General Electric's Impact on the State of Ohio s Economy May 2017

Transcription

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

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3 INTRODUCTION... 2 OHIO... 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 State of Ohio s Economy GE provides substantial direct, indirect, and induced socioeconomic benefits to the state of Ohio. 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 people in the United States in GE has operated in the state of Ohio for more than a century and is home to GE Aviation, GE Global Operations, GE Healthcare, GE Lighting and Current, powered by GE, among other businesses. GE Aviation s world headquarters is in Ohio and has locations across the state in Greater Cincinnati, Dayton and Peebles where it designs, tests and builds jet engines and parts. GE Aviation is the top employer of engineering graduates from the University of Cincinnati (UC), and maintains ongoing research projects with UC, the University of Dayton and The Ohio State University. GE s Global Operations Center was established in Cincinnati in July 2014 and moved to a new 12-story building, spanning over 338,000 square feet, overlooking the Ohio River and John Roebling Suspension Bridge, in September The building inauguration, in October 2016, was attended by senior GE leaders including Chairman and CEO, Jeff Immelt, Mayor of Cincinnati, John Cranley and other State officials, and is one of GE s four world-class, multi-functional shared services centers worldwide. GE Lighting and Current, powered by GE operate in Nela Park in East Cleveland, where the world headquarters of the Lighting business has resided since Nela Park is proud to be home to MC 2 STEM high school, the first high school built on the grounds of a fortune 500 campus, in collaboration with the Cleveland Metropolitan School District. GE has been inventing and reinventing lighting, and investing in Northeast Ohio communities for more than 100 years. 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 the state of Ohio. 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 Ohio 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 the state of Ohio 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. 2 2

5 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. 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 impact 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 the state of Ohio. In 2016, GE contributed a total of $17.3 billion in direct, indirect, and induced total production output in the state. GE s economic presence in Ohio supports 51,591 direct, indirect, and induced fulltime equivalent jobs. This is enough people to fill up Progressive Field in Cleveland nearly1.5 times. GE employs 14,092 fulltime manufacturing and professional jobs in state of Ohio and GE supports an additional 12,244 fulltime equivalent jobs in its supply chain. An additional 25,255 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 state of Ohio has contributed to the generation of $6.239 billion in total direct, indirect, and induced compensation in 2016 and its employees and its foundation contributed over $16.1 million in total charitable contributions. Overall, GE has demonstrated its commitment to the state of Ohio s economy through its continued investment and rock-solid presence today, and tomorrow. This economic analysis only includes the impact of GE s current operations in the state of Ohio and does not include the additional economic benefits that GE brings to the state through recent capital investments, such GE Aviation s plans to have invested $500 million in its Evendale operations by 2020 or the company s new Global Operations Center which opened in Cincinnati in September 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 State of Ohio s Economy STATE OVERVIEW Ohio is the 7 th most populous state in the USA, with a population of 11.6 million people. Manufacturing and financial activities are Ohio s largest industries by GDP impact. Ohio is the leading USA producer of plastics, rubber, fabricated metals, electrical equipment, and appliances. Ohio s manufacturing sector is the third largest in the USA and is critical to Ohio s ongoing economic health. Population: 11.6 million GDP: $610 billion Employment: 5.4 million Unemployment Rate: 5.1% OHIO TOTAL ECONOMIC OUTPUT GE provides significant economic and philanthropic benefit to the state of Ohio due to its presence in the state. In 2016, the company contributed a total of $17.3 billion in direct, indirect, and induced total production output in the state of Ohio. That is the same as $47.38 million of total economic production output per day, $1.97 million per hour, and $548 per second. The source of this total economic output is derived from three sources; GE s direct productivity contributed 31.8% 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 57.2% of the total economic impact, and the economic output of local businesses that serve GE employee household consumption induced 11% of the total economic output created by GE s presence in the state of Ohio. GE s economic output within the state of Ohio is shown below in both absolute and relative terms. Total Economic Output Attributed to GE s Presence in the State of Ohio (Total Direct, Indirect, and Induced), USD, 2016 GE's Impact on the U.S. State of Ohio Total Economic Output, USD Million, 2016 Metrics Indirect 57.2% PER YEAR $17.3B Relative Economic Output attributed to GE s Presence in the State of Ohio by Impact Type (Direct, Indirect, and Induced), 2016 Induced 11.0% $17.3B Direct 31.8% PER DAY $47.38M PER HOUR $1.97M Total Economic Impact Direct $5,504.1 Indirect $9,907.5 Total Direct and Indirect Impact $15,411.7 Induced Impact $1,895.6 Total $17,307.3 PER SECOND $548 Economic Output Attributed to GE s Presence in the State of Ohio per $1 Spent on GE Employee Compensation, USD, 2016 $1 Spent on GE Compensation Leads to $9.08 Total Economic Output Source: Frost & Sullivan Source: Frost & Sullivan 4 4

7 EMPLOYMENT GE s economic presence in the state of Ohio supports 51,591 direct, indirect, and induced fulltime equivalent jobs. This is enough people to fill up Progressive Field in Cleveland 1.5 times. In all, one GE job in the state of Ohio supports an additional 2.66 fulltime equivalent jobs in Ohio, independent of the industry sector. GE employs 14,092 fulltime manufacturing and professional jobs in the state of Ohio and GE s supply chain supports 12,244 fulltime equivalent jobs in order to address GE s business activity needs. Furthermore, 25,255 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 state of Ohio, 65 retail trade jobs (9,179 total FTE jobs) and 39 health care and social assistance jobs (5,532 total FTE jobs) are supported. In addition, for every 100 GE jobs, 24 fulltime equivalent accommodation and food service jobs (3,332 total FTE jobs) and 12 education services including teachers (1,692 total FTE jobs) are also supported by the presence of GE and its supply chain partners in the state of Ohio. Every GE job in Ohio creates 2.66 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. State of Ohio # of Additional Jobs Supported per 100 GE Jobs Employed, USD Million, 2016 Industry Sector Measure Retail trade 65 Health care and social assistance 39 Professional and business services 29 Manufacturing 24 Accommodation and food services 24 Educational services 12 All Others 73 Total Jobs Supported per 100 GE Jobs Employed 266 GE's Impact on the U.S. State of Ohio Total Jobs Supported, Fulltime Equivalent Jobs, 2016 Accommodation and food services 3,332 Health care and social assistance 5,532 Educational services 1,692 All Others 10,220 Professional and business services 13,365 Manufacturing 8,272 Retail trade 9,179 Source: Frost & Sullivan 5

8 General Electric's Impact on the State of Ohio s Economy GE compensates its average employee 2.41 times more than the state s average compensation rate. LABOR COMPENSATION GE s economic presence in the state of Ohio has contributed to the generation of $6.239 billion in total direct, indirect, and induced compensation in Furthermore, GE compensates its direct employees significantly more than the average Ohio business. Specifically, GE compensates its average employee 2.41 times more than the state s average compensation rate. This increased compensation rate leads to a significantly greater economic output potential; $9.08 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, Ohio, 2016 Average GE Compensation Relative to State Average per State, Ohio, 2016 $6.239B 2.41x GE contributed $16,077,966 in total charitable contributions and provided 51,824 pro bono volunteer hours to local charities in Ohio. CHARITABLE IMPACT The benefits of GE s presence in the state of Ohio go beyond the economy as indicated in its direct contributions to the communities of Ohio. In 2016, GE s employees and the GE Foundation contributed $16.08 million in total charitable contributions (equivalent to $1,141 per employee) and provided 51,824 pro bono volunteer hours to local charities in Ohio. Overall, General Electric has clearly demonstrated its commitment to the state of Ohio s overall economy and its communities through its continued investment and charitable impact. GE's Charitable Impact Monetary Donations and Volunteer Hours, Ohio, 2016 Metric Unit of Measure Measure GE Monetary Donations USD $16,077,966 GE Monetary Donations per GE Employee USD/person $1,141 Volunteer Hours Pro Bono Hours 51,824 Source: Frost & Sullivan 6 6

9 INVESTMENT The economic analysis contained in this report only includes the impact of GE s current operations in the state of Ohio. It does not include the additional economic benefits that GE brings to the state through recent capital investments and other contributions. In September 2016, GE opened its new Global Operations Center in Cincinnati, a 338,000-square-foot, 12-story facility overlooking the Ohio River. The $90 million project supported additional construction and infrastructure jobs and economic activity in the state, and 1,800 employees are projected to be employed at the Center by the end of This new facility opening will contribute roughly $1 billion of annual economic impact to Cincinnati by 2018, according to the University of Cincinnati Economics Center. The Global Operations Center is home to GE s multifunctional shared services organization, supporting the company s Finance/Accounting, HR, IT, Supply Chain, Legal/EHS and Commercial Operations, and is one of only four centers of scale worldwide. In March 2016, GE Aviation announced it expects to have invested $500 million in its Evendale operations in the decade of , boosting research and development and jet engine testing capabilities in addition to its manufacturing operations in the area. New additions to GE Aviation s Evendale Campus and neighboring operations include a $100 million center to test engine combustors, a $140 million additive development center, a CMC FastWorks Lab and a GE Family Wellness Center. In 2013, GE established its Aviation Research Center with the University of Cincinnati and opened $50 million Electrical Power Integrated Systems R&D Center (EPISCENTER) at the University of Dayton campus in collaboration with the University of Dayton Research Institute. Additionally, GE Aviation s engine test center at Peebles underwent $90 million expansion in 2007 followed by a second $70 million expansion in These investments supported additional construction and infrastructure jobs overtime and bolstered the region s local economy. 7

10 General Electric's Impact on the State of Ohio 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 State of Ohio 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 State of Ohio 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. State of Ohio Economic Impact Summary Table, USD Million, 2016 Metrics Total Economic Impact Gross Valued Added Rest of Value Added* Labor Compensation Employees (People) Direct $5,504.1 $3,008.7 $1,102.0 $1, ,092 Indirect $9,907.5 $5,360.4 $2,040.5 $3, ,244 Total Direct and Indirect Impact^ $15,411.7 $8,369.2 $3,142.5 $5, ,336 Induced $1,895.6 $1,721.1 $708.6 $1, ,255 Total $17,307.3 $10,090.3 $3,851.1 $6, ,591 * 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. State of Ohio Number of Jobs Supported by Industry Sector, # of Employees, 2016 Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs Manufacturing 4,879 3,393-8,272 Retail trade ,060 9,179 Professional and business services 9,213 4,152-13,365 Educational services ,682 1,692 Health care and social assistance - 5 5,527 5,532 Accommodation and food services ,821 3,332 All Others - 4,055 6,165 10,220 Total 14,092 12,244 25,255 51,591 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. State of Ohio Charitable Impact, USD Million, 2016 Metrics Grand Total Ohio $16,077,966 Note: NPISH = Nonprofit Institutions Serving Households 13

16 General Electric's Impact on the State of Ohio 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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18 ct on the State of Ohio s Economy