March 15, 2001

Automotive industry creates four jobs for every worker it employs

ANN ARBOR—While more than 1.3 million Americans are directly employed in the automotive industry, the jobs of more than 6.6 million U.S. workers—a total greater than the populations of 38 states—are linked in some way to the manufacturing and retailing of automobiles, according to a new University of Michigan study.

For every job held by a worker at one of the 21 automobile manufacturers in the United States (621,300 jobs) and their dealerships across the country (717,400 new-vehicle-related jobs), another four "spin-off" jobs are created, either at automotive suppliers and industry-related companies or in industries such as services and retail trade where automotive employees spend their money.

This is among the key findings from a national report that examines the auto industry's impact on the U.S. economy. Researchers for the study include: George Fulton, Donald Grimes and Lucie Schmidt of the U-M Institute of Labor and Industrial Relations (ILIR); Sean McAlinden of the Environmental Research Institute of Michigan Center for Automotive Research; and Barbara Richardson of the Office for the Study of Automotive Transportation, a division of the U-M Transportation Research Institute.

While the auto industry either leads or ranks near the top of all U.S. industries in economic output, number of employees, job compensation, export activity, and research and development expenditures, such measures understate the industry's contributions to the American economy by overlooking spin-off activities related to automobile production, the U-M study shows.

These spin-off activities come from two sources: indirect effects, or purchases from domestic suppliers (e.g., steel); and expenditure-induced effects, or spending by people who receive income attributable to automotive industry activity (e.g., realtors who sell homes to auto workers).

According to the report, nearly 5.3 million Americans are employed by these "indirect" sources (nearly 2.2 million jobs at companies that supply parts, materials and services to the automobile industry) and "induced" sources (more than 3.1 million jobs at businesses where auto-related employees spend their money).

"As might be expected, a large number of the supplier jobs are in the manufacturing sector—fabricated and primary metals, machinery and computers, electrical equipment, plastics and fabrics," says ILIR economist George A. Fulton. "What is less well known is the high level of indirect employment in the private non-manufacturing sector that is linked to automotive manufacturing. Activities such as business and professional services, wholesale trade, trucking and finance are more linked to the supplier network for automotive manufacturing than is often recognized."

In all, about 37 percent of indirect jobs are in manufacturing, and more than two-thirds of them are in durable goods. On the other hand, about 90 percent of expenditure-induced jobs are in the private non-manufacturing sector—75 percent of them in retail trade and services, due to household purchasing activity.

Overall, the number of jobs associated with total automotive industry activity (direct, indirect and induced) represent 5 percent of the private-sector jobs in the United States, accounting for $243 billion in employee compensation (5.6 percent of compensation in the U.S. economy).

The researchers also compiled automotive-related job data for the nine U.S. Census regions and all 50 states and the District of Columbia. Including all direct, indirect and induced sources, the automotive industry job contributions range from nearly 2.4 million in the Great Lakes states (Illinois, Indiana, Michigan, Ohio and Wisconsin) to about 261,000 in New England.

"The concentration of auto-related employment and compensation in the Great Lakes region is striking—36 percent of the jobs and 38 percent of the compensation nationwide reside in these five states," Fulton says. "But the industry also contributes significantly to some regions with little direct automotive manufacturing activity, due to spin-off activity generated by trade with other states that have a greater automotive presence."

Among individual states, auto-related employment ranges from a high of just over 1 million jobs in Michigan to a low of just under 8,000 in Wyoming. Excluding induced sources, the figures range from about 585,000 jobs in Michigan to 3,400 in Alaska.

Other findings from the U-M study include:

•The auto industry provides direct employment in every state, even when excluding dealership employment—from 15 workers in South Dakota to more than 260,000 in Michigan.

•Vehicle production in the United States increased 48 percent between 1991 and 1999, with a record-high 13 million units produced in 1999.

•Annual growth in constant dollar automotive output averaged 3.6 percent per year from 1987 to 1999, compared with 3.2 percent per year for Gross Domestic Product over this period.

The study was prepared for the Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers.

Contact: Bernie DeGroat
Phone: (734) 647-1847
E-mail: bernied@umich.edu