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
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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.
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General Electric's Impact on the State of Alabama’s Economy
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
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.
Source: Frost & Sullivan
Manufacturing
365
Retail trade
274
Professional and
business services361
Educational
services42
Health care and
social assistance151
Accommodation
and food services96
All Others
388
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General Electric's Impact on the State of Alabama’s Economy
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
Source: Frost & Sullivan
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.
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General Electric's Impact on the State of Alabama’s Economy
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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 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.
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General Electric's Impact on the State of Alabama’s Economy
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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
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
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General Electric's Impact on the State of Alabama’s Economy
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.
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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
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General Electric's Impact on the State of Alabama’s Economy
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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
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General Electric's Impact on the State of Alabama’s Economy
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