general electric's impact on the state of indiana’s …...6 general electric's impact on...
TRANSCRIPT
General Electric's Impact on the State of Indiana’s
Economy
March 2017
An Economic Analysis Prepared by:
1
INTRODUCTION ............................................................................................. 2
INDIANA ........................................................................................................ 4
TOTAL ECONOMIC OUTPUT ............................................................................. 4
EMPLOYMENT ................................................................................................. 5
LABOR COMPENSATION .................................................................................. 6
CHARITABLE IMPACT ....................................................................................... 6
RESEARCH METHODOLOGY ............................................................................ 7
DEFINITIONS ................................................................................................ 10
APPENDIX .................................................................................................... 12
REFERENCES ................................................................................................ 13
2
General Electric's Impact on the State of Indiana’s Economy
2
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 2016.
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.
GE provides
substantial direct,
indirect, and
induced
socioeconomic
benefits to the
State of Indiana.
3
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 2015. 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.
4
General Electric's Impact on the State of Indiana’s Economy
4
INDIANA TOTAL ECONOMIC OUTPUT
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
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
Direct
32.5%
Indirect
59.5%
Induced
8.0%
Relative Economic Output attributed to GE’s
Presence in the State of Indiana by Impact
Type (Direct, Indirect, and Induced), 2016
Economic Output attributed to GE’s
Presence in the State of Indiana per
$1 spent on GE Employee
Compensation, $US, 2016
Source: Frost & Sullivan
Source: Frost & Sullivan
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
Employment: 3.18M
people
Unemployment
Rate: 4.0%
$13.58 Total Economic Output
$1 Spent on GE Compensation leads to
PER DAY
$3.46M
PER HOUR
$144K
PER YEAR
$1.26B
PER SECOND
$40
$1.26B
5
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.
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
GE's Impact on the U.S. State of Indiana – Total Jobs Supported, Fulltime Equivalent
Jobs, 2016
Source: Frost & Sullivan
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.
Source: Frost & Sullivan
Manufacturing
920
Retail trade
472
Professional and
business services580
Educational
services89
Health care and
social assistance247
Accommodation
and food services127
All Others
587
6
General Electric's Impact on the State of Indiana’s Economy
6
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 2016.
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 2016.
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
$301M
Total GE Attributed Direct, Indirect,
and Induced Employee
Compensation, Indiana, 2016
2.12x
Average GE Compensation Relative to State Average per
State, Indiana, 2016
Source: Frost & Sullivan
GE compensates its
average employee
2.12 times more
than the state’s
average
compensation rate.
GE contributed $2.1
million in total
charitable
contributions to local
charities in Indiana.
7
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 value-
add 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
General Electric's Impact on the State of Indiana’s Economy
8
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.
9
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
General Electric's Impact on the State of Indiana’s Economy
10
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
11
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.
12
General Electric's Impact on the State of Indiana’s Economy
12
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 $93.0 961
Indirect $751.7 $417.2 $250.5 $166.7 858
Total Direct and Indirect Impact^
$1,162.2 $644.3 $384.6 $259.7 1819
Induced Impact@ $101.2 $92.3 $50.7 $41.7 1203
Total $1,263.4 $736.6 $435.3 $301.3 3022
* 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 Equivalent. @ 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 582 338 -- 920
Retail trade -- 9 463 472
Professional and business services 379 201 -- 580
Educational services -- 1 89 89
Health care and social assistance -- -- 247 247
Accommodation and food services -- 20 107 127
All Others -- 290 298 587
Total 961 858 1,203 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 $2,148,458.2 50
Note: NPISH = Nonprofit Institutions Serving Households
13
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: 226–244
Information Sources: Bureau of Economic Analysis; U.S. Department of Commerce.
Retrieved at https://www.bea.gov/iTable/index_regional.cfm
Miller, Ronald E.; Blair, Peter D. (2009). Input-Output Analysis: Foundations and
Extensions. Cambridge, GBR: Cambridge University Press 10. Retrieved at
http://site.ebrary.com/lib/mitlibraries/Doc?id=10329730&ppg=44
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 1997
14
General Electric's Impact on the State of Indiana’s Economy
14