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Beacon report outlines emerging competitive issue for CA manufacturers

Posted by Gino DiCaro, VP, Communications on Jan. 15, 2015

Manufacturers have many advantages and disadvantages in California. A desirable climate, an innovation and research-rich atmosphere, world class universities, a long history of existing industry and supply chains all contribute to our nation-leading manufacturing community that employs more than 1.2 million workers.

On the flip side, the disadvantages have been well documented.  Energy costs, work comp costs, corporate tax burden (alleviated a bit by a recent sales tax exemption on equipment), time consuming permitting proccesses, and a ubiquitous amount of uncertainty all work against a manufacturer's ability to make long term California investments.

A recent Beacon Economics report highlighted another growing competitive problem for California's manufacturers -- housing costs.

"The cost of housing is perhaps the single-most important policy challenge facing lawmakers in the state today," said the report written by Christopher Thornberg.

"Not only do higher housing costs erode the quality of life for workers who need to devote ever-increasing shares of their take-home pay to afford to live here, it also drives up the cost of doing business by forcing employers to pay higher salaries in order to attract the talent they need."

Earlier in the report Thornberg emphasized that, "Golden State rankings would be that much higher in the growth rankings if we could find a way to make ourselves more attractive to new or expanding manufacturing operations."

Put simply: The talent that our manufacturers need won't be able to live here ... and everything starts with talent on a manufacturing floor.

Like the manufacturing equipment sales tax exemption debate and passage in 2013, we need to keep up the momentum on other competitive hurdles so we can attract new opportunities for our state's massive and often under-employed middle class.

The Wall Street Journal recently chronicled one baby-car-seat manufacturer's attempt to tiptoe back to the United States as wage costs and others balance out in China and other industrialized countries.  The race was close but China won out by a thread. The decision to scale up in the U.S. is becoming at least more defensible for site selectors looking at re-shoring but California must mitigate its own rising challenges if it hopes to attract large scale manufacturing facilities.

As manufacturers seek skilled talent and look for places to put bolts in the ground, California housing costs are on the wrong side of the pros and cons equation.

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