Unexpectedly Intriguing!
August 31, 2010

In 2006, the taxes that support workers compensation insurance in a number of states were skyrocketing out of control. So much so that many businesses were seriously looking at uprooting their operations and moving cross country to where they could operate less expensively. The state of New York was no different from many stories being told by many business owners across the nation:

In Buffalo, Curtis Screw Co. LLC pays more than $4,000 per employee – a total of $1 million a year – for workers’ compensation. At the company’s virtually identical facility in North Carolina, the cost is $550 per worker.

In the Hudson Valley, the Pawling Corp. saw comp costs jump 26 percent in 2006, even though worker injuries were declining. In most states, the manufacturer of architectural and engineered products calculates, workers’ comp expenses would be half the cost in New York.

Across the Empire State, employers tell similarly troubling stories. The Business Council’s recent survey of members found business leaders ranking workers’ comp second only to health-care costs as a threat to New York’s competitive position.

Today, we're going to show you what happened to workers compensation tax rates from that distressing point in 2006 to 2008 in pictures, taking advantage of some of the data visualization tools available at IBM's ManyEyes site. First, let's look at a treemap of average workers compensation tax rates on a state-by-state basis for 2006 - we've made the data available, along with an interactive version of the two maps below:

Treemap of 2006 Average State Workers Compensation Taxes by State

In the treemap above, the states with the highest average workers comp taxes appear in the upper left hand corner (indicated by the largest squares with the darkest coloring), with states with lower workers comp taxes appearing in descending order lower in the column and progressively lower in the columns to the right. The state with the lowest average workers compensation taxes in 2006 appears in the lower right hand corner of the treemap as the smallest rectangle with the lightest color tinting.

Next, let's repeat that exercise again, but this time, with the date for 2008:

Treemap of 2008 Average State Workers Compensation Taxes by State

In the 2008 chart, we see that many states reacted to the pressure placed upon them by their business communities to change their workers compensation taxes in such a way to become more equal to those rates of other states, which we observe in the relative size of each state's average workers comp tax rates represented in the treemap have become more equal across all the states.

But which states made the biggest changes? It would take a lot of back and forth review of the two treemaps above to be able to pick out which states significantly reduced their workers comp tax rates, which ones may have increased them, and which didn't alter them at all.

And that's where the last treemap we'll show comes into play! ManyEyes also offers a data visualization tool where you can compare changes over time in treemap charts. Here, we show the treemap that applies to where average workers comp tax rates were set in 2008, but use color to indicate the magnitude and direction of how each state changed their workers compensation tax rates from 2006 to 2008:

Treemap of the Change in Average State Workers Compensation Taxes by State from 2006 to 2008

Here, we see that most states reduced their workers comp tax rates between 2006 and 2008, which is indicated by the number of states with a blue-tint, but that states like California, Nebraska and Florida reduced them by the greatest percentage amount, which has the bluest tint.

Meanwhile, we find that a handful of states went in the opposite direction, indicated by the orange-tints, sharply increasing their workers comp tax rates, such as Georgia, South Dakota and Ohio, who are indicated with the deepest orange tint.

We also see that the workers compensation tax rates for the two states mentioned in the excerpt above, New York and North Carolina, actually converged toward each other, with New York's workers comp tax rates falling and North Carolina's tax rates rising sharply!

But the most remarkable thing we observe is the evidence supporting the idea that tax rates will tend to converge toward an equilibrium level over time thanks to competition between the states. The real winners in this process are both the businesses, who benefit from lower taxes, and the states, which succeed by avoiding driving business activity out of their jurisdictions through excessively high taxes!

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