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Report: State's production costs relatively low

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Connecticut may have a reputation as a high-cost state for doing business, but a new economic report released today shows that, despite paying high wages, state manufacturers have relatively low production costs.

Connecticut's production costs per dollar of output rank it No. 43 in the United States, not much worse than such well-known low-cost areas as North Carolina and Virginia and much better than every other New England state, according to an analysis in a quarterly University of Connecticut report.

Manufacturers pay out only 79.3 cents for every $1 of production value, according to the report, significantly less than the national average of 83.3 cents. Vermont has the worst manufacturing payout, costing 95.9 cents to eke out $1 in production output, while Oregon has the lowest costs, with only 70.6 cents in expenditures required for a similar output.

"A state's average manufacturing wage tells us virtually nothing about its production costs," according to the article by Subhash Ray, Lei Chen and Dennis Heffley in the fall issue of The Connecticut Economy.

Connecticut was ranked last year by television channel CNBC as the fourth most costly state in which to do business. The ranking is based partly on labor costs, with Connecticut's 2007 average hourly wage of $21.28 for manufacturing production workers ranking it fourth highest and its annual salary of $71,733 for managers putting it at No. 7 on the list.

Comparing Connecticut to one of its rivals, the study found that Virginia's wages were 18.4 percent lower than the state's, yet this translated into only a 2.5 percent advantage in manufacturing-production costs.

The authors hypothesized that manufacturers in high-wage states like Connecticut are able to employ more efficient production methods and cut costs in other areas, through better management practices. Manufacturers here also may be substituting contract labor for fulltime employees, they said.

"High-input prices foster the creative use of existing technologies and the development of new, more efficient ones," the article pointed out. This might explain why, the report said, "we haven't seen a mass exodus of Connecticut manufacturers to other states."

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