General Electric's Impact on the Commonwealth of Pennsylvania s Economy March 2017

Transcription

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

2

3 INTRODUCTION... 2 PENNSYLVANIA... 4 TOTAL ECONOMIC OUTPUT... 4 STATE OVERVIEW... 4 EMPLOYMENT... 5 LABOR COMPENSATION... 6 CHARITABLE IMPACT... 6 RESEARCH METHODOLOGY... 7 DEFINITIONS APPENDIX REFERENCES

4 General Electric's Impact on the Commonwealth of Pennsylvania s Economy GE provides substantial direct, indirect, and induced socioeconomic benefits to the Commonwealth of Pennsylvania. 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, as well as industrial financing. The company primarily operates in North America, Europe, Asia, South America, Australia and Africa and employed approximately 100,000 persons in the United States in In March 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 the Commonwealth of Pennsylvania. This EIA tool, built by researchers at Frost & Sullivan, can be used to assess various scenarios and identify the potential impacts realized given the operational presence of GE in Pennsylvania s economy in terms of total economic output impact, job creation, and charitable contributions. Independent of which impact variable explored, GE s impact on the Commonwealth of Pennsylvania s economy can be measured and categorized into three levels of impacts: o Direct Impact the total number of GE jobs created, its associated total economic output, paid wages, 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 within its supply chain and from each U.S. State s local economy. This is the economic activity generated by GE s supply chain in order 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 the employees of GE in the local economy. In order 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, and 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. 2 2

5 Note that this economic analysis only includes the impact of GE s current operations in the Commonwealth of Pennsylvania and does not include the additional economic benefits that GE brings to the state through recent capital investments such as the company s $40 million Center for Additive Technology Advancement (CATA) in Pittsburgh in These investments led to additional construction and infrastructure jobs and economic activity which is not covered in this report. GE provides significant economic and philanthropic benefit to the Commonwealth of Pennsylvania and its presence in the state can be viewed through both the relative and absolute size of its impact. In 2016, GE contributed a total of $6.882 billion in direct, indirect, and induced total production output in the Commonwealth of Pennsylvania. GE s economic presence in the Commonwealth of Pennsylvania supports 20,776 direct, indirect, and induced fulltime equivalent jobs. This is the more than the number of people that it takes to fill the PPG Paints Arena in Pittsburgh. Specifically, the company employs 6,208 fulltime manufacturing and professional jobs in Commonwealth of Pennsylvania and GE supports an additional 6,130 fulltime equivalent jobs in its supply chain. An additional 8,438 fulltime equivalent jobs are supported by local companies that serve the personal consumption needs of GE employee households. Consequently, GE s economic presence in the Commonwealth of Pennsylvania has contributed to the generation of $2,273 million in total direct, indirect, and induced compensation in 2016 and GE corporate, its employees and its foundation contributed $6.8 million in total charitable contributions. Overall, GE has demonstrated its commitment to the Commonwealth of Pennsylvania s economy through its continued investment and rock-solid presence today, and tomorrow. 3

6 General Electric's Impact on the Commonwealth of Pennsylvania s Economy STATE OVERVIEW Pennsylvania is the 5th most populous state in the USA, with a population of 12.78M. Its largest cities are known as urban manufacturing centers and are home to nearly 10% of Fortune 500 companies. However, a large portion of the state is rural, which presents a stark economic contrast. Population: 12.78M people GDP: $710 B Employment: 6.11M people Unemployment Rate: 5.2% PENNSYLVANIA TOTAL ECONOMIC OUTPUT GE provides significant economic and philanthropic benefit to the Commonwealth of Pennsylvania and its presence in the state can be viewed through both the relative and absolute size of its impact. In 2016, GE contributed a total of $6.882 billion in direct, indirect, and induced total production output in the Commonwealth of Pennsylvania. That is the same as $18.43 million of total economic production output per day, $768,000 per hour, and $213 per second. GE s direct productivity contributed 32.1% 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 57.9% of the total economic impact, and the economic output contribution of the local businesses that serves GE employee household personal consumption needs contributed 10.0% of total economic output induced by GE s presence in the Commonwealth of Pennsylvania. GE s economic output within the Commonwealth of Pennsylvania is shown below in both absolute and relative terms. Total Economic Output attributed to GE s Presence in the Commonwealth of Pennsylvania (Total Direct, Indirect, and Induced), $US, 2016 GE's Impact on the U.S. Commonwealth of Pennsylvania Total Economic Output, $US Million, 2016 Metrics PER YEAR $6.88B PER DAY $18.84M Total and Relative Economic Output attributed to GE s Presence in the State of Pennsylvania by Impact Type (Direct, Indirect, and Induced), 2016 Induced 10.0% Indirect 57.9% $6.88B Direct 32.1% PER HOUR $785K Total Economic Impact Direct $2,213.3 Indirect $3,997.0 Total Direct and Indirect Impact $6,210.3 Induced Impact $671.8 Total $6,882.0 PER SECOND $218 Economic Output attributed to GE s Presence in the State of Pennsylvania per $1 spent on GE Employee Compensation, $US, 2016 $1 Spent on GE Compensation leads to $9.72 Total Economic Output Source: Frost & Sullivan Source: Frost & Sullivan 4 4

7 EMPLOYMENT GE s economic presence in the Commonwealth of Pennsylvania supports 20,776 direct, indirect, and induced fulltime equivalent jobs. This is the same number of people that can completely fill the Erie Insurance Arena in Erie, Pennsylvania three times over. In all, one GE job in the Commonwealth of Pennsylvania supports an additional 2.35 fulltime equivalent jobs in Pennsylvania, independent of the industry sector. GE employs 6,208 fulltime manufacturing and professional jobs in the Commonwealth of Pennsylvania and GE s supply chain supports 6,130 fulltime equivalent jobs to in order to address GE s business activity needs. Furthermore, 8,438 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 the Commonwealth of Pennsylvania, 54 retail trade jobs (3,323 total FTE jobs) and 27 health care and social assistance jobs (1,681 total FTE jobs) are supported. In addition, 18 fulltime equivalent accommodation and food service jobs (1,087 FTE jobs) and 12 education services including teachers (745 FTE jobs) are also supported by the presence of GE and its supply chain partners in the Commonwealth of Pennsylvania. Every GE job in Pennsylvania supports an additional 2.35 jobs. This positive feedback loop helps to create jobs in a wider variety of industry sector. GE's Impact on the U.S. Commonwealth of Pennsylvania Number of Jobs Supported per 100 Jobs Employed, Fulltime Equivalent Jobs, 2016 Industry Sector Measure Manufacturing 18 Retail trade 54 Professional and business services 34 Educational services 12 Health care and social assistance 27 Accommodation and food services 18 All Others 72 Total Jobs Supported per 100 GE Jobs Employed 235 GE's Impact on the U.S. Commonwealth of Pennsylvania Total Jobs Supported, Fulltime Equivalent Jobs, 2016 Accommodation and food services Health care and social assistance 1,681 Educational services 745 All Others 4,464 Professional and business services 4,902 Manufacturing 4,574 Retail trade 3,323 Source: Frost & Sullivan 5

8 General Electric's Impact on the Commonwealth of Pennsylvania s Economy GE compensates its average employee 2.35 times more than the state s average compensation rate. LABOR COMPENSATION GE s economic presence in the Commonwealth of Pennsylvania has contributed to the generation of $2,273 million in total direct, indirect, and induced compensation in Furthermore, GE compensates its direct employees significantly more than your average Pennsylvanian business. Specifically, GE compensates its average employee 2.35 times more than the state s average compensation rate. This greater compensation rate leads to a significantly greater economic output potential; $9.75 of total direct, indirect, and induced economic output is created for every $1 of GE compensation expended in Total GE Attributed Direct, Indirect, and Induced Employee Compensation, Pennsylvania, 2016 Average GE Compensation Relative to State Average per State, Pennsylvania, 2016 $2,273B 2.35x GE contributed $6.8 million in total charitable contributions to local charities in Pennsylvania. CHARITABLE IMPACT The benefits of GE s presence in the Commonwealth of Pennsylvania go beyond the economy as evident in its direct contributions to the communities of Pennsylvania. In 2016, GE corporate, GE s employees and the GE foundation contributed $6.8 million in total charitable contributions (equivalent to $1,125 per employee) and provided 19,976 hours of pro bono volunteer hours to local charities in Pennsylvania. Overall, General Electric has clearly demonstrated its commitment to the Commonwealth of Pennsylvania s overall economy and its communities through its continued investment and rock-solid presence today, and tomorrow. GE's Charitable Impact Momentary Donations and Volunteer Hours, Pennsylvania, 2016 Metric Unit of Measure Measure GE Company $US $561,016 GE Foundation $US $3,232,476 Employee Giving $US $3,021,164 Grand Total $US $6,814,656 GE Monetary Donations per GE Employee $US/person $1,125 Volunteer Hours Pro Bono Hours 19,976 Source: Frost & Sullivan 6 6

9 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, charitable contributions 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. 7

10 General Electric's Impact on the Commonwealth of Pennsylvania s Economy 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 consideration economies of scale, unused production capacity or technological change but it still provides 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. 8 8

11 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 9

12 General Electric's Impact on the Commonwealth of Pennsylvania s Economy DEFINITIONS This analysis looks at various measures of economic impact of GE s presence in each of states under investigation in this report. The below list of economic impacts are 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 10 10

13 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 (momentary donations) or through donated time (charitable pro bono hours). Charitable Impact can be measured per GE employee and in total terms. 11

14 General Electric's Impact on the Commonwealth of Pennsylvania s Economy APPENDIX General Electric's Impact on the U.S. Commonwealth of Pennsylvania Economic Impact Summary Table, $US Million, 2016 Metrics Total Economic Impact Gross Valued Added Rest of Value Added* Labor Compensation Employees (People) Direct $2,213.3 $1,138.8 $430.6 $ Indirect $3,997.0 $2,024.8 $786.8 $1, Total Direct and Indirect Impact^ $6,210.3 $3,163.6 $1,217.4 $1, Induced $671.8 $615.2 $288.2 $ Total $6,882.0 $3,778.8 $1,505.6 $2, * 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 + Upsteam Value Chain Partners General Electric's Impact on the U.S. Commonwealth of Pennsylvania Number of Jobs Supported by Industry Sector, # of Employees, 2016 Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs Manufacturing 3,440 1, ,574 Retail trade ,249 3,323 Professional and business services 2,768 2, ,902 Educational services Health care and social assistance ,677 1,681 Accommodation and food services ,087 All Others -- 2,540 1,924 4,464 Total 6,208 6,130 8,438 20,776 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 Pennsylvania Charitable Impact, $US Million, 2016 Metrics GE Company GE Foundation Employee Giving Grand Total Volunteer Hours Pennsylvania $561,016.0 $3,232,476.1 $3,021,164.0 $6,814, Note: NPISH = Nonprofit Institutions Serving Households 12 12

15 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

16 ct on the Commonwealth of Pennsylvania s Economy