general electric's impact on the state of texas’s economy · general electric's impact...

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

Economy

May 2017

An Economic Analysis Prepared by:

1

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

TEXAS ........................................................................................................ 6

TOTAL ECONOMIC OUTPUT .............................................................................. 6

EMPLOYMENT ........................................................................................................... 7

CHARITABLE IMPACT ............................................................................................. 8

INVESTMENT .............................................................................................................. 9

RESEARCH METHODOLOGY ............................................................... 10

DEFINITIONS .......................................................................................... 13

APPENDIX ............................................................................................... 15

REFERENCES ........................................................................................... 16

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General Electric's Impact on the State of Texas’s Economy

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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.

GE has operated in the Lone Star State for decades and is home to GE

Transportation, GE Oil & Gas, GE Aviation and GE Power, as well as other GE

businesses. GE Manufacturing Solutions facility in Fort Worth is part of GE

Transportation’s supply chain making advanced rail and mining-related equipment

and serves as the primary manufacturing facility for its Evolution Series locomotive

– the most technologically advanced, diesel-electric, heavy-haul locomotive in the

world. This 1 million-square-foot facility is one of GE’s largest manufacturing

rooftops worldwide, and in 2016, the site celebrated its 1,000th locomotive only

three-and-a-half years after opening. GE Transportation has also partnered with

Tarrant County Community College and North Central Texas College to help train

over 600 production employees in machining, welding, painting, electrical wiring and

shop math.

In Texas, GE Oil & Gas manufactures advanced physical and digital technologies for

the industry. The business has decades of manufacturing experience in Texas and

technologies that work throughout the entire oil and gas value chain - from wellhead

to refinery. GE Oil & Gas makes and assembles small-scale LNG (liquefied natural

gas) plants in Schertz, manufactures gearing technology and assembles pumping units

in Lufkin, and develops well automation technology in Houston. Houston is also

home to the GE Oil & Gas Training Center, where the business develops control

systems, reciprocating compressors, downhole technology, controllers and

automation equipment, and valve services. Through partnering with local schools,

fundraising and volunteering for major charities, GE Oil & Gas is committed to

creating opportunities for people by developing skills and building stronger

communities.

GE Aviation’s digital business is headquartered in Austin, bringing together design

engineers, data scientists and software developers to monitor more than 35,000

commercial jet engines in operation and help customers across the aviation

ecosystem to increase productivity and minimize down time by uniting analytics and

physics with software solutions. Two other Aviation locations in Texas include the

McAllen site, which services airfoils for commercial engines, and CFAN Company

in San Marcos, a joint venture between GE and Snecma that manufactures and

supplies composite parts, fan blades, and airfoils.

GE provides

substantial direct,

indirect, and

induced

socioeconomic

benefits to the

state of Texas.

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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 Texas. 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 Texas’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

Texas’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.

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.

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

2016, GE contributed a total of $15.21 billion in direct, indirect, and induced total

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

supports 39,049 direct, indirect, and induced fulltime equivalent jobs. This is nearly

the same number of people that can fill Minute Maid Park in Houston, Texas to

capacity. GE employs 9,833 fulltime manufacturing and professional jobs in state of

Texas and GE supports an additional 13,893 fulltime equivalent jobs in its supply

chain. An additional 15,323 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 Texas has contributed to the

generation of $3.867 billion in total direct, indirect, and induced compensation in

2016 and its employees and its foundation contributed $2.97 million in total

charitable contributions. Overall, GE has demonstrated its commitment to the state

of Texas’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 Texas and does not include the additional economic benefits that GE

brings to the state through capital investments, such as GE Transportation’s $235

investment in its Manufacturing Solutions facility in Fort Worth or the opening of

GE Aviation’s digital collaboration center in Austin. These investments lead to

additional construction and infrastructure jobs and economic activity which are not

covered in this report.

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TEXAS TOTAL ECONOMIC OUTPUT

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

2016, GE contributed a total of $15.21 billion in direct, indirect, and induced total

production output in the state of Texas. That is the same as $41.63 million of total

economic production output per day, $1.7 million per hour, and $482 per second.

The source of this total economic output is derived from three sources; GE’s direct

productivity contributed 31.0% 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 61.2% of the total economic impact, and the economic output

contribution of the local businesses that serves GE employee household personal

consumption induced 7.8% of the total economic output supported by GE’s

presence in the state of Texas. GE’s economic output within the state of Texas is

shown below in both absolute and relative terms.

Total Economic Output Attributed to GE’s Presence in the State of Texas (Total Direct,

Indirect, and Induced), USD, 2016

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

Metrics Total Economic Impact

Direct $4,707.3

Indirect $9,311.1

Total Direct and Indirect Impact $14,018.4

Induced Impact $1,187.0

Total $15,205.4

Direct

31.0%

Indirect

61.2%

Induced

7.8%

Relative Economic Output attributed to GE’s

Presence in the State of Texas by Impact Type

(Direct, Indirect, and Induced), 2016

PER DAY

$41.6M

PER HOUR

$1.7M

PER YEAR

$15.21B

PER SECOND

$482

$15.21B

Economic Output Attributed to GE’s

Presence in the State of Texas per $1

Spent on GE Employee Compensation,

USD, 2016

Source: Frost & Sullivan


STATE OVERVIEW

Texas is the 2nd most

populous state in the

USA, with a population

of 27.9M. Texas is highly

diversified economically

and culturally despite the

strong perception as

being an energy industry

dependent state. The

state’s GDP is $1.65

trillion which would make

it the 12th largest country

in the world if Texas was independent of the US.

Population: 27.9 million

GDP: $1.65 trillion

Employment: 9.9

million

Unemployment Rate:

4.2%

$13.17 Total Economic Output

$1 Spent on GE Compensation leads to

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EMPLOYMENT

GE’s economic presence in the state of Texas supports 39,049 direct, indirect, and

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

fill Minute Maid Park. In all, one GE job in the state of Texas supports an additional

2.97 fulltime equivalent jobs in Texas, independent of the industry sector.

GE employs 9,833 fulltime manufacturing and professional jobs in the state of Texas

and GE’s supply chain supports 13,893 fulltime equivalent jobs in order to address

GE’s business activity needs. Furthermore, 15,323 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 Texas, 59 retail trade jobs (5,765 total FTE jobs) and 31 health care and social

assistance jobs (3,035 total FTE jobs) are supported. In addition, for every 100 GE

jobs, 22 fulltime equivalent accommodation and food service jobs (2,179 total FTE

jobs) and 10 education services including teachers (1,015 total FTE jobs) are also

supported by the presence of GE and its supply chain partners in the state of Texas.

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

Jobs Employed, USD Million, 2016

Industry Sector Measure

Retail trade 59

Professional and business services 46

Health care and social assistance 31

Manufacturing 24

Accommodation and food services 22

Educational services 10

All Others 105

Total Jobs Supported per 100 GE Jobs Employed 297

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

Jobs, 2016

Every GE job in Texas

creates 2.97 additional

jobs within the state.

This positive feedback

helps to create jobs in a

wider variety of industry sectors.


Manufacturing

6,935

Retail trade

5,765

Professional and

business services9,750

Educational

services1,015

Health care and

social assistance3,035

Accommodation

and food services2,179

All Others

10,370

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LABOR COMPENSATION

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

$3.876 billion in total direct, indirect, and induced compensation in 2016.

Furthermore, GE compensates its direct employees significantly more than the

average Texas business. Specifically, GE compensates its average employee 2.19

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

compensation rate leads to a significantly greater economic output potential; $13.17

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 Texas go beyond the economy as

indicated in its direct contributions to the communities of Texas. In 2016, GE

corporate, GE’s employees, and the GE Foundation contributed $2.97 million in

total charitable contributions (equivalent to $302 per employee) to local charities

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

state of Texas’s overall economy and its communities through its continued

investment and charitable contributions.

GE's Charitable Impact – Monetary Donations and Volunteer Hours, Texas, 2016

Metric Unit of Measure Measure

GE Monetary Donations USD million $2.97

GE Monetary Donations

per GE Employee USD/person $302

GE Volunteer Hours Pro Bone Hours 9,736

$3.867B

Total GE Attributed Direct, Indirect,

and Induced Employee

Compensation, Texas, 2016

2.19x

Average GE Compensation

Relative to State Average per

State, Texas, 2016


GE contributed $2.97

million in total

charitable contributions

and provided 9,736

hours of pro bono

volunteer hours to local

charities in Texas.

GE compensates its

average employee 2.19

times more than the

state’s average

compensation rate.

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INVESTMENT

This report’s economic analysis only includes the impact of GE’s current operations

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

brings to the state through capital investments. These investments lead to additional

construction and infrastructure jobs and economic activity which are not covered

in this report.

In October 2016, GE Aviation opened its digital collaboration center in Austin with

launch customer Qantas Airways. Through the partnership, data scientists, software

developers and architects from GE and Qantas will work together to analyze data

to achieve greater fleet intelligence and operational insights. GE Aviation occupies

approximately 27,000 square feet at the facility. Initiatives in the pipeline could lead

to a significant increase in employment in Austin for GE Aviation by the end of 2017.

In December 2012, GE Transportation completed the 1-million-square-foot GE

Manufacturing Solutions factory in Fort Worth, Texas. After purchasing the site in

July 2011, the team spent over a year retrofitting the facility, creating additional

construction and infrastructure jobs as well as bolstering the local economy. The

facility is now one of GE’s largest manufacturing rooftops worldwide, and represents

an investment of $235 million overall.

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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.

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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 co lumn 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.

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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

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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

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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.

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

USD Million, 2016

Metrics

Total

Economic Impact

Gross

Valued Added

Rest of

Value Added*

Labor Compensation

Employees (People)

Direct $4,707.3 $1,996.0 $841.4 $1,154.6 9,833

Indirect $9,311.1 $3,802.8 $1,692.5 $2,110.3 13,893

Total Direct and Indirect Impact^ $14,018.4 $5,798.9 $2,533.9 $3,265.0 23,726

Induced Impact@ $1,187.0 $1,061.1 $459.2 $601.9 15,323

Total $15,205.4 $6,860.0 $2,993.2 $3,866.8 39,049

* 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 Texas – Number of Jobs Supported by

Industry Sector, # of Employees, 2016

Industry Sector Direct Jobs Indirect Jobs Induced Jobs Total Jobs

Manufacturing 4,594 2,342 -- 6,935

Retail trade -- 155 5,610 5,765

Professional and business services 5,240 4,511 -- 9,750

Educational services -- 6 1,009 1,015

Health care and social assistance -- 3 3,032 3,035

Accommodation and food services -- 592 1,587 2,179

All Others -- 6,286 4,085 10,370

Total 9,833 13,893 15,323 39,049

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 Texas – Charitable Impact, USD Million,

2016

Metrics Total Charitable Impact Expenditure

(USD Million) Volunteer Hours

Texas $2.97M 9,736

Note: NPISH = Nonprofit Institutions Serving Households

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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

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©2017 Frost & Sullivan

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