State's business climate shows signs of warming.

• Position: ECONOMIC OUTLOOK - Interview with Armen Bedroussian - Interview

It costs more to do business here than in South Carolina, Tennessee and Georgia, but at least North Carolina is cheaper than Virginia and most other states, according to the Milken Institute. The Santa Monica, Calif.-based think tank has been comparing states' business costs since 2001. Armen Bedroussian is a senior research analyst. He has worked on the institute's cost-of-doing-business index since its inception.

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BNC: North Carolina looks expensive next to some of its neighbors. Time to panic?

Not necessarily. You've got to look at the employment trends. You want to see how much job movement occurred in the last couple of years, if jobs have been leaving North Carolina to go to those states. If that's not the case, there's no reason to panic.

What cost components do you measure?

Three industrial costs--wages, tax burden and electricity--and two real-estate--the office and industrial rental rates. We believe these are the five key components in deciding where to start or relocate a business, or to show where a company may want to expand. Wages receive the highest weight in the index at 50%. Tax burden gets 20%; electricity, 15%; industrial space, 10%; and office space, 5%.

North Carolina industrial rents were among the lowest, yet its tax burden was heavier than average.

The tax burden is slightly above the national average, but it's still not as high as some other states. What bodes well is the cost of labor in the state. It's 11% below the national average, and that's a significant portion of the overall cost-of-doing-business index.

Overall, how has North Carolina performed in the last five years?

It seems to have become more business-friendly. When you look at the components, those costs haven't gone down significantly, but they've stayed steady. If anything, other states have become more expensive relative to North Carolina. The study compares all states to a national average, so North Carolina, in real terms, has become less expensive for businesses since we started the study.

Why?

It could be that other states have higher budget deficits, so they haven't really had the opportunity to provide as many incentives as North Carolina. You really have to look at it state by state. But North Carolina hasn't really fluctuated much. In our real-estate component, North Carolina has become less expensive. The tax burden has also fallen. Those are the two reasons it has become a little bit more business-friendly.

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