General Electric's Impact on the Commonwealth of Massachusetts s Economy May 2017

Transcription

1 General Electric's Impact on the Commonwealth of Massachusetts s Economy May 2017 An Economic Analysis Prepared by:

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3 INTRODUCTION... 2 MASSACHUSETTS... 4 TOTAL ECONOMIC OUTPUT... 4 EMPLOYMENT... 5 LABOR COMPENSATION... 6 CHARITABLE IMPACT... 6 INVESTMENT... 7 RESEARCH METHODOLOGY... 8 DEFINITIONS APPENDIX REFERENCES

4 General Electric's Impact on the Commonwealth of Massachusetts s Economy GE provides substantial direct, indirect, and induced socioeconomic benefits to the commonwealth of Massachusetts. INTRODUCTION General Electric Company (GE or 'the company') is a diversified industrial corporation that offers a wide range of products and services including aircraft engines, power generation equipment, medical imaging, digital industrial software as well as industrial financing. The company primarily operates in North America, Europe, Asia, South America, Australia and Africa and employed approximately 100,000 people in the United States in GE has had operations in Massachusetts since its founding 1892, and more than 125 years later, the company still calls the Bay State home. Many of GE s different businesses operate in Massachusetts today, including GE Aviation, GE Healthcare, GE Digital and Current powered by GE, among others. GE Aviation s facility in Lynn is a world-leading provider of military aircraft engine and component design and engineering, and is the business s second largest site. Marlborough is home to the North American headquarters for GE Healthcare s Life Sciences business, focused on accelerating precision medicine across its portfolio. In early 2016, GE moved its global headquarters to Boston to take advantage of the city s strong innovative, academic and business ecosystem. In 2017, GE asked the business economic intelligence and research company, Frost & Sullivan, to conduct an economic impact analysis (EIA) of the presence of GE s operations in Massachusetts. This EIA tool, built by researchers at Frost & Sullivan, can be used to assess various scenarios and identify the potential impacts of GE s operational presence on Massachusetts s economy in terms of total economic output impact, job creation, and charitable contributions. Independent of which impact variable is explored, GE s impact on Massachusetts s economy can be measured and categorized into three levels of impact: o Direct impact the total number of GE jobs created, its associated total economic output, paid wages, and charitable contributions generated from GE s production operations o Indirect impact the number of indirect jobs created, its associated wages, and total economic output related to GE s direct expenditures on goods and services through its supply chain and from each US state s local economy. This is the economic activity generated by GE s supply chain to serve GE s operational needs. o Induced impact the economic impact created as a result of local spending by GE employees and families, its associated wages and GDP produced from those induced wages. This is the economic activity generated by the household expenditures of GE employees in the local economy. 2 2

5 To calculate these economic impacts, a pragmatic input/output (I/O) production model was developed. The I/O model is based on the assumption that GE s presence in a given economy contributes to the total value of the economy, just like all other economic actors in the economy and that each economic actor has a direct impact, an indirect impact, and an induced impact on the total economy through the economic decisions they make. Each of these types of impacts can be measured and compared to the performance of the total economy. Consequently, economic impact statements can be made regarding the relative and absolute benefit GE has on the economy as a whole. GE provides significant economic and philanthropic benefit to Massachusetts. In 2016, the company contributed a total of $6.308 billion in direct, indirect, and induced total production output in the commonwealth of Massachusetts. GE s economic presence in Massachusetts supports 17,829 direct, indirect, and induced fulltime equivalent jobs. This is more than enough people to fill the TD Garden in Boston, Massachusetts to capacity. GE employs 4,750 fulltime manufacturing and professional jobs in Massachusetts and GE s supply chain supports 4,921 fulltime equivalent jobs in order to address GE s business activity needs. Furthermore, 8,158 fulltime equivalent jobs are induced to serve the personal consumption needs of GE employee households. Consequently, GE s economic presence in Massachusetts has contributed to the generation of $2.352 billion in total direct, indirect, and induced compensation in 2016 and its employees and its foundation contributed $13.26 million in total charitable contributions. Overall, GE has demonstrated its commitment to Massachusetts s economy through its continued investment and rock-solid presence today, and tomorrow. Note that this economic analysis only includes the impact of GE s current operations in Massachusetts and does not include the additional economic benefits that GE brings to the state through its capital investments, such as its headquarters relocation to Boston or its healthcare facility in Marlborough. These investments lead to additional construction and infrastructure jobs and economic activity which are not covered in this report. 3

6 General Electric's Impact on the Commonwealth of Massachusetts s Economy MASSACHUSETTS TOTAL ECONOMIC OUTPUT STATE OVERVIEW The commonwealth of Massachusetts is the 15 th most populous state in the USA, with a population of 6.8M. Thirteen Fortune 500 companies are located in Massachusetts. The state makes major contributions to higher education, biotechnology, information technology, finance, health care, tourism, and defense GE provides significant economic and philanthropic benefit to Massachusetts due to its presence in the state. In 2016, the company contributed a total of $6.308 billion in direct, indirect, and induced total production output in Massachusetts. That is the same as $17.27 million of total economic production output per day, $719,545 per hour, and $200 per second. The source of this total economic output is derived from three sources; GE s direct productivity contributed 31.7% of the total economic impact, the productive output of GE s supply chain, or the indirect impact of GE s presence in the state, contributed 56.7% of the total economic impact, and the economic output of local businesses that serve GE employee household consumption induced 11.6% of GE s total economic output in Massachusetts. GE s economic output within the commonwealth of Massachusetts is shown below in both absolute and relative terms. Total Economic Output Attributed to GE s Presence in the Commonwealth of Massachusetts (Total Direct, Indirect, and Induced), USD, 2016 PER YEAR $6.31B PER DAY $17.27M PER HOUR $720K PER SECOND $200 Population: 6.8 million GDP: $485 billion Relative Economic Output attributed to GE s Presence in the Commonwealth of Massachusetts by Impact Type (Direct, Indirect, and Induced), 2016 Economic Output Attributed to GE s Presence in the Commonwealth of Massachusetts per $1 Spent on GE Employee Compensation, USD, 2016 Employment: 3.5 million Unemployment Rate: 3.4% GE's Impact on the U.S. Commonwealth of Massachusetts Total Economic Output, USD Million, 2016 Metrics Induced 11.6% Indirect 56.7% $6.31 B Direct 31.7% $1 Spent on GE Compensation leads to $8.76 Total Economic Output Total Economic Impact Source: Frost & Sullivan Direct $2,000.7 Indirect $3,577.5 Total Direct and Indirect Impact $5,578.2 Induced Impact $729.3 Total $6,307.5 Source: Frost & Sullivan 4 4

7 EMPLOYMENT GE s economic presence in Massachusetts supports 17,829 direct, indirect, and induced fulltime equivalent jobs. This is more than enough people to fill the TD Garden in Boston, Massachusetts to capacity. In all, one GE job in Massachusetts supports an additional 2.75 fulltime equivalent jobs in Massachusetts, independent of the industry sector. GE employs 4,750 fulltime manufacturing and professional jobs in Massachusetts and GE s supply chain supports 4,921 fulltime equivalent jobs in order to address GE s business activity needs. Furthermore, 8,158 fulltime equivalent jobs are induced to serve the personal consumption needs of GE employee households. Specifically, for every 100 direct fulltime equivalent GE jobs employed in Massachusetts, 70 retail trade jobs (3,328 total FTE jobs) and 33 health care and social assistance jobs (1,588 total FTE jobs) are supported. In addition, for every 100 GE jobs, 20 fulltime equivalent accommodation and food service jobs (954 total FTE jobs) and 15 education services including teachers (697 total FTE jobs) are also supported by the presence of GE and its supply chain partners in Massachusetts. Every GE job in Massachusetts creates 2.75 additional jobs within the state. This positive feedback helps to create jobs in a wider variety of industry sectors. GE's Impact on the U.S. Commonwealth of Massachusetts # of Additional Jobs Supported per 100 GE Jobs Employed, USD Million, 2016 Industry Sector Measure Retail trade 70 Professional and business services 46 Health care and social assistance 33 Manufacturing 24 Accommodation and food services 20 Educational services 15 All Others 66 Total Jobs Supported per 100 GE Jobs Employed 275 GE's Impact on the U.S. Commonwealth of Massachusetts Total Jobs Supported, Fulltime Equivalent Jobs, 2016 Educational services Accommodation 696 and food services 954 Health care and social assistance 1,588 Manufacturing 3,031 Retail trade 3,328 All Others 66 Professional and business services 5,080 Source: Frost & Sullivan 5

8 General Electric's Impact on the Commonwealth of Massachusetts s Economy GE compensates its average employee 2.21 times more than the state s average compensation rate. LABOR COMPENSATION GE s economic presence in the commonwealth of Massachusetts has contributed to the generation of $2.352 billion in total direct, indirect, and induced compensation in Furthermore, GE compensates its direct employees significantly more than the average Bay State business. Specifically, GE compensates its average employee 2.21 times more than the state s average compensation rate. This greater compensation rate leads to a significantly increased economic output potential; $8.76 of total direct, indirect, and induced economic output was created for every $1 of GE compensation expended in Total GE Attributed Direct, Indirect, and Induced Employee Compensation, Massachusetts, 2016 Average GE Compensation Relative to State Average per State, Massachusetts, 2016 $2.35 B 2.21x In 2016, GE contributed $13.26 million in total charitable contributions and provided 6,659 hours of pro bono volunteer hours to local charities in Massachusetts. CHARITABLE IMPACT The benefits of GE s presence in Massachusetts go beyond the economy as evident in its direct contributions to the communities of Massachusetts. In 2016, GE corporate, GE s employees, and the GE Foundation contributed $13.26 million in total charitable contributions (equivalent to $2,786 per employee) and provided 6,659 hours of pro bono volunteer hours to local charities in Massachusetts. Overall, General Electric has clearly demonstrated its commitment to Massachusetts s overall economy and its communities through its continued investment and charitable contributions. GE's Charitable Impact Monetary Donations and Volunteer Hours, Massachusetts, 2016 Metric Unit of Measure Measure GE Monetary Donations USD million $13.26 GE Monetary Donations per GE Employee USD/person $2,792 Volunteer Hours Pro Bono Hours 6,

9 Source: Frost & Sullivan In 2016, GE also committed $50 million to the City of Boston and its surrounding areas, to be donated over five years. This includes: $25 million to Boston Public School students and teachers to support STEM education and internships. $15 million to expand behavioral care and addiction treatment with a focus on the opioid epidemic, while also improving local health centers, and $10 million to increase the diversity of tomorrow s workforce INVESTMENT Note that this economic analysis only includes the impact of GE s current operations in Massachusetts and does not include the additional economic benefits that GE brings to the state through capital investments. These investments lead to additional construction and infrastructure jobs and economic activity which are not covered in this report. In June 2016, GE Healthcare s Life Sciences business opened its new 210,000 squarefoot North American headquarters in Marlborough, Massachusetts after being announced in August The facility is home to 40,000 square feet of laboratories supporting cell and immune therapy research and development, early stage drug development, biomanufacturing, as well as scientific and medical affairs support. The new headquarters included a $21 million renovation effort, which supported local construction and infrastructure jobs. In January 2016, GE announced it was moving its global headquarters to Boston. According to a separate economic analysis performed by Oxford Economics in April 2016, the company s headquarters relocation will create an estimated 1,759 total new, permanent jobs by 2019 as well as 2,000 shorter-term construction jobs in the region. It will also increase real estate demand by over $700 million by 2019, and will increase regional income by over $250 million. 7

10 General Electric's Impact on the Commonwealth of Massachusetts s Economy RESEARCH METHODOLOGY There are a number of approaches in measuring the economic impact of a given company s operational presence, but the most common and acceptable economic model is the input-output (I/O) method, invented by Nobel Prize-winner Wassily Leontief. The Leontief I/O model is based on using matrices that report the value of inputs (in producer prices) delivered at the national and regional level by a set of industry sectors used by the same set of industry sectors producing output at the national and regional level (and also measured in producer prices). These matrices, known as national input-output tables, are produced and published in the United States by the Department of Commerce s Bureau of Economic Analysis (BEA). There are 3 types of economic impacts direct, indirect, and induced that are generally recognized by economic practitioners of the I/O model: Direct Impact the total number of jobs created and its associated valueadd to the local economy, paid wages, and associated federal, state, and local income taxes generated from the primary economic entity of importance. The primary economic entity of importance can be a given company/corporation, industry sector, project, or organization. Indirect Impact the number of indirect jobs created, its associated wages, and generated federal, state, and local income taxes related to primary economic entity of importance s direct expenditures on goods and services within its supply chain and from each region s local economy. This is the economic activity generated by primary economic entity of importance s supply chain in order to serve primary economic entity of importance s operational needs. Induced Impact the economic impact created as a result of local spending by the households of employees of the primary economic entity of importance. These expended wages are used to create new wages, new GDP, and new federal, state, and local income taxes generated in order to deliver goods and services to the households of employees of the primary economic entity of importance. This is the economic activity generated by the household expenditures of the employees of primary economic entity of importance in the local economy. 8 8

11 I/O matrix tables are used to calculate economic impact multipliers used in the EIA model. Multipliers are parameters that are used for calculating the total impact on all industry sectors in an economy (including cascading effects derived from the entire value chain) of changes in the demand for the output of any given industry sector. These multipliers describe the expected, or average, effects and not marginal effects. Thus, these multiples do not take into consideration economies of scale, unused production capacity or technological change but they still provide a good picture of the inter-relationships between industry sectors that supply valuable inputs and industry sectors that use these inputs to make more valuable products. Specifically, these multipliers can be used to calculate the direct and indirect economic impacts of a new investment in an economy or the size of the economic importance of a company, product, project, etc. in terms of the value of total production output (in producer prices), gross value added (which is also a proxy for gross domestic product), the total employment (in terms of the number of full time equivalent jobs created), total expenditures on labor compensation, tax revenue generation, and shareholder profits. An I/O matrix table models the organization of the United States entire industrial production system in a given year. The row of an I/O table reports the value of inputs sold to each industry sector for a given industry sector and the sum of a row report s the total value of sold inputs across all industry sectors. The column of an I/O table reports the value of the inputs used and paid for by a given industry sector. It is similar to a bill of material s used by a given industry sector and the sum of a given column equals the total expenditure on inputs used to create the given industry s output. Thus, I/O matrix tables show the relationships that exist between industrial sectors in a given region. An I/O table also includes expenditures paid out to various stakeholders for each of the industry sectors, including total compensation paid out to labor for their help in transforming the acquired inputs into valuable industrial output, expenditure to federal, State, and local governments in the form of production and import taxes, and payments to shareholders and creditors. The sum of all payments to the value chain for inputs and all other stakeholders for their contributions in transforming the inputs into valuable production output equals the total economic impact of the given industry sector s activity in the given region. 9

12 General Electric's Impact on the Commonwealth of Massachusetts s Economy As stated previously, the BEA provides national I/O tables that must be adjusted for regional scale and variance since the size and mix of industrial sectors participating in each region clearly varies from the aggregated national reporting. In order to control for this variance, location quotient (LQ) weights can be applied to the national table in order to scale and adjust the table. The LQ weight is calculated by taking the ratio of a given industry sector s share of regional earnings and the given industry sector s share of national earnings. If the LQ ratio is less than one, then the ratio is multiplied by the regional share of the industry sector s earnings relative to the national earnings. If the LQ ratio is greater than one, then only the regional share of the industry sector s earnings relative to the national earnings is used as the weight. In addition, primary research and expert judgment must be applied to check to make sure that the weighted I/O table is truly representative of each state s economic interactivity between industry sectors supplying inputs and industry sectors producing output. In other words, each intersection within the I/O table must be reviewed and adjusted accordingly if newer or better information is available. The following inputs were utilized in this economic analysis: o Total Production Output and Gross Value-Added of GE s operations and the U.S. State in general per U.S. state o GE provided inputs, including the number of production-related and professional jobs created per U.S. state and expenditures on goods and services for local operations from the local economy o Local employment trends per U.S. state o Average compensation and wages per laborer in each U.S. state o Number of employees per industry sector per U.S. state o Production, Import, and other taxes paid per U.S. state o Average household/personal expenditures on local goods and services o Expenditure on local charities by GE and each U.S. state in general 10 10

13 DEFINITIONS This analysis looks at various measures of economic impact of GE s presence in each of the states under investigation in this report. The list below of economic impacts shows the specific economic impacts measured for the purposes of this analysis. Total Economic Output Also called Total Value of Production Output, this metric reflects the total value of all production activity of a given primary economic entity of importance. A primary economic entity of importance can be a single corporation like GE, a set of companies, or an entire industry sector. Specifically, this measure is basically the value of all production activity, in producer prices, related to presence of GE in the state and includes the value of production of GE (direct impact), the suppliers of GE (indirect impact), and the businesses that serves GE employee household personal expenditure (induced impact). The Total Economic Output is also equal to the sum of all payments to all of GE s stakeholders including the raw material/input suppliers (payments for raw materials), direct employees (compensation payments), and payments to other stakeholders including governments (taxation), creditors (interest payments on debt), and profits (payments to owners). In other words, this metric can be thought of as a proxy for TOTAL REVENUE generated by GE plus TOTAL REVENUE generated by GE s supply chain plus TOTAL REVENUE generated by companies servicing GE and its employee s households. Total economic production output per time period can be easily deduced. Gross Value Added This metric is the total value created by GE due to the transformation of the sourced raw materials/inputs into something more valuable. This metric is equal to the sum of all payments to employees (compensation payments) and payments to other stakeholders including governments (taxation), creditors (interest payments on debt), and profits (payments to owners). This metric excludes payments to input suppliers. Labor Compensation This metric is the total wages and benefits created and paid out directly by GE (direct impact), the indirect labor payments of GE s supply chain, and any wages and benefits created and paid out by the local companies servicing the needs of GE employee households (induced impact). This is a component of Gross Value Added. Using the results of the I/O model developed for this report, the average GE labor compensation relative to the given state s average labor compensation (ratio of GE compensation relative to average state compensation; $GE wage/$ average state wage). Employment This metric is the total number of fulltime equivalent jobs created by GE (direct impact), the total number of fulltime equivalent jobs created by GE s supply chain as a consequence of servicing the raw material needs of GE (indirect impact), and the total number of fulltime equivalent jobs created by local companies 11

14 General Electric's Impact on the Commonwealth of Massachusetts s Economy servicing the needs of GE employee households (induced impact). All employment findings reported in this analysis are measured in fulltime equivalent jobs. Using multiples derived from the I/O model, types of jobs created by industry sector can be deduced. In addition, the number of indirect and induced jobs created due to GE s presence per one GE job created and total direct, indirect, and induced jobs created relative to total state jobs can be deduced. Charitable Impact This metric measures the total direct charitable expenditure by GE and its employees in the form of payments to local charities (monentary donations) or through donated time (charitable pro bono hours). Charitable Impact can be measured per GE employee and in total terms

15 APPENDIX General Electric's Impact on the U.S. Commonwealth of Massachusetts Economic Impact Summary Table, USD Million, 2016 Metrics Total Economic Impact Gross Valued Added Rest of Value Added* Labor Compensation Employees (People) Direct $2,000.7 $1,104.7 $384.4 $ ,750 Indirect $3,577.5 $1,880.2 $669.2 $1, ,921 Total Direct and Indirect Impact^ $5,578.2 $2,984.9 $1,053.6 $1, ,671 Induced $729.3 $687.6 $267.3 $ ,158 Total $6,307.5 $3,672.5 $1,320.9 $2, ,829 * Includes estimated government tax types (Federal, State, and Local; Corporate, Income, Property, Sales, and Others), payments to creditors, and payments to owners (profits) ^ Excludes Second-order Induced Wholesale Trade and Construction Jobs. All Jobs are Full-Time GE + Upstream Value Chain Partners General Electric's Impact on the U.S. Commonwealth of Massachusetts Number of Jobs Supported by Industry Sector, # of Employees, 2016 Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs Manufacturing 1,868 1, ,031 Retail trade ,279 3,328 Professional and business services 2,883 2, ,080 Educational services Health care and social assistance ,585 1,588 Accommodation and food services All Others -- 1,272 1,881 3,153 Total 4,750 4,921 8,158 17,829 Note: Excludes Second-order Induced Wholesale Trade and Construction Jobs. All Jobs are Full-Time Equivalent. Source: Frost & Sullivan Analysis General Electric's Impact on the U.S. Commonwealth of Massachusetts Charitable Impact, USD Million, 2016 Metrics Grand Total Volunteer Hours Massachusetts $13,255,075 6,659 Note: NPISH = Nonprofit Institutions Serving Households 13

16 General Electric's Impact on the Commonwealth of Massachusetts s Economy REFERENCES Angelos Pagulatos and Kurt R. Anschel. (October 1981). An I-O Study of the Economic Structure of Appalachian Kentucky. Growth & Change. Wiley-Blackwell Dan S. Rickman. (April 2001) Using Input-Output Information for Bayesian Forecasting of Industry Employment in a Regional Econometric Model. International Regional Science Review 24, 2: Information Sources: Bureau of Economic Analysis; U.S. Department of Commerce. Retrieved at Miller, Ronald E.; Blair, Peter D. (2009). Input-Output Analysis: Foundations and Extensions. Cambridge, GBR: Cambridge University Press 10. Retrieved at Rebecca Bess and Zoë O. Ambargis (2011) Input-Output Models for Impact Analysis: Suggestions for Practitioners Using RIMS II Multipliers. Presented at the 50th Southern Regional Science Association Conference. March 23-27, 2011, New Orleans, Louisiana U.S. Department of Commerce (1997) Regional Multipliers. A User Handbook for the Regional Input-Output Modeling System (RIMS II). Third Edition. March

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