Indiana (32) Pennsylvania (36) Minnesota (37) Illinois (38) Virginia (40) Florida (41) California (45) Michigan (49) Massachusetts (50) Source: Economy.com 90 Benchmarking Ohio s Economic Competitiveness