General Electric's Impact on the State of Indiana’s …...6 General Electric's Impact on the State of Indiana’s Economy 6 LABOR COMPENSATION GE’s economic presence in the state

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

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General Electric's Impact on the State of Indiana’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 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.

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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.

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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


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

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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


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.


Manufacturing

920

Retail trade

472

Professional and

business services580

Educational

services89

Health care and

social assistance247

Accommodation

and food services127

All Others

587

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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


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.

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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 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.

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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 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.

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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

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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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Documents

General Electric's Impact on the State of Indiana’s …...6 General Electric's Impact on the State of Indiana’s Economy 6 LABOR COMPENSATION GE’s economic presence in the state