The Impact of GE Appliances on the Economy of Kentucky and the United States

Summary

GE Appliances has been a major contributor to the Kentucky economy for over a century. As a manufacturer, its impact on the overall economy extends far beyond what it produces: It creates thousands of jobs within the state and adds billions of dollars to the regional and national economy.

We estimate that the company, through its Kentucky operations and capital investments alone, adds over $9 billion to the nation’s gross domestic product and $5 billion to the Kentucky economy. It employs nearly 6,000 people in the state of Kentucky and creates another 7,000 jobs in the state as well. We also estimate that its economic activities create 30,000 jobs in the entire country, and that its Kentucky operations generate over $100 million in tax revenue.

Methodology

We did our analysis of GE Appliances’ aggregate impact on the economy using the IMPLAN economic modeling system. IMPLAN incorporates a wide variety of data and constructs a model that links the various sectors of the economy together. This interconnection allows us to infer how changes in one sector of the economy–or in some sort of government action–would impact the rest of the economy.

Part of the underlying intuition behind its model is that the economic contributions that one firm makes to the economy goes beyond its narrow sector: the people it employs, the contractors and suppliers it works with, and the various other economic actors it interacts with all must be taken into account.

The model breaks down the impact of GE Appliances’ economic activity first by analyzing how its impact in the labor market affects the regional and national economy and then estimating how its capital expenditures impact the broader economy.

Estimating the regional impact of an operation such as GE Appliances can be complicated for a variety of reasons. For instance, not all of the company’s local investment in operations and capital expenditures remains in the local economy, as some of those funds “leak” out beyond Kentucky, either via tax revenue paid to the federal government or another state, or spending that takes place beyond the local economy. For example, there are components of the supply chain for GE Appliances that exist outside the state and the nation. In other cases, employee spending–one key vector through which a company’s initial activity spills over to the rest of the economy–may be done elsewhere. Our model can account for these leakages.

Our economic model can also distinguish between the aggregate economic impact of GE Appliances expanding by either hiring more workers or increasing its capital stock through new investment. Separating the impact of each is a useful exercise because we can better understand how a company’s expansion might impact the broader economy if we know precisely what such an expansion entails. For instance, we estimate that the 400 new jobs created in the recent expansion of GE Appliances’ Louisville will add 500 new jobs to the state’s economy. That outcome would be different if the company’s expansion entailed more investment and fewer new jobs.

The Various Ways that GE Appliances Impacts the Economy

The impact that GE Appliances has on the regional and national economy goes beyond the direct economic activity of the company. Our model breaks down its impact into three distinct avenues by which it impacts the economy:

Direct effect – This is what we can directly observe and measure from the company itself. It includes its labor and capital expenditures as well as anything paid to subcontractors.

Indirect effect – This results from the increase in economic activity–such as employment and capital expenditures–from the suppliers to GE Appliances.

Induced effect – the impact from increases in household spending resulting from the increased employment caused–either directly or indirectly–by the economic activity of GE Appliances. If GE Appliances hires new employees and pays them a total of $10 million, the spending of their income impacts the economy.

The Impact of GE Appliances on the Kentucky Economy

Using the IMPLAN model, we estimate that General Electric Appliances creates about 13,000 jobs in Kentucky. Approximately half of those jobs are people working directly for the company, and just under half of the remainder are employed by an entity that does business with GE Appliances in some way. The rest of the jobs created come from the aggregate economic activity generated by the company that goes beyond its primary activities: For instance, the spending done by its employees in the Louisville area increases the demand for restaurants, leisure, and various other goods and services, thereby creating more new jobs.

The total compensation for these 13,000 plus workers was just under $940 million last year, we estimate; with the new investments GE Appliances plans to make in Kentucky it is safe to say that this number will exceed $1 billion in 2018.

The company’s economic activity at their Kentucky operations generates a total of $4.6 billion in the state. Table 1 contains our findings.

GE table 1

We also broke down the jobs created by industry as well, in order to provide a better perspective for the breadth of the company’s economic impact. Of course, appliance manufacturing is by far the biggest component of the employment engendered by the company, but there are also many jobs created across various service sectors: trade and trucking are the biggest ones but restaurants and hospitals also have a significant number of jobs induced by the company and its employees and suppliers.

GE table 2


The Impact of GE Appliances on the National Economy

The impact of GE Appliances on the entire United States is significantly larger than its impact on Kentucky for two reasons. First, GE Appliances has some operations outside of Kentucky (the company recently announced a $115 million expansion of its refrigerator manufacturing plant in Alabama, for instance) that are not in our Kentucky estimates.

Second, not all of the indirect and induced impacts of GE Appliances’ Kentucky operations occur in Kentucky: some portion of its workforce lives across the river in Indiana, for instance, and its employees who do live in Kentucky spend some of their money in other states as well. What’s more, not all of its suppliers or contractors are based in the state or necessarily do all or even most of their activities for GE Appliances in Kentucky. However, these things do show up in the national data.

In Table 3 we provide our estimates of the impact of GE Appliances’ Kentucky operations on the U.S. economy; for reasons of tractability we excluded from our analysis the impact of the non-Kentucky operations of GE Appliances. The most interesting datum in this table is that the total number of jobs created nationally is over twice as large as the number created just in Kentucky, suggesting that there is a significant “leakage” of economic activity from GE Appliances’ Kentucky operations. Data provided to us from the company that breaks down the company’s output by product line allows us to distinguish between within-state and out-of-state activity with some degree of confidence.
GE Appliances’ economic activities in 2017 created more than $2 billion in labor income and added nearly $9 billion to the annual Gross Domestic Product.

GE table 3

We also broke down the national impact of GE Appliances by industry. On a proportional basis this resembles the state breakdown: manufacturing naturally dominates, with trade and restaurants also contributing a sizable proportion of total employment.

GE table 4

The Economic Impact of the Capital Expenditures of GE Appliances

Economists categorize a firm’s expenditure as either labor, capital, or raw materials. Capital includes plant and equipment, trucks, forklifts, tools, or any other thing that is not consumed in the production process.

Table 5 shows the aggregate impact of the firm’s capital expenditures on employment and output in the state of Kentucky. We estimate that its capital investments alone generate about 2,000 jobs in Kentucky and contributes almost $300 million to gross state product. The lion’s share of employment and output come directly from the activities of GE Appliances but the indirect effects are significant as well.

GE Table 5

Table 6 breaks down the jobs created by GE Appliances’ capital investments by industry. The most notable result of this exercise is that they represent a broad range of industries that goes beyond what we found for its total economic impact.

ge table 6

The Large Footprint of GE Appliances

Not every dollar spent by a firm impacts the economy the same way, of course. A manufacturing concern in 2018 typically has a relatively high level of capital investment compared to most other industries, mostly employs skilled workers who earn competitive wages, and operates in a competitive market, forcing such businesses to constantly innovate to improve productivity and operations.

That combination–which fairly describes GE Appliances–results in the firm’s aggregate economic activity having a sizable impact on its local and national economy compared to similar-sized firms in a different sector of the economy.

This is precisely what we observe with GE Appliances. Its economic activity that occurs in the state of Kentucky creates 13,000 jobs and $4.5 billion in output in Kentucky and 30,000 jobs and $9 billion in output in the entire country. Its economic activity in the State of Kentucky also increases tax revenue at the state and federal level by $130 million per annum.

The Authors

Ike Brannon is President of Capital Policy Analytics. He was a senior economist at the Office of Management and Budget, U.S. Treasury, and the U.S. Congress.

Russell Kashian is a professor at the University of Wisconsin Whitewater and Director of the school’s Fiscal and Economic Research Center.

Capital Policy Analytics is a consultancy that provides economic analysis to businesses both in the U.S. and abroad.