www.pwc.com/us/nes
Economic Impact of U.S. Subsidiaries
May 10, 2012
Prepared for the Organization for International Investment
Economic Impact of U.S. Subsidiaries Table of Contents Executive Summary ............................................................................................................ E-1 I.
Total Economic Impact ................................................................................................... 1 A.
National Results .......................................................................................................... 1
B.
Economic Impacts by Industry .................................................................................. 2
C.
Economic Impacts by State ........................................................................................ 3
II. Direct Economic Impact ................................................................................................. 6 III. Supply Chain and Paycheck Impacts.............................................................................10 IV. Methodology .................................................................................................................. 12 A.
Direct Impacts ........................................................................................................... 12
B.
Supply Chain and Paycheck Impacts ........................................................................ 12
This document has been prepared pursuant to an engagement between PricewaterhouseCoopers LLP and OFII. As to all other parties, it is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Executive Summary It is well established that U.S. subsidiaries of global companies headquartered outside the United States (“U.S. subsidiaries”) have a significant direct impact on employment in the United States. According to the most recent U.S. government data, these U.S. subsidiaries directly employ 5.3 million individuals.1 Their role in the economy goes beyond direct employment, with U.S. subsidiaries purchasing most of their goods and services from domestic businesses. Further, the employees of U.S. subsidiaries and their suppliers in turn spend their paychecks throughout the U.S.– increasing the impact of these firms on the economy. The Organization for International Investment (OFII) has engaged PwC to measure total domestic employment attributable to U.S. subsidiaries including supply chain employment and those jobs supported from the spending of employee paychecks. Employment attributable to U.S. subsidiaries is measured at the national and state levels, as well as on an industry basis. In addition, the PwC study measures the contribution of U.S. subsidiaries to U.S. compensation and GDP. Due to the variety of industries in which U.S. subsidiaries operate, this estimation required analysis of the unique impact of each industry. Impact on American Jobs: U.S. subsidiaries directly and indirectly account for 21 million jobs, representing 12.2 percent of total U.S. employment. o o
Of the total jobs, 5.3 million are direct employees of U.S. subsidiaries and the additional 15.8 million are in the supply chain or associated with the spending of employee paychecks. For every direct U.S. subsidiary job, an additional three jobs are supported in the U.S. economy.
Impact on U.S. Compensation: These 21 million U.S. subsidiary-related jobs account for $1.2 trillion in compensation, representing 14 percent of total U.S. compensation. o o
Each dollar in direct compensation paid by U.S. subsidiaries supports an additional two dollars in total U.S. compensation. Average compensation per job across all U.S. subsidiary-related jobs (including direct, supply chain, and paycheck spending related jobs) is $58,500-approximately 17 percent higher than the U.S. average for all types of employment ($50,100). Average compensation per direct U.S. subsidiary job is even higher, at $77,590.
U.S. Bureau of Economic Analysis (BEA), “U.S. Affiliates of Foreign Companies: Operations in 2009,” Survey of Current Business, August 2011. 1
E-1
Impact on U.S. GDP: The operations of U.S. subsidiaries and their suppliers contribute $2 trillion to the U.S. economy, representing 14.2 percent of U.S. GDP. o
Each dollar of value added by U.S. subsidiaries supports an additional $2.40 of U.S. GDP.
Impact on American Manufacturing Sector: The PwC analysis finds employment related to U.S. subsidiaries in all industries, with particularly strong representation in the American manufacturing sector. o o
U.S. subsidiaries in the manufacturing sector account for 12.2 million, or 58 percent, of the total 21 million U.S. subsidiary-related jobs. The supply chain and paycheck impact in the manufacturing sector is five jobs for every U.S. subsidiary employee, materially higher than the overall 3-to-1 jobs impact for all U.S. subsidiaries.
Figure E-1. Total Employment Attributable to U.S. Subsidiaries, by Originating Industry 12.2m
Manufacturing 2.3m
Wholesale and Retail Finance, Insurance, and Real Estate
1.5m Direct Effect 1.0m
Information Professional, Scientific, and Technical Svcs
Supply Chain and Paycheck Impact
0.8m 3.2m
Other Industries 0
5
Millions of Jobs
10
15
Source: Bureau of Economic Analysis and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data).
Impact State-by-State: PwC also identified the employment impact of U.S. subsidiaries by state. The study demonstrates material impact in all states. o
U.S. subsidiaries’ employment (including supply chain and paycheck employment) represents more than 10 percent of the total employment in 34 states.
E-2
o
The ten states with the largest number of jobs associated with U.S. subsidiaries are in Table E-1 below.
State
California Texas New York Illinois Pennsylvania Florida Ohio New Jersey North Carolina Georgia
Table E-1. 10 States with Largest Number of Jobs Associated with U.S. Subsidiaries Total Direct, Supply Chain Direct U.S. Supply Chain, and Paycheck Subsidiary and Paycheck Impact Jobs (millions Impact (millions of of jobs) (millions of jobs) jobs) 0.6 1.9 2.5 0.4 1.8 2.2 0.4 1.0 1.3 0.3 0.8 1.0 0.3 0.7 1.0 0.2 0.7 1.0 0.2 0.6 0.8 0.2 0.6 0.8 0.2 0.5 0.7 0.2 0.5 0.6
Total as a Share of Total State Employment 12% 16% 12% 14% 14% 10% 13% 17% 13% 12%
Source: Bureau of Economic Analysis and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data).
E-3
Economic Impact of U.S. Subsidiaries The Organization for International Investment engaged PwC to estimate the impact of U.S. operations of companies headquartered outside the United States (“U.S. subsidiaries”) on the American economy at the state and national levels. The economic impact is measured in terms of employment, value added, and compensation and includes direct, supply chain, and paycheck effects (as described in Box 1). Economic impacts were calculated based on standard input-output modeling techniques and the most recent (2009) U.S. Bureau of Economic Analysis (“BEA”) data on majorityowned U.S. subsidiaries. The model has been adjusted to reflect the characteristics of U.S. subsidiaries, such as their industries of operation and average compensation, both of which differ from the overall economy.
Box 1. Measures of Economic Impact For this report, the total economic impacts of U.S. subsidiaries represent the sum of three components: •
Direct effects: Economic activities directly attributable to U.S. subsidiaries.
•
Supply chain effects: Activities of upstream suppliers to U.S. subsidiaries, also known as “indirect” effects.
•
I. Total Economic Impact
Paycheck effects: Spending of paychecks by employees of U.S. subsidiaries and their suppliers, also known as “induced” effects.
A.
National Results
Overall, including direct, supply chain and paycheck effects, U.S. subsidiaries are associated with a total of 21 million American jobs, $1.2 trillion in compensation, and $2.0 trillion of U.S. GDP, which measures labor and capital income in the United States.(See Table 1 below.)
We present each of these components in terms of three different measures: Employment: The number of payroll and self-employed jobs (including part-time jobs), averaged over the year. Compensation: For employees, this includes wages, salaries and benefits; for the self-employed, it reflects proprietors' income.
Relative to the overall U.S. economy, the economic activity directly and indirectly associated with U.S. subsidiaries is responsible for 12.2 percent of total employment, 14.0 percent of total compensation, and 14.2 percent of value added.
Value added, or contribution to GDP: The total output of each sector less the associated value of intermediate inputs. The sum of the value added across all sectors in the economy is GDP. For a business, it approximates the sum of labor costs, profits, and taxes.
U.S. subsidiaries directly employ 5.3 million workers across the country. Another 6.6 million jobs are associated with the supply chain impacts, and 9.2 million jobs are
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associated with the spending of paychecks by employees of U.S. subsidiaries and their supply chains. Table 1. Impact of U.S. Subsidiaries on the U.S. Economy Item
Supply Chain Impact
Direct Impact
Paycheck Impact
Total Impact
Employment (thousands) a
5,280
6,602
9,203
21,085
Compensation ($ billions) b
$410
$410
$415
$1,234
Value Added ($ billions)
$588
$692
$725
$2,004
Source: Bureau of Economic Analysis and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data). a Direct employment is defined as the number of full-time and part-time jobs. Supply chain and paycheck employment also includes self-employment. b Direct compensation is defined as wages and salaries and benefits. Supply chain and paycheck compensation also includes proprietors' income. Note: Includes U.S. permanent establishments and the direct impact of U.S. subsidiaries in U.S. territories and other jurisdictions.
Average compensation per job associated with U.S. subsidiaries is generally higher than the overall economy. Average compensation per direct job is $77,590. Across all U.S. subsidiary-related jobs (including direct, supply chain, and paycheck spending related jobs), the average is $58,500. By comparison, the U.S. average for employees and the self employed is $50,100. The U.S. average excluding the self-employed is higher ($55,140), but still does not reach the level associated with U.S. subsidiaries. Overall, average compensation per job associated with U.S. subsidiaries is 17 percent higher than the U.S. average for all types of employment.
B. Economic Impacts by Industry By industry, U.S. subsidiaries in the manufacturing, wholesale, and finance and insurance industries are responsible for the largest shares of the direct, supply chain, and paycheck jobs. Manufacturers directly and indirectly support over 12 million jobs, $725 billion in compensation, and $1.2 trillion in value added. Wholesalers directly and indirectly support 1.6 million jobs, $99 billion in compensation, and $147 billion in value added. Finance and insurance companies directly and indirectly support 1.4 million jobs, $112 billion in compensation, and $131 billion in value added. 2
Table 2 provides the breakdown of the direct and overall impact by originating industry. The originating industry is where the direct impact occurs, which lead to the supply chain and paycheck impacts. Table 2. U.S. Impact by Originating Industry Employment (thousands) Direct
Compensation ($ billions)
Total
Direct
Value Added ($ billions)
Total
Direct
Total
All Industries
5,280
21,085
$410
$1,234
$588
$2,004
Manufacturing
1,964
12,194
$171
$725
$278
$1,227
Wholesale trade
560
1,602
$48
$99
$61
$147
Retail trade
469
741
$15
$28
$28
$50
Information
252
1,048
$24
$64
$36
$104
Finance and insurance Real estate and rental and leasing Professional, scientific, and technical services Other industries
384
1,422
$61
$112
$42
$131
38
126
$3
$7
$12
$19
246
754
$23
$47
$27
$68
1,367
3,197
$64
$153
$104
$258
Source: Bureau of Economic Analysis data and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data). Includes direct impact of U.S. subsidiaries in U.S. territories and other jurisdictions.
C. Economic Impacts by State U.S. subsidiaries account for significant shares of overall state economic activity. Table 3 presents the direct, supply chain, and paycheck impacts of U.S. subsidiaries by state. Jobs associated with U.S. subsidiaries exceed 1 million in the states of California, Texas, New York, Illinois, and Pennsylvania. Employment attributable to U.S. subsidiaries represents more than 10 percent of total employment in 34 states. Compensation associated with U.S. subsidiaries exceeds $50 billion in California, Texas, New York, Illinois, New Jersey, and Pennsylvania. Compensation associated with U.S. subsidiaries is more than 10 percent of the state total in 42 states and 15 percent or more in 12 states. Value added associated with U.S. subsidiaries exceeds $100 billion in California, Texas, New York, and Illinois, and more than 10 percent of total value added in 42 states. The share of employment associated with U.S. subsidiaries ranges from 7 percent of state employment in Montana to 20 percent in Delaware (see Figure 1).
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Table 3. Total Impact of U.S. Subsidiaries on the U.S. Economy [Includes direct, supply chain, and paycheck impacts] State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming U.S. Territories and Other
Total
Employment a Number Percent of (Thous) State Total 289.6 11.7% 52.7 11.7% 290.4 9.1% 150.0 9.8% 2,474.9 12.5% 313.2 10.0% 308.0 14.3% 105.3 20.1% 57.2 6.9% 967.2 9.9% 626.8 12.0% 76.0 9.0% 68.8 7.8% 1,014.3 14.0% 522.8 15.0% 204.0 10.5% 213.3 11.9% 304.8 13.1% 292.2 11.7% 91.1 11.3% 339.5 10.1% 581.1 14.3% 594.5 11.9% 382.7 11.3% 127.1 8.6% 373.0 10.6% 43.2 6.9% 110.1 9.1% 137.5 9.2% 117.0 14.3% 813.7 16.5% 79.1 7.4% 1,340.9 12.3% 691.0 13.3% 49.8 10.1% 832.5 13.0% 195.7 9.2% 204.6 9.4% 1,001.1 14.1% 67.7 11.6% 337.0 13.9% 38.2 6.9% 432.9 12.3% 2,209.8 15.9% 150.8 9.4% 36.2 8.7% 476.3 10.1% 374.6 9.8% 98.7 11.0% 343.5 10.1% 43.2 11.2% 39.3 NA
21,084.9
Compensation b Amount Percent of ($ billions) State Total $14.2 13.1% $3.3 13.0% $15.2 10.0% $7.1 11.2% $161.1 13.9% $19.0 11.7% $22.6 16.6% $6.6 23.8% $5.3 6.7% $47.6 10.9% $33.7 13.3% $3.5 8.3% $3.1 8.9% $63.4 16.0% $27.4 17.6% $10.0 12.2% $10.9 13.5% $14.8 14.9% $16.1 13.9% $3.9 11.9% $19.9 10.5% $39.8 16.0% $32.6 13.7% $21.1 12.7% $5.7 9.7% $19.5 12.2% $1.8 7.7% $5.6 10.4% $7.1 9.9% $6.4 16.2% $57.8 19.4% $3.8 8.1% $101.0 14.6% $35.4 15.0% $2.4 11.6% $44.2 15.0% $10.1 10.9% $10.3 10.5% $57.1 16.1% $3.5 12.0% $16.0 16.0% $1.8 8.0% $22.0 13.9% $133.5 18.7% $7.4 10.7% $1.6 9.5% $27.6 10.3% $22.8 10.9% $5.0 12.7% $17.4 11.4% $2.4 14.0% $3.3 NA
12.2%
$1,234.5
14.0%
Contribution to GDP Amount Percent of ($ billions) State Total $22.6 13.4% $6.1 15.4% $24.6 9.8% $11.0 11.2% $258.6 13.8% $31.6 12.0% $35.3 16.0% $12.2 26.6% $7.9 7.5% $77.5 10.9% $56.3 13.6% $6.0 9.4% $4.6 8.8% $100.4 15.8% $44.0 17.5% $15.8 12.0% $18.4 14.1% $24.5 15.4% $27.7 14.7% $6.3 12.4% $30.8 10.8% $60.6 15.9% $50.7 13.3% $33.4 12.4% $8.9 9.8% $30.6 12.2% $3.2 8.5% $8.5 10.2% $12.4 10.4% $10.0 16.2% $94.7 19.7% $6.1 8.7% $150.3 13.8% $58.1 15.4% $4.1 12.6% $69.1 14.8% $18.2 11.6% $15.8 10.3% $91.7 16.5% $5.6 12.3% $25.8 16.2% $2.5 7.5% $35.1 13.9% $250.8 20.5% $11.6 10.7% $2.5 9.6% $43.2 10.6% $34.9 10.6% $8.6 13.9% $26.1 10.9% $4.7 16.2% $4.3 NA
$2,004.4
14.2%
Source: Bureau of Economic Analysis data and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data). a Total employment is the sum of direct, supply chain, and paycheck employment. Direct employment is defined as the number of full-time and part-time jobs. Supply chain and paycheck employment also includes self-employment. b Total compensation is the sum of direct, supply chain, and paycheck compensation. Direct compensation is defined as wages and salaries and benefits. Supply chain and paycheck compensation also includes proprietors' income. Note: Includes U.S. permanent establishments and direct impacts of U.S. subsidiaries in possessions and other jurisdictions.
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Figure 1. Direct, Supply Chain, and Paycheck Employment as a Share of State Total Delaware 6% New Jersey 5% 12% Texas 3% 13% Indiana 4% 11% New Hampshire 5% 9% Massachusetts 5% 10% Connecticut 5% 10% Pennsylvania 4% 11% Illinois 3% 11% South Carolina 4% 10% North Carolina 4% 10% Kentucky 4% 9% Ohio 3% 10% California 3% 10% New York 4% 9% Tennessee 3% 9% Georgia 3% 9% Michigan 3% 9% Kansas 3% 9% Alaska 3% 9% Louisiana 2% 10% Alabama 3% 9% Rhode Island 4% 8% Minnesota 3% 9% Maine 4% 8% Wyoming 2% 9% West Virginia 3% 8% Missouri 2% 8% Iowa 2% 8% Maryland 3% 7% Wisconsin 2% 8% North Dakota 2% 8% Virginia 3% 7% Colorado 3% 8% Florida 2% 8% Arkansas 2% 8% Washington 2% 7% Utah 2% 8% Oregon 2% 7% Oklahoma 2% 8% Nevada 2% 7% Arizona 2% 7% Nebraska 2% 7% Hawaii 3% 6% Vermont 2% 6% Mississippi 2% 7% Idaho 2% 6% New Mexico 2% 6% South Dakota 1% 6% District of Columbia 2% 5% Montana 1% 6% 0%
5%
10%
14%
Direct Supply Chain and Paycheck
15%
Share of Total State Employment
20%
25%
Source: Bureau of Economic Analysis data and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data).
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II.
Direct Economic Impact
According to the most recent government statistics, U.S. subsidiaries directly provide 5.3 million jobs, or 4.7 percent of the total number of private sector jobs. These employees receive $410 billion in compensation and contribute $588 billion to the nation’s GDP. U.S. subsidiaries sell $2.9 trillion in goods and services (see Figure 2). Approximately 39 percent of these sales are in the manufacturing sector, 30 percent in the wholesale and retail sector, and 14 percent in the finance, insurance, and real estate sector.
Figure 2. Sales by Industry of U.S. Subsidiary Other Industries 10% Prof, Scientific, and Tech Svcs 3%
Manufacturing 39%
Information 4%
Finance, Insurance, Real Estate 14% Wholesale and Retail 30% Source: Bureau of Economic Analysis, accessed March 2012. Note: Includes U.S. permanent establishments and activity of U.S. subsidiaries in U.S. territories and other jurisdictions.
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Of the $2.9 trillion, U.S. subsidiaries of Japanese companies account for 18 percent of the total ($500 billion). Other countries with U.S. subsidiaries that account for significant shares of U.S. subsidiary sales are the United Kingdom, Germany, the Netherlands, France, Canada and Switzerland (see Figure 3). Almost all of these countries are among the 10 largest markets for U.S. exports (all but Switzerland) and the 10 largest sources of imports (all but Switzerland and the Netherlands) into the United States.2
Figure 3. Total Sales by Country of Ownership Japan 18%
All Other 24%
United Kingdom 15%
Switzerland 7%
Canada 8% France 8%
Netherlands 9%
Germany 11%
Source: Bureau of Economic Analysis, accessed March 2012. Note: Includes U.S. permanent establishments and activity of U.S. subsidiaries in U.S. territories and other jurisdictions.
Average U.S. subsidiary employee compensation is higher than the overall U.S. average within each major industry category (see Figure 4). On average, direct employee compensation per job of U.S. subsidiaries was $77,590, 41 percent higher than the U.S. average employee compensation of $55,140 and 55 percent higher than average compensation for all types of workers, including the self-employed, of $50,100.3 U.S. subsidiaries are concentrated in industries that provide relatively high compensation levels, such as the manufacturing sector (37 percent of total U.S. subsidiary employment), Based on data from the International Trade Administration on the largest export markets and import suppliers of merchandise. 3 The U.S. average of $55,140 excludes the impact of the self-employed. Including self-employment income and the self-employed, the U.S. average falls to $50,100. 2
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wholesaling (11 percent of total employment), and finance and insurance (7 percent of total employment). Moreover, within the industries in which U.S. subsidiaries operate, they provide aboveaverage employee compensation. For example, within manufacturing, average U.S. subsidiary compensation is almost $87,000 per job, over 20 percent higher than the industry average ($72,000). In wholesaling, average U.S. subsidiary compensation is $86,000, about 18 percent higher than the industry average ($73,000). In the finance and insurance sector, average U.S. subsidiary company compensation is $160,000 per job, almost 65 percent higher than the industry average ($97,000).
Figure 4. Employee Compensation per Worker, U.S. Subsidiaries and the Overall Economy 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
Overall
U.S. Subs Insourcing Average = $77,590
US overall = $55,140
Source: Bureau of Economic Analysis data, accessed March 2012. Note: Employee compensation includes wages, salaries, and benefits (excludes the self-employed). Includes U.S. permanent establishments and impacts of U.S. subsidiaries in U.S. territories and other jurisdictions.
The BEA collects and publishes information on U.S. subsidiary employment by state and aggregate industry. Consistent with the national estimates, we have estimated the state-bystate impact of U.S. subsidiaries. Table 4 summarizes the direct impacts based on the BEA data and the IMPLAN model. According to the most recent government statistics and our analysis, U.S. subsidiaries are directly responsible for over 560,000 jobs in California, paying $49 billion in compensation and contributing $68 billion in the economy. In Texas, the companies are directly responsible for 409,000 jobs, $34 billion in compensation, and $64 billion in value added. 8
Table 4. Direct Impact on the U.S. Economy of U.S. Subsidiaries State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming U.S. Territories and Other
Total U.S.
Employment a Number Percent of (Thous) State Total 77.5 3.1% 12.8 2.9% 73.1 2.3% 33.6 2.2% 560.9 2.8% 79.0 2.5% 100.4 4.6% 30.4 5.8% 19.8 2.4% 236.8 2.4% 170.5 3.3% 26.5 3.2% 14.4 1.6% 250.8 3.5% 131.4 3.8% 46.1 2.4% 53.3 3.0% 87.0 3.7% 49.1 2.0% 30.0 3.7% 103.7 3.1% 185.0 4.6% 134.6 2.7% 92.2 2.7% 27.4 1.8% 85.5 2.4% 5.9 0.9% 23.6 1.9% 35.9 2.4% 40.6 5.0% 226.4 4.6% 16.0 1.5% 386.2 3.6% 188.5 3.6% 10.9 2.2% 211.2 3.3% 34.3 1.6% 43.8 2.0% 255.0 3.6% 23.8 4.1% 102.5 4.2% 7.4 1.3% 116.3 3.3% 409.3 2.9% 29.1 1.8% 10.3 2.5% 151.5 3.2% 93.3 2.4% 22.7 2.5% 74.7 2.2% 9.1 2.4% 39.3 NA
5,279.7
Compensation b Amount Percent of ($ billions) State Total $5.1 4.7% $0.9 3.7% $4.9 3.2% $2.2 3.4% $49.0 4.2% $6.4 4.0% $9.3 6.8% $2.5 9.1% $1.9 2.4% $14.8 3.4% $11.7 4.6% $1.3 3.0% $0.8 2.4% $20.5 5.2% $10.0 6.5% $3.4 4.1% $3.8 4.7% $5.6 5.6% $4.0 3.4% $1.5 4.4% $7.3 3.9% $15.1 6.1% $10.5 4.4% $6.8 4.1% $1.8 3.0% $6.3 3.9% $0.4 1.9% $1.7 3.1% $2.3 3.1% $2.6 6.7% $20.9 7.0% $1.0 2.2% $38.9 5.6% $12.3 5.2% $0.7 3.4% $15.0 5.1% $2.8 3.0% $3.0 3.1% $18.3 5.1% $1.4 4.7% $6.5 6.5% $0.5 2.2% $7.7 4.9% $34.3 4.8% $2.2 3.2% $0.6 3.3% $10.3 3.8% $7.8 3.7% $1.6 4.1% $5.4 3.5% $0.7 4.2% $3.3 NA
3.1%
$409.7
4.6%
Contribution to GDP Amount Percent of ($ billions) State Total $7.2 4.3% $1.8 4.5% $6.1 2.4% $2.8 2.9% $67.8 3.6% $9.2 3.5% $12.9 5.8% $5.2 11.4% $2.8 2.7% $20.8 2.9% $18.3 4.4% $2.2 3.5% $1.0 2.0% $28.4 4.5% $14.4 5.7% $4.6 3.5% $6.3 4.8% $8.7 5.5% $5.6 3.0% $2.2 4.3% $10.1 3.5% $20.6 5.4% $12.8 3.4% $8.9 3.3% $2.2 2.4% $8.5 3.4% $0.6 1.7% $2.0 2.4% $3.4 2.9% $3.8 6.1% $33.2 6.9% $1.5 2.1% $47.3 4.3% $19.5 5.2% $1.2 3.7% $20.1 4.3% $4.5 2.9% $3.6 2.4% $27.4 4.9% $1.9 4.3% $9.5 5.9% $0.5 1.4% $10.9 4.3% $63.8 5.2% $2.7 2.5% $0.8 2.9% $14.1 3.5% $9.8 3.0% $2.7 4.3% $6.2 2.6% $1.4 5.0% $4.3 NA
$587.9
4.2%
Source: Bureau of Economic Analysis data and PwC calculations using the IMPLAN modeling system (2010model based on 2009 data). a Direct employment is defined as the number of full-time and part-time jobs. b Direct compensation is defined as wages and salaries and benefits. Note: Includes U.S. permanent establishments and impacts of U.S. subsidiaries in U.S. territories and other jurisdictions.
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III. Supply Chain and Paycheck Impacts As described previously, supply chain impacts measure the economic activity associated with the supply chain of U.S. subsidiaries. Paycheck impacts measure the impact of the spending of paychecks of U.S. subsidiaries and their suppliers. U.S. subsidiaries’ domestic supply chain accounts for 6.6 million jobs, $410 billion in compensation, and $692 billion in contribution to GDP. These impacts alone exceed the direct employment, compensation, and contribution to GDP of U.S. subsidiaries. The spending of paychecks by employees of U.S. subsidiaries and their suppliers accounts for another 9.2 million jobs, $415 billion in compensation, and $725 billion in contribution to GDP. Overall, for every direct job at U.S. subsidiaries, there are an additional 3 jobs in the U.S. economy as a result of supply chain and paycheck economic activity. The supply chain and paycheck impacts in certain sectors are much larger. In the manufacturing sector, there are an additional five jobs for every U.S. subsidiary employee. For each dollar paid by U.S. subsidiaries in employee compensation, there is another $2 in compensation associated with the supply chain and paycheck impacts. Each dollar in GDP from U.S. subsidiaries is associated with another $2.40 in GDP from supply chain and paycheck activity. The supply chain and paycheck economic activity occurs across a broad range of other industries. 40 percent of the supply chain employment (i.e., the employment in the industry’s supply chain) is in the services sector. 13 percent of the supply chain employment is in the manufacturing sector. Paycheck activity is concentrated in the services, wholesale and retail, and finance and insurance sectors of the economy. Table 5 presents the supply chain and paycheck impacts by receiving industry, or the industry where the supply chain and paycheck impacts occur.
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Table 5. Distribution of Supply Chain and Paycheck Activity Attributable to U.S. Subsidiaries by Receiving Industry Employment a
Compensation b
Value Added
Industry Impacted Supply Chain Total (jobs in thousands, dollar amounts in billions)
Paycheck
Supply Chain
Paycheck
Supply Chain
Paycheck
6,602
9,203
$409.9
$414.9
$691.7
$724.8
Agriculture, forestry and fishing
5.4%
2.2%
2.5%
1.4%
2.0%
1.1%
Mining
4.6%
0.4%
6.9%
0.8%
9.3%
1.0%
Utilities
0.8%
0.4%
1.7%
1.0%
3.5%
2.1%
Construction
1.5%
0.7%
1.2%
0.8%
0.8%
0.5%
12.9%
4.3%
15.6%
6.2%
17.4%
6.7%
Wholesale and retail trade
9.8%
18.3%
10.8%
15.5%
11.0%
14.6%
Transportation and warehousing
7.3%
2.8%
6.0%
3.2%
4.9%
2.5%
Information
3.0%
1.7%
4.4%
3.5%
5.1%
4.0%
Finance, insurance, real estate, rental and leasing
8.6%
13.2%
7.9%
13.1%
14.1%
30.3%
39.1%
51.8%
35.6%
48.4%
26.8%
33.1%
7.1%
4.3%
7.5%
6.2%
5.0%
4.0%
Manufacturing
Services Other
Source: Bureau of Economic Analysis data and PwC calculations using the IMPLAN modeling system (2010 model based on 2009 data). a Employment is defined as the number of payroll and self-employed jobs, including part-time jobs. b Compensation is defined as wages and salaries and benefits as well as proprietors' income.
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IV. Methodology Direct economic impacts of U.S. subsidiaries are based on data for U.S. subsidiaries at the national and state levels from the Bureau of Economic Analysis (BEA). Supply chain and paycheck impacts are calculated using the IMPLAN model. The derivation of the direct, supply chain, and paycheck estimates is described below.
A. Direct Impacts The BEA administers an annual survey of U.S. subsidiaries and has published data through 2009. Separate tabulations are available for subsidiaries (a) with at least 10 percent foreign ownership and (b) with at least 50 percent foreign ownership (“majority-owned domestic affiliates). A relatively small share of the economic activity is accounted for by those affiliates with foreign ownership of between 10 percent and 50 percent. In terms of both employment and total sales, these companies are responsible for approximately 12 percent of the total. Given the relatively small share of the total and the fact that detail on industry and state activities is only available for the majority-owned domestic affiliates, we have adopted the more restrictive definition of U.S. subsidiaries. The BEA industry data by state are only available at aggregated industry (the equivalent of 2digit NAICS codes). We have derived the state totals by detailed industries using a “raking” procedure that allocates state economic activity to detailed industries based on national totals by detailed industry and state totals. 4
B. Supply Chain and Paycheck Impacts We have relied on the IMPLAN model to calculate the impact of U.S. subsidiaries.5 IMPLAN is a modeling system developed for estimating economic impacts and is similar to the Regional Input-Output Modeling System developed by the U.S. Department of Commerce. The model is primarily based on government data sources. IMPLAN is built around an “input-output” table that relates the purchases that each industry has made from other industries to the value of the output of each industry. To meet the demand for goods and services from an industry, purchases are made in other industries according to the patterns recorded in the input-output table. These purchases in turn spark still more purchases by the industry's suppliers, and so on. Additionally, employees and business owners make personal purchases out of the additional income that is generated by this process, further increasing demand that ripples through the economy. Multipliers describe these iterations. The Type I multiplier measures the direct and supply chain effects of a change in economic activity. It captures the inter-industry effects only, i.e., industries buying from local industries. The SAM (Social Accounting Matrix) multiplier captures the direct and supply chain effects. In addition, it also reflects paycheck effects (i.e., changes in Oh, H.L. and Scheuren, F. (1987), "Modified Raking Ratio Estimation," Survey Methodology, vol. 13, no. 2, pp. 209-219. 5 IMPLAN is a product of MIG, Inc. 4
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spending from households as income increases or decreases due to the changes in production). Economic multipliers are often used to measure the overall change in production that would result from a marginal increase in a particular industry. For example, an output multiplier converts a $1 million increase in output of a U.S. subsidiary into the total change in output throughout the supply chain. Because some suppliers of these companies might rely on other U.S. subsidiaries for inputs, a marginal change in U.S. subsidiary economic activity could lead to an additional change in U.S. subsidiary activity attributable to the goods it provides its suppliers throughout the economy. For example, a supplier to a subsidiary manufacturer may purchase inputs from another subsidiary company. While this impact is appropriate to include when modeling a marginal change, when evaluating the overall impact of all U.S. subsidiaries, these own-industry supply chain impacts should be excluded to prevent double-counting. Therefore, we have adjusted the IMPLAN model results to exclude any supply chain or paycheck effects taking place in companies. Two other adjustments were made to the IMPLAN model. First, average compensation and value added per job were adjusted to be consistent with values reported in the BEA data. As demonstrated in the report, U.S. subsidiaries exhibit higher average compensation and value added per job on average. These higher averages impact the size of the multipliers embedded in the model. Increasing the average compensation, for example, increases the paycheck impact as employees have more income to spend. The second adjustment was to reflect differences between the supplier relationships of U.S. subsidiaries compared to the overall economy. U.S. subsidiaries appear to import a higher proportion of their intermediate inputs compared to the overall economy. As a result, the supply chain and paycheck impacts of U.S. subsidiaries would be smaller than the average of the other companies in the economy as more economic activity leaks out of the system through higher imports. To adjust for this difference, we have decreased the supply chain impact of manufacturers to reflect their higher utilization of imported inputs. We derived this adjustment factor by comparing the ratio of intermediate imports to sales for U.S. subsidiaries and the overall economy. Manufacturer imports of intermediate inputs relative to sales were approximately 17 percent; for manufacturers overall, the ratio was 15 percent. Therefore, U.S. subsidiary manufacturers relied on domestic markets for 83 percent of inputs, compared to 85 percent for the overall economy. The ratio of these values is 95.4 percent; therefore, to adjust for the difference we decreased U.S. subsidiary manufacturing sector's supply chain impact by 4.6 percent. This reduction in supply chain impact also leads to a reduction in paycheck impact for these companies. We have assumed that relationships outside of the manufacturing sector are similar for U.S subsidiaries and other companies. The IMPLAN model for the United States provides state detail for all 50 states and the District of Columbia. U.S. possessions and territories are not included in the model, nor are foreign employees of U.S. companies. Therefore, we have not calculated supply chain and
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paycheck impacts associated with U.S. subsidiary economic activity in the possessions and territories, nor any impacts of employees based in foreign countries.
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