Jobs moving out of California – Cost, complex regulations cited by firms

Discouraged by high costs and strict regulations, just under 60 percent of California business leaders interviewed for a new study said they have policies to restrict job growth in the state or move jobs to other locations in the United States.

The study, conducted by the consulting firm Bain & Co. for the California Business Roundtable, marks one of the most ambitious efforts yet to analyze the political hot-button issue of the state’s business climate. It is scheduled to be released Thursday.

Sam Zuckerman, Chronicle Economics Writer
Tuesday, February 24, 2004
San Francisco Chronicle

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/02/24/BUGUN56L9L1.DTL

The Roundtable, representing large corporations in the state, has been at the forefront of the argument that California is hostile to business, driving companies away and destroying jobs. Although it worked with the Roundtable, Bain said it wasn’t paid for the study and reached its conclusions independently.

The consulting firm interviewed chief executives or senior managers of about 50 small, medium and large companies with extensive operations in the state.

About 40 percent said their companies have an explicit policy to move jobs elsewhere in the United States, with Texas cited as the most frequent destination. Not counting those companies that must stay in California, such as retailers or health care providers, the proportion of businesses that said their policy is to move jobs rose to 55 percent.

Another group of executives, just under 20 percent of those interviewed, said their policy is to avoid adding jobs in California, except when absolutely necessary.

Businesses are clamping down on California job growth because of high costs and a burdensome regulatory environment, Bain concluded.

The cost of doing business in California is about 30 percent higher than in the average Western state, largely because of higher wages and benefits, according to the study.

Bain also attempted to measure the cost, uncertainty and complexity of California’s environmental, labor and other regulations. It constructed what it called a regulatory hassle index that took into account such factors as compliance costs, the threat of lawsuits and delays in obtaining permits that hamper operations.

The index showed that "California is far worse than any other state in the union, by a very significant margin," said Jeff Melton, a partner in Bain’s San Francisco office.

Business-climate costs were masked during the Internet boom years, when the number of jobs grew rapidly. Now, though, California finds itself hard- pressed to compete with such states as Nevada and Arizona that are perceived as more business friendly, Bain concludes. The problem appears to have come to a head because such costs as workers’ compensation, electricity and health care benefits jumped just as California fell into recession.

"California is going to lose jobs," Melton said.

UC Berkeley economist Michael Reich, who has been skeptical of the hostile-business-climate claim, said the Bain study overlooks the fact that employers have been moving jobs out of California for decades.

For example, high-tech manufacturers such as Intel and Hewlett-Packard put most of their U.S. production in such lower-cost states as Idaho, Arizona and Oregon years ago. As a result, California has become a center of highly productive and valuable activities, such as research and development.

"Our high costs are symptoms of success, not failures," Reich said.

For their part, labor representatives said they fear business groups will try to use the hostile-business-climate argument to roll back health and unemployment benefits for California workers. "We cannot allow businesses to use these excuses," said Art Pulaski, secretary-treasurer of the California Labor Federation.
State losing jobs

A new study of California’s business climate analyzes how high costs and strict regulations affect businesses:

— It costs an average of 30 percent more to operate in California than in other Western states, largely due to higher wages and benefits.

— California business regulations are more costly, complex and uncertain than those in any other state, by a wide margin.

— As a result, 40 percent of California companies interviewed said they have an explicit policy to move jobs to other states. Just under 20 percent said their policy is to avoid adding jobs in the state.

Source: Bain & Co.

E-mail Sam Zuckerman at [email protected].

©2004 San Francisco Chronicle |