The Kentucky Automotive Industry Association‘s report discussed last week also examined the contribution of Kentucky’s automotive industry to the state and regional economies through direct, indirect, and induced effects.
Direct effects created by automotive industry companies themselves, such as automotive jobs, production, exports, and payrolls. Indirect effects are caused by inter-industry activities, or business-to-business spending on goods or services used to create automobiles such as trim and engine parts. induced effects are caused by auto industry employees’ household spending. In other words, auto businesses spend money at other businesses (indirect effects) and auto employees spend money (wages) in the regional economy (induced effects). Both create jobs and tax revenue.
To estimate direct, indirect, and induced effects, the researchers used a model of Kentucky’s economy containing data on 536 industries, imports, output, employment, payroll, and other variables specific to Kentucky.
Kentucky’s automotive industry supports over 136,000 jobs with a total payroll of $6.13 billion. However, the automotive industry is a hierarchy and it is more informative to analyze the levels separately.
Kentucky’s four auto assembly plants employ over 16,000 people, with an average annual pay of $84,000. The Lexington Region has the highest concentration (49%) of automotive assembly plant jobs, but the Louisville Region is a close second with only 380 fewer jobs than the Lexington Region. Not surprisingly, the automotive industry supports mostly (28%) wholesale trade jobs (9,194 jobs) and jobs in eight motor vehicle manufacturing industries (3,609 jobs), such as engine parts manufacturing. The researchers found that assembly plants get most of their inputs (i.e., parts) from outside of Kentucky and that Kentucky parts manufacturers export between 10% and 70% of their products out of state.
Unlike auto assembly jobs, employment in automotive body and parts manufacturing is not concentrated in only a few regions of the state. Regardless, the Lexington Region has the second-highest concentration of automotive body and parts manufacturing jobs (23%) behind Louisville. The average pay of automotive body and parts manufacturing is just below $48,000 per year, much lower than average annual wages at auto assembly plants, primarily due to the level of expertise and sophistication required in those positions. The largest share (14%) of jobs supported by these facilities are in wholesale trade (3,148 jobs).
The researchers used country-level effective tax rates over the past three years to estimate Kentucky income and sales tax receipts from the automotive industry and associated revenue.
The automotive industry and all jobs supported by it contributed $488 million in state tax revenue in 2013. That’s $1 of every $14 in state taxes. The Lexington Region contributed 38% of direct state income tax revenue, 33% of all state income tax revenue, 36% of direct state sales tax revenue, and 31% of all state sales tax revenue associated with the automotive industry in 2013.
Almost 40% of all direct local occupational tax revenue derived from the auto industry went to the Lexington Region, totaling almost $20 million. When tax revenue from indirect and induced jobs are included, the total local occupational tax revenue received by Lexington jumps to $41.6 million.