General Electric's Impact on the State of Indiana s Economy March 2017

Transcription

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

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

4 General Electric's Impact on the State of Indiana s Economy GE provides substantial direct, indirect, and induced socioeconomic benefits to the State of Indiana. 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 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 State of Indiana. 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 Indiana 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 State of Indiana 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 State of Indiana and does not include the additional economic benefits that GE brings to the state through recent capital investments such as the company s new $110 million GE Aviation plant Lafayette, Indiana in These investments led to additional construction and infrastructure jobs and economic activity which is not covered in this report and does not include future planned employment expansions. GE provides significant economic and philanthropic benefit to the state of Indiana and its presence in the state can be viewed through both the relative and absolute size of its impact. GE contributed a total of $1.263 billion in direct, indirect, and induced total production output in the state of Indiana. GE s economic presence in the state of Indiana supports 3,022 direct, indirect, and induced fulltime equivalent jobs. This is approximately the same number of people that can completely fill the Egyptian Room at Old National Centre in Indianapolis. GE directly employs 961 fulltime manufacturing and professional jobs in the state of Indiana and supports, through its engagement with its supply chain, a further 858 fulltime equivalent jobs. Also, GE supports an additional 1,203 fulltime equivalent jobs employed by local companies and organizations that serve the personal consumption needs of GE employee households. Accordingly, GE s economic presence in the state of Indiana has contributed to the generation of $301 million in total direct, indirect, and induced compensation in 2016 and its employees and its foundation contributed $2.1 million in total charitable contributions. Overall, GE has demonstrated its commitment to the state of Indiana s economy through its continued investment and presence today, and tomorrow. 3

6 General Electric's Impact on the State of Indiana s Economy INDIANA TOTAL ECONOMIC OUTPUT STATE OVERVIEW Indiana is the 16th most populous state in the USA, with a population of 6.63M. Indiana s economy is heavily reliant on manufacturing. Indiana is the largest producer of steel in the USA. Indiana also plays a significant role in the pharmaceutical industry. Population: 6.63M people GDP: $336 B GE provides significant economic and philanthropic benefit to the state of Indiana 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 $1.263 billion in direct, indirect, and induced total production output in the state of Indiana. That is the same as $3.46 million of total economic production output per day, $144,000 per hour, and $40 per second. GE s direct productivity contributed 32.5% 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 59.6% of the total economic impact, and the economic output contribution of the local businesses that serves GE employee household personal consumption needs contributed 7.9% of total economic output induced by GE s presence in the state of Indiana. GE s economic output within the state of Indiana is shown below in both absolute and relative terms. Total Economic Output attributed to GE s Presence in the State of Indiana (Total Direct, Indirect, and Induced), $US, 2016 PER YEAR $1.26B Relative Economic Output attributed to GE s Presence in the State of Indiana by Impact Type (Direct, Indirect, and Induced), 2016 Induced 8.0% $1.26B Direct 32.5% PER DAY $3.46M PER HOUR $144K PER SECOND $40 Economic Output attributed to GE s Presence in the State of Indiana per $1 spent on GE Employee Compensation, $US, 2016 $1 Spent on GE Compensation leads to Employment: 3.18M people Indirect 59.5% $13.58 Total Economic Output Unemployment Rate: 4.0% Source: Frost & Sullivan GE's Impact on the U.S. State of Indiana Total Economic Output, $US Million, 2016 Metrics Total Economic Impact Direct $410.5 Indirect $751.7 Total Direct and Indirect Impact $1,162.2 Induced Impact $101.2 Total $1,263.4 Source: Frost & Sullivan 4 4

7 EMPLOYMENT GE s economic presence in the state of Indiana supports 3,022 direct, indirect, and induced fulltime equivalent jobs. This is the same approximate number of people that can completely fill the Egyptian Room at Old National Centre in Indianapolis, Indiana. In all, one GE job employed in the state of Indiana supports and additional 2.14 fulltime equivalent jobs in Indiana, independent of the industry sector. GE employs 961 fulltime manufacturing and professional jobs in the state of Indiana and GE s supply chain supports 858 fulltime equivalent jobs to in order to address GE s business activity needs. Moreover, 1,203 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 Indiana, 49 retail trade jobs (472 total FTE jobs) and 26 health care and social assistance jobs (247 total FTE jobs) are supported. In addition, 13 fulltime equivalent accommodation and food service jobs (127 FTE jobs) and 9 education services including teachers (89 FTE jobs) are also supported by the presence of GE and its supply chain partners in the state of Indiana. Every GE job in Indiana creates 2.14 additional jobs within the state. This positive feedback helps to create jobs in a wider variety of industry sector. GE's Impact on the U.S. State of Indiana Number of Jobs Supported per 100 Jobs Created, Fulltime Equivalent Jobs, 2016 Industry Sector Measure Manufacturing 35 Retail trade 49 Professional and business services 21 Educational services 9 Health care and social assistance 26 Accommodation and food services 13 All Others 61 Total Jobs Supported per 100 GE Jobs Employed 214 Source: Frost & Sullivan GE's Impact on the U.S. State of Indiana Total Jobs Supported, Fulltime Equivalent Jobs, 2016 Accommodation and food services 127 Health care and social assistance 247 Educational services 89 All Others 587 Professional and business services 580 Manufacturing 920 Retail trade 472 Source: Frost & Sullivan 5

8 General Electric's Impact on the State of Indiana s Economy GE compensates its average employee 2.12 times more than the state s average compensation rate. LABOR COMPENSATION GE s economic presence in the state of Indiana has contributed to the generation of $301 million in total direct, indirect, and induced compensation in Furthermore, GE compensates its direct employees significantly more than your average Hoosier business. Specifically, GE compensates its average employee 2.12 times more than the state s average compensation rate. This greater compensation rate leads to a significantly greater economic output potential; $13.58 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, Indiana, 2016 Average GE Compensation Relative to State Average per State, Indiana, 2016 $301M 2.12x GE contributed $2.1 million in total charitable contributions to local charities in Indiana. CHARITABLE IMPACT The benefits of GE s presence in the state of Indiana go beyond the economy as evident in its direct contributions to the communities of Indiana. In 2016, GE corporate, GE s employees and the GE foundation contributed $2.1 million in total charitable contributions (equivalent to $2,197 per employee). Overall, General Electric has clearly demonstrated its commitment to the state of Indiana 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, Indiana, 2016 Metric Unit of Measure Measure GE Company $US $257,450 GE Foundation $US $935,712 Employee Giving $US $955,296 Grand Total $US $2,148,458 GE Monetary Donations per GE Employee $US/person $2,197 Volunteer Hours Pro Bono Hours 50 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, 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. 7

10 General Electric's Impact on the State of Indiana 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 State of Indiana 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 State of Indiana s Economy APPENDIX INDIANA General Electric's Impact on the U.S. State of Indiana Economic Impact Summary Table, $US Million, 2016 Metrics Total Economic Impact Gross Valued Added Rest of Value Added* Labor Compensation Employees (People) Direct $410.5 $227.1 $134.1 $ Indirect $751.7 $417.2 $250.5 $ Total Direct and Indirect Impact^ $1,162.2 $644.3 $384.6 $ Induced $101.2 $92.3 $50.7 $ Total $1,263.4 $736.6 $435.3 $ * 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. State of Indiana Number of Jobs Supported by Industry Sector, # of Employees, 2016 Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs Manufacturing Retail trade Professional and business services Educational services Health care and social assistance Accommodation and food services All Others Total ,203 3,022 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 Indiana Charitable Impact, $US Million, 2016 Metrics GE Company GE Foundation Employee Giving Grand Total Volunteer Hours Indiana $257,450.0 $935,712.0 $955,296.1 $2,148, 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

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