In economics, you’ve heard of the multiplier effect, yes? That’s the ratio that shows how many jobs an industry generates in secondary and spinoff jobs when the industry buys goods and services from suppliers, and when its employees spend their paychecks across the economy on things like food, housing, and clothing.
Manufacturing traditionally has the highest “multiplier effect” of any sector of the economy because it requires a lot of capital investment to purchase all the machines and raw materials that make the things built in factories.
In automobile manufacturing this is particularly true. Automakers don’t just design, build, and sell cars. We reach deep into the supply chain, buying not only finished parts that go into our vehicles, but also significant amounts of raw materials such as steel, aluminum, plastics, and other minerals and resources. These purchases prime the pump of those basic industries and others. Automakers are among the largest U.S. purchasers of aluminum, copper, iron, lead, plastics, rubber, textiles, vinyl, steel, and computer chips.
How the Multipliers Work
We are particularly proud in the auto industry to continue to have high multiplier effects as we enter 2015, even as we continue to use more automated methods to make our cars and trucks. According to a new report sponsored by the Alliance of Auto Manufacturers, the multiplier effects from automakers remain high. And the job multipliers help explain why our industry is responsible for 7.25 million jobs overall in the U.S. economy.
The highest multiplier effect for the auto industry is for the jobs inside factories, in other words, those on the assembly line, according to the report compiled by the nonpartisan Center for Automotive Research (CAR). This leaves out executives, researchers, engineers, managers, support staff, and the like. For factory workers, the jobs multiplier is approximately 11. That is, for every job on an automobile or light-truck assembly line, ten additional jobs are created or supported in the economy. That’s a big number.
Now, counting beyond the assembly line to include all employees working directly for car manufacturers in the U.S. the multiplier effect is 8. That means there are seven additional jobs in the U.S. economy for every automaker job across manufacturer operations. That’s still a high number.
What Do Multipliers Mean for Real Jobs?
So how do these multiplier effects translate into U.S. jobs?
Here’s how it breaks down. Counting employees directly working for car manufacturers, parts suppliers, and car dealers, the total is 1.55 million people. The secondary, or intermediate, jobs total – those employees that are working at companies that support manufacturers, parts suppliers, and dealers – is another 2.3 million. Finally the spin-off jobs – those jobs created by the direct and intermediate workers spending their paychecks at McDonalds, Target, Best Buy, and Costco for example – is another 3.3 million jobs. The grand total: 7.25 million jobs.
That’s a lot of jobs. That means the auto industry comprises 3.8 percent of all private sector employment in the United States. Put another way, if you were in a crowded sports stadium with 50,000 fans, almost 2,000 of them would be employed because of the auto industry.
The further good news is that the CAR report projects continued growth not only in total auto industry employment but also in production and sales of vehicles. The CAR report’s U.S. automotive employment forecast projects that hiring will increase by approximately 10.8 percent, with a compound average annual growth rate of 2.1 percent from 2013 to 2018.
The Forecast is Bright
U.S. production of vehicles is forecast to continue expanding as well, growing at a compound average annual growth rate of 2.4 percent, resulting in a projected rise of 12.6 percent in vehicles produced from 2013 to 2018. CAR’s econometric analysis also suggests that auto sales over the next several years will continue to rise, from 15.6 million units in 2013 to 17.6 million units in 2018.
These are realistic figures based on sound econometric models and the recent growth in the U.S. economy. Indeed the CAR report states: “The U.S. turnaround in vehicle sales happened much more quickly than recovery in other sectors of the economy.” Because of that strong growth in auto sales, many auto factories, and parts factories, the report notes, are operating three shifts per day, running 24 hours, 7 days a week.
The 7.25 million people working in the auto industry, or because of the spending by the auto industry, generate nearly $500 billion in annual compensation and $65 billion in tax revenues. That means the auto industry is truly driving the U.S. economy, both in the private sector, and in government, as the tax revenues from autos are used to build roads and infrastructure and other government functions.
As the CAR report concludes: “Coupled with relentless technological advances, the automotive industry will continue to be a significant sector of the U.S. Economy” in the years ahead.
That’s why we say that Cars Move America.