general electric's impact on the state of alabama’s...

General Electric's Impact on the State of Alabama’s

Economy

June 2017

An Economic Analysis Prepared by:

1

INTRODUCTION ...................................................................................... 2

ALABAMA .................................................................................................. 4

TOTAL ECONOMIC OUTPUT .............................................................................. 4

EMPLOYMENT ........................................................................................................... 5

CHARITABLE IMPACT ............................................................................................. 6

INVESTMENT .............................................................................................................. 7

RESEARCH METHODOLOGY ................................................................. 8

DEFINITIONS .......................................................................................... 11

APPENDIX ............................................................................................... 13

REFERENCES ........................................................................................... 14

2

General Electric's Impact on the State of Alabama’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 Africa and employed approximately 100,000 people in the

United States in 2016.

Alabama is home to GE Aviation as well as other GE businesses. GE Aviation’s

operations in Alabama focus on their most cutting edge technologies and advanced

manufacturing. The Auburn facility manufactures super-alloy machined parts for jet

engines and is the world's highest-volume additive manufacturing center.

Additionally, GE Aviation is currently building a new facility in Huntsville that will

mass-produce silicon carbide materials used to manufacture ceramic matrix

composite components for jet engines, a breakthrough material revolutionizing

engine design and capability.

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 Alabama. 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 Alabama’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

Alabama’s economy can be measured and categorized into three levels of impact:

o Direct impact—the total number of GE jobs created, its associated total

economic output, paid wages, and charitable contributions generated from

GE’s production operations

o Indirect impact—the number of indirect jobs created, its associated

wages, and total economic output related to GE’s direct expenditures on

goods and services through its supply chain and from each US state’s local

economy. This is the economic activity generated by GE’s supply chain to

serve GE’s operational needs.

o Induced impact—the economic impact created as a result of local

spending by GE employees and families, its associated wages and GDP

produced from those induced wages. This is the economic activity

generated by the household expenditures of GE employees in the local

economy.

GE provides

substantial direct,

indirect, and

induced

socioeconomic

benefits to the

state of Alabama.

3

To calculate these economic impacts, a pragmatic input/output (I/O) production

model was developed. The I/O model is based on the assumption that GE’s presence

in a given economy contributes to the total value of the economy, just like all other

economic actors in the economy and that each economic actor has a direct impact,

an indirect impact, and an induced impact on the total economy through the

economic decisions they make. Each of these types of impacts can be measured and

compared to the performance of the total economy. Consequently, economic

impact statements can be made regarding the relative and absolute benefit GE has

on the economy as a whole.

GE provides significant economic and philanthropic benefit to the state of Alabama.

In 2016, GE contributed a total of $492.1 million in direct, indirect, and induced

total production output in the state of Alabama. GE’s economic presence in the

state of Alabama supports 1,677 direct, indirect, and induced fulltime equivalent

jobs. This is nearly the same number of people that can fill Montgomery Performing

Arts Centre to capacity 1.4 times. GE employs 450 fulltime manufacturing and

professional jobs in state of Alabama and GE supports an additional 491 fulltime

equivalent jobs in its supply chain. An additional 737 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

Alabama has contributed to the generation of $165 million in total direct, indirect,

and induced compensation in 2016 and its employees and its foundation contributed

over $380,000 in total charitable contributions. Overall, GE has demonstrated its

commitment to the state of Alabama’s economy through its continued investment

and rock-solid presence today, and tomorrow.

Note that this economic analysis only includes the impact of GE’s current operations

in the state of Alabama and does not include the additional economic benefits that

GE brings to the state through recent capital investments, such as GE Aviation’s

$200 million investment to build new facilities in Huntsville. These investments led

to additional construction and infrastructure jobs and economic activity which are

not covered in this report.

4


4

ALABAMA TOTAL ECONOMIC OUTPUT

GE provides significant economic and philanthropic benefit to the state of Alabama

due to its presence in the state. In 2016, the company contributed a total of $492.1

million in direct, indirect, and induced total production output in the state of

Alabama. That is the same as $1.35 million of total economic production output per

day, $56,141 per hour, and $16 per second. The source of this total economic

output is derived from three sources; GE’s direct productivity contributed 31.1% 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 59.1% of the total

economic impact, and the economic output of local businesses that serve GE

employee household consumption induced 9.8% of the total economic output

supported by GE’s presence in the state of Alabama. GE’s economic output within

the state of Alabama is shown below in both absolute and relative terms.

Total Economic Output Attributed to GE’s Presence in the State of Alabama (Total

Direct, Indirect, and Induced), USD, 2016

GE's Impact on the U.S. State of Alabama – Total Economic Output, USD Million, 2016

Metrics Total Economic Impact

Direct $153.0

Indirect $290.7

Total Direct and Indirect Impact $443.8

Induced Impact $48.3

Total $492.1

Direct

31.1%

Indirect

59.1%

Induced

9.8%

Relative Economic Output attributed to GE’s

Presence in the State of Alabama by Impact

Type (Direct, Indirect, and Induced), 2016

PER DAY

$1.35M

PER HOUR

$56K

PER YEAR

$492.1M

PER SECOND

$16

$492.1B

Economic Output Attributed to GE’s

Presence in the State of Alabama per $1

Spent on GE Employee Compensation,

USD, 2016

Source: Frost & Sullivan


STATE OVERVIEW

Alabama is the 24th

most populous state in

the USA, with a

population of 4.9 million

people. Over the last

many decades,

Alabama’s economy has

shifted dramatically from

being agriculturally based

to being largely based on

manufacturing,

healthcare, and business

services. Other key focus

areas include aerospace, automobile

manufacturing, banking,

mineral extraction, and

steel production.

Population: 4.9 million

GDP: $200 billion

Employment: 2.1

million

Unemployment Rate:

6.2%

$10.05 Total Economic Output

$1 Spent on GE Compensation leads to

5

EMPLOYMENT

GE’s economic presence in the state of Alabama supports 1,677 direct, indirect, and

induced fulltime equivalent jobs. This is the same number of people that can fill the

Montgomery Performing Arts Centre in Montgomery, Alabama. In all, one GE job

in the state of Alabama supports an additional 2.73 fulltime equivalent jobs in

Alabama, independent of the industry sector.

GE employs 450 fulltime manufacturing and professional jobs in the state of Alabama

and GE’s supply chain supports 491 fulltime equivalent jobs in order to address GE’s

business activity needs. Furthermore, 735 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 Alabama, 61

retail trade jobs (274 total FTE jobs) and 33 health care and social assistance jobs

(151 total FTE jobs) are supported. In addition, for every 100 GE jobs, 21 fulltime

equivalent accommodation and food service jobs (96 total FTE jobs) and 9 education

services including teachers (42 total FTE jobs) are also supported by the presence

of GE and its supply chain partners in the state of Alabama.

GE's Impact on the U.S. State of Alabama – # of Additional Jobs Supported per 100 GE

Jobs Employed, USD Million, 2016

Industry Sector Measure

Retail trade 61

Health care and social assistance 33

Manufacturing 32

Professional and business services 29

Accommodation and food services 21

Educational services 9

All Others 86

Total Jobs Supported per 100 GE Jobs Employed 273

GE's Impact on the U.S. State of Alabama – Total Jobs Supported, Fulltime Equivalent

Jobs, 2016

Every GE job in

Alabama creates 2.73

additional jobs within

the state. This positive

feedback helps to

create jobs in a wider variety of industry

sectors.


Manufacturing

365

Retail trade

274

Professional and

business services361

Educational

services42

Health care and

social assistance151

Accommodation

and food services96

All Others

388

6


6

LABOR COMPENSATION

GE’s economic presence in the state of Alabama has contributed to the generation

of $165 million in total direct, indirect, and induced compensation in 2016.

Furthermore, GE compensates its direct employees significantly more than the

average Alabama business. Specifically, GE compensates its average employee 2.13

times more than the state’s average compensation rate. This increased

compensation rate leads to a significantly greater economic output potential; $10.05

of total direct, indirect, and induced economic output was created for every $1 of

GE compensation expended in 2016.

CHARITABLE IMPACT

The benefits of GE’s presence in the state of Alabama go beyond the economy as

evident in its direct contributions to the communities of Alabama. In 2016, GE

corporate, GE’s employees, and the GE Foundation contributed $380 thousand in

total charitable contributions (equivalent to $846 per employee) to local charities

in Alabama. Overall, General Electric has clearly demonstrated its commitment to

the state of Alabama’s overall economy and its communities through its continued

investment and charitable impact.

GE's Charitable Impact – Monetary Donations, Alabama, 2016

Metric Unit of Measure Measure

GE Monetary Donations USD $380,565

GE Monetary Donations

per GE Employee USD/person $846

$165M

Total GE Attributed Direct, Indirect,

and Induced Employee

Compensation, Alabama, 2016

2.13x

Average GE Compensation

Relative to State Average per

State, Alabama, 2016


GE contributed $380

thousand in total

charitable contributions

to local charities in

Alabama.

GE compensates its

average employee 2.13

times more than the

state’s average

compensation rate.

7

INVESTMENT

Note that this economic analysis only includes the impact of GE’s current operations

in the state of Alabama and does not include the additional economic benefits that

GE brings to the state through recent capital investments. These investments led to

additional construction and infrastructure jobs and economic activity which are not

covered in this report.

GE Aviation is investing more than $200 million to construct two adjacent factories

in Huntsville to mass-produce silicon carbide (SiC) materials used to manufacture

ceramic matrix composite components (CMCs) for jet engines and land-based gas

turbines for electric power. The use of lightweight, heat-resistant CMCs in the hot

section of GE jet engines is a breakthrough for the jet propulsion industry. The best-

selling LEAP engine, being developed by CFM International, the 50/50 joint company

of GE and Safran Aircraft Engines, is the first commercial jet engine to use CMCs in

the high-pressure turbine section. The plants are expected to be completed and

operational in 2018.

Since 2013, GE Aviation has also invested more than $100 million in a 300,000-

square-foot factory in Auburn, near the storied Auburn University campus, where

the company is engaged in jet engine component manufacturing (super-alloy

machined parts) as well as establishing the world's highest-volume additive

manufacturing center. Using the additive manufacturing process, the Auburn plant

is now using laser melting machines to produce the interiors of fuel nozzles for the

best-selling LEAP engine by CFM International. It marks the first time such a

complex jet engine component will be manufactured using additive technology.

8


8

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.

9

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.

10


10

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

11

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

12


12

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 (monetary

donations) or through donated time (charitable pro bono hours). Charitable Impact

can be measured per GE employee and in total terms.

13

APPENDIX General Electric's Impact on the U.S. State of Alabama – Economic Impact Summary

Table, USD Million, 2016

Metrics

Total

Economic Impact

Gross

Valued Added

Rest of

Value Added*

Labor Compensation

Employees (People)

Direct $153.0 $78.9 $29.9 $49.0 450

Indirect $290.7 $148.8 $58.4 $90.4 491

Total Direct and Indirect Impact^ $443.8 $227.7 $88.3 $139.4 941

Induced Impact@ $48.3 $43.5 $18.0 $25.5 735

Total $492.1 $271.2 $106.3 $164.9 1,677

* 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 + Upstream Value Chain Partners

General Electric's Impact on the U.S. State of Alabama – Number of Jobs Supported by

Industry Sector, # of Employees, 2016

Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs

Manufacturing 221 144 - 365

Retail trade - 6 268 274

Professional and business services 230 132 - 361

Educational services - - 42 42

Health care and social assistance - - 150 151

Accommodation and food services - 18 78 96

All Others - 191 197 388

Total 450 491 735 1,677

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 Alabama – Charitable Impact, USD Million,

2016

Metrics Grand Total

Alabama $380,565

Note: NPISH = Nonprofit Institutions Serving Households

14


14

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

https://www.bea.gov/iTable/index_regional.cfm

http://site.ebrary.com/lib/mitlibraries/Doc?id=10329730&ppg=44

15

©2017 Frost & Sullivan

All rights reserved. Selected passages and figures may be reproduced for the purposes of research,

media reporting, and review given acknowledgement of the source is included. For information

regarding use permission, write to:

Frost & Sullivan

7550 IH 10 West, Suite 400

San Antonio, TX 78229

[email protected]

About Frost & Sullivan

Frost & Sullivan is a growth partnership company focused on helping our clients achieve

transformational growth as they are impacted by an economic environment dominated by accelerating

change, driven by disruptive technologies, mega trends, and new business models. For more than 55

years, we have been developing economic and business growth strategies for the Global 1000,

emerging businesses, the public sector and the investment community. Is your organization prepared

for the next profound wave of industry convergence, disruptive technologies, increasing competitive

intensity? Mega Trends, breakthrough best practices, changing customer dynamics and emerging

economies? Contact us to start the discussion.

mailto:[email protected]

16


16

general electric's impact on the state of alabama’s...

Documents