Midwest catches up to South in cost of doing business

David Brancaccio May 21, 2012

David Brancaccio: When businesses are not moving operations overseas, the trend for decades within the U.S. has been shifting operations from the Midwest to the lower-cost South. But the Wall Street Journal has teased out some data showing when you look at the cost of labor, energy, taxes, and real estate, the Midwest is now just about as cheap as the south.

Mark Zandi is chief economist at Moody’s Analytics, the source of that data. Mark, good morning.

Mark Zandi: Good morning.

Brancaccio: What accounts for this change, of keeping costs down in the Midwest?

Zandi: A number of things. Labor costs are down — in part because of the tough economy; labor hasn’t gotten wage increases, and of course, their productivity has improved. Energy costs have not risen nearly as quickly in the Midwest. Because there’s a lot of empty office space, the cost of renting an office has actually declined. And taxes haven’t risen all that much either, believe it or not. And when you add it all up, it makes the Midwest look a lot better compared to where it was just a couple of years ago.

Brancaccio: I was in Youngstown, Ohio not that long ago — which is sort of the Midwest, certainly on of the old industrial cities. I saw all-day parking downtown for 25 cents a day. I mean, it just gives you an idea that costs can be lower.

Zandi: Yeah they can. That’s actually brings up another point: costs around the country have come down quite a bit. American companies are very competitive. They’ve done a very good job of containing their labor costs; improving productivity. So I think American companies from coast to coast, North to South are in pretty good shape. It’s just that the folks in the Midwest have done a particularly good job at it.

Brancaccio: Mark Zandi at Moody’s Analytics. Thank you very much.

Zandi: Thank you.




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