Energizing California - Chevron

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Energizing California Milken Institute The cumulative employment and earnings per employee generated by all of this tightly interconnected activity ripples throughout the regional economy. This, in turn, generates still more income for the region’s residents, who recycle their earnings back into the local economy yet again. For example, consumer spending by engineers, refinery workers, scientists, and researchers boosts the income and spending of other business professionals, restaurant workers, retail clerks, real estate agents, contractors, and many others indirectly dependent upon the industry. Through these greater purchases of goods and services, wealth is created and sustained throughout a region. We will compare Chevron’s economic impacts with those of the industry as a whole. Industry-wide impacts will account for Chevron plus all other firms whose economic activity is classified in the eleven industry codes specified above. This will help to further clarify Chevron’s relative contribution to the state. Statewide Impacts While the energy sector can be defined in various ways, we have strictly limited our definition of the “energy industry” to the eleven industries (or NAICS codes) that make up Chevron’s California operations. This narrow definition (which excludes power generation, for example) allows us to make a more direct apples-to-apples comparison of Chevron’s impact versus the impact of its competitors. In 2007, Chevron constituted just over 15 percent of the employment share industry-wide in California. Similarly, it accounted for 21.2 and 19.7 percent of the earnings and output generated in the industry, respectively. The average annual earnings figure per Chevron employee is significantly higher than the industry-wide average. In terms of productivity, an average Chevron employee yields $457,300 toward gross state output, about $102,500 higher each year than the average worker in the energy industry. It is worth noting that the average worker in California produces roughly $123,000 in terms of output, a comparison that highlights the extremely high productivity levels achieved by Chevron employees. Simply put, the average Chevron employee contributes nearly four times the gross state output produced by the average employee in California. Industry profile California, 2007 Chevron Industry-wide Share Employment (number of jobs) 9,934 64,924 15.3% Earnings* (US$ millions) $1,223 $5,776 21.2% Output (US$ millions) $4,543 $23,033 19.7% Earnings* per employee ($) $123,149 $88,972 --- Output per employee ($) $457,311 $354,765 --- Sources: BLS, Moody's Economy.com, Chevron. *Earnings include bonuses Chevron’s presence in the state has ramifications beyond the number of jobs it creates, the earnings it pays out, or its direct contribution to the state’s GDP. As shown in the table above, the direct employment of nearly 10,000 Chevron workers in 2007 contributed substantially to the state economy in terms of earnings ($1.2 billion) and output ($4.5 billion). But in addition to the direct impacts of the firm, Chevron generated additional jobs, earnings, output, and taxes through a number of indirect and induced impacts. 13
Energizing California Milken Institute With an employment multiplier of 6.9, every Chevron job creates nearly six additional jobs in other sectors. As its impact reverberated through all sectors of the economy, the company was responsible for generating an additional 58,740 jobs in California in 2007 (see chart below). This notably high multiplier stems from the individual multipliers assigned by the Bureau of Economic Analysis (BEA) to the industries that Chevron comprises. For example, the petroleum-refining sector, one of the industries with which the company is primarily engaged, has an employment multiplier of 8.18. Among the 473 detailed industry multipliers provided by the BEA, only two other sectors in the state are assigned higher employment multipliers (electronic computer manufacturing at 16.0, and funds, trusts, and other financial vehicles at 12.6). Similarly, while the firm directly contributed $1.2 billion in earnings by employees 5 and produced $4.5 billion in gross state output, its total impact on earnings and output in the state economy added up to $3.9 billion and $9.2 billion, respectively. In short, after incorporating the multiplier impacts, Chevron accounted for nearly 0.5 percent of the state’s total non-farm employment and gross output. Furthermore, the additional jobs indirectly generated through Chevron carry an average annual pay of $45,700, just slightly higher than the state average of $45,600. These include subcontractors, vendors, and other jobs that provide support to Chevron and its employees. Thousands 70 Chevron's total employment impact California, 2007 US$ billions 4.0 Chevron's total earnings impact California, 2007 60 50 40 30 Direct impact Indirect impact 3.0 2.0 Direct impact Indirect impact 20 1.0 10 0 Total Impact Sources: BEA, Chev ron, Milken Institute. 0.0 Total Impact Sources: BEA, Chev ron, Milken Institute. While the earnings multiplier accounts for the additional earnings per employee created in other sectors, it does not take into account the taxed portion of personal income paid to state government. By utilizing an effective income tax rate of 6.5 percent, we estimate that state personal income tax receipts stemming from Chevron employees accrued to over $79.0 million in 2007. At the same time, the state and local total sales and excise tax revenues generated through Chevron’s economic activity amounted to almost $1.5 billion. With corporate and property taxes included, the company and its employees contribute a total of just under $2.0 billion in tax revenues to state and local government. Roughly speaking, Chevron accounted for nearly 1.0 percent of state and local tax receipts in California in 2007. 5 This amount includes bonuses and executive bonuses. 14
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