But the factor that jumps to the top of the list for expanding and relocating companies has got to be the work force.

In this era of labor scarcity, the labor pool is even more critical.

Is it plentiful? Is it skilled? Is it effective? Is it affordable?

Expansion Management Magazine's Employment Cost Index focuses on the bottom line factors.

Although you'll eventually pay off the loan on your building, labor costs will never go away.

That means it's wise to pay attention to this permanent and expensive cost factor before plunking down a plant.

It may seem like a no brainer. Just look up average wage rates in the communities and states you're considering. True, wage rates are the largest piece of the labor cost puzzle, but not all of it.

The Employment Cost Index takes a comprehensive look at the bill manufacturers will foot for wages and the mandated benefits of workers' compensation and unemployment insurance in all 50 states.

By combining these factors, a more accurate estimate of employment costs can be made.

The study is based on a hypothetical manufacturing company with 150 employees. It's further broken down into three industries: industrial and commercial machinery and computer equipment (SIC 35); electronic and other electrical equipment and components, (SIC 36); and transportation equipment (SIC 37).

The five states providing the overall lowest employment costs are, in order: North Carolina, Tennessee, South Carolina, South Dakota and Virginia. Following right behind are Florida, Georgia, Arkansas, Mississippi and New Hampshire.

The top ranking states in each SIC code are: South Carolina, SIC 35 and 36; North Carolina, SIC 37.

That means that in South Carolina a 150 employee operation in SIC 35 would pay out a total of $3,393,376 in wages, workers' compensation premiums and unemployment insurance annually. The same-sized operation in South Carolina would pay $3,037,958 in SIC 36. In North Carolina, a company would pay a total of $4,347,216 in SIC 37.

Wages and salaries lead costs
The most significant financial component of labor is usually wages.

Although this factor is key to a company's bottom line, it shouldn't be looked at exclusively.

A location that offers low wages, but has high turnover rates, high absenteeism and low skill levels could still turn out to be a net loser for your company.

But bargains can be found. Quality, reliable workers who don't demand exorbitant wages are in the marketplace. By shopping around, your company can find significant savings in wage rates.

In addition to wages and salaries, expanding companies should consider mandated benefit costs, employee skill levels and the availability of worker training programs and incentives.

Examining the whole package will provide a more realistic look at the labor scene.

South Carolina provides the lowest wages and salaries for SIC 35 ($3,322,800), South Dakota in SIC 36 ($2,539,789) and Montana ($2,284,091) in SIC 37.

Keeping track of workers' comp
Workers' compensation is another universal expenditure that employers must pay for no matter where they locate. But premiums differ wildly throughout the United States.

Workers' compensation is a state mandated program to cover medical costs and replace wages that are lost due to job-related injuries.

Some states have seen their workers' compensation costs plummet in recent years, while others have held steady or even increased.

This mandated benefit is something that companies should carefully consider when they search for a new home. It may even be a good idea to get a history of rate increases to see if the momentum is moving forward or backward.

Workers' compensation can be complex due to the varying rates established in each state and within different SIC codes. The rates can be established by states or a national council.

It is typically more cost efficient to purchase workers' compensation insurance through a private carrier than through a state fund.

Virginia ($40,393), South Carolina ($42,608), and Arkansas ($76,185) each offer the lowest workers' compensation premiums in SIC codes 35, 36 and 37, respectively.

Unemployment Insurance
Unemployment insurance, which provides temporary replacement wages for unemployed workers, is also an expenditure that must be accounted for when hiring new workers.

The federal government determines who is covered, but states generally determine benefit amounts.

Nebraska ($4,200), New Hampshire ($4,800), South Dakota ($6,300), Virginia ($7,200) and Florida ($9,450) offer the lowest unemployment insurance premiums.

Labor pool
The Employment Cost Index doesn't factor in the number of workers in each SIC code as part of its study. But we include that information (page 48) for part of your overall research.

A large pool of workers already employed in your industry can give you a running start when you break new ground.

Shop around

In unemployment insurance alone, the cost in the highest premium state is more than 20 times that of the lowest. Wages and salaries can triple, depending on where you move.

The bottom line: Look at labor costs with a fine-tooth comb, and make your move a smart one.

Don't examine only one cost factor. Take the comprehensive approach. Bargains can be found. Quality, reliable workers who don't demand exorbitant wages are in the marketplace. By shopping around, your company can find significant savings in wage rates.

For the Special 1998 Ratings Issue contact knichols@newhope.com.