Report that calls California expensive for businesses sparks debate


California is one of the most expensive states for businesses to operate, mainly because of high pay and related labor costs, says a new report commissioned by an arm of the state Chamber of Commerce.

“The high cost of creating additional jobs puts California at a substantial competitive disadvantage when attempting to retain or attract businesses that have a choice where to locate,” the chamber affiliate said in releasing its report.

The conclusion should come as no surprise. But at a time when California’s competitiveness with other states is under scrutiny, reports like these spark debate.


After all, the state in recent months has been drawn into competition for a big battery plant that Tesla Motors wants to build in the West. And Toyota’s decision to move its U.S. headquarters from Torrance to Texas raised questions about the state’s ability to keep companies from leaving.

The latest report comes from the Sacramento-based California Foundation for Commerce and Education. It cites 19 surveys and studies of jobs, education, energy, unemployment, economic competitiveness and other topics that mostly offered negative findings about California’s business climate. It was released last week to have the maximum effect on state lawmakers as they wind up their two-year session.

The report concluded that California’s labor costs are high, ranking 46th of 50 states in employer costs per job, 43rd in costs per firm and 33rd in costs per capita.

But these figures, when used in a political context, are often debatable and subject to broad interpretations.

In this case, critics called the conclusions half-baked, politically motivated and unrepresentative of recent dynamic growth. They say California is creating jobs at a faster clip over the last 12 months than any state except Texas, its sometimes rival. What’s more, they point out that the chamber’s data contain some upbeat observations.

California ranked 14th best nationally when costs are measured as a share of state productivity. And electric bills paid by California companies are lower than the national average, even though rates in the state are among the highest in the country. The reason, the study notes, is that California businesses are committed to energy efficiency.


The chamber’s latest data are the “same old” nonsense, said Christopher Thornberg, founding partner of Beacon Economics in Los Angeles. There’s a limited connection between labor costs and economic growth, he said. For example, Thornberg said, business costs are cheap in his hometown of Buffalo, N.Y., where there’s little economic growth. But in super-expensive New York City, business and investment are booming.

The debate over California’s degree of business friendliness “will not go away,” said Esmael Adibi, an economics professor at Chapman University in Orange. “There’s some truth to both arguments.”

Twitter: @MarcLifsher