Economic Benefits of the Forestry Industry in Georgia: 2007 Final Report Prepared for Georgia Forestry Commission Macon, Georgia Prepared by Community Policy and Research Services Enterprise Innovation Institute 760 Spring Street, NW Atlanta, Georgia 30332 Author B. William Riall, Ph.D. September 2008 Copyright 2008 All Rights Reserved Georgia Tech Research Corporation Atlanta, Georgia 30332 Table of Contents Executive Summary ............................................................................................................ 1 Forestry Dependent Communities .............................................................................. 4 Section 1.............................................................................................................................. 8 Introduction......................................................................................................................... 8 Section 2.............................................................................................................................. 9 Definition of the Forestry Industry in Georgia ................................................................... 9 Section 3............................................................................................................................ 14 Economic Benefits ............................................................................................................ 14 Results....................................................................................................................... 15 Comparison of the Forestry Industry with Other Industry Sectors........................... 17 Section 4............................................................................................................................ 19 Economic Dependence...................................................................................................... 19 What Is Economic Dependence? .............................................................................. 19 Approach................................................................................................................... 19 References......................................................................................................................... 28 Executive Summary Georgia's forestry industry has many components, which interact with all other sectors of the economy in complex ways. The purpose of this analysis is to: (1) quantify the level of economic activity conducted by the components of the forestry industry, (2) estimate economic activity supported in all Georgia sectors by the industry's activities, (3) compare the level of activity in the forestry industry with other industries, and (4) assess the degree of forestry dependence of Georgia's counties. This report is the latest in a series that began in 2002, but underwent a significant restructuring in 2003 to reflect the change in industry classification systems (from SIC to NAICS) used by data collection agencies (primarily the Georgia Department of Labor) that provide much of the data used in these analyses. The forestry industry components, and the level of economic activity represented by them, are shown in Table E-1 for 2007. Economic activity is measured by output (similar to sales revenue), employment, and compensation (defined as wages and salaries including benefits plus proprietor income). These measures are traditionally used in this type of analysis. Table E-1 shows the forestry industry employed 64,192 in all industry sectors combined, paid an annual compensation of almost $3.4 billion, and had estimated total revenue of almost $18.5 billion. The activities in the sectors bring dollars into the state, which recirculate in a process called the "multiplier effect." The recirculation touches all major industry sectors as goods and services are bought and sold to meet increased demands by businesses and households resulting from the new resources brought into the state by the forestry industry. Table E-1: Georgia Forestry Industry Economic Activity 2007 Sector Forestry Management, Logging, and Misc. Forest Products Output Employment $1,806,862,272 5,914 Lumber and Wood Preservation $2,099,945,996 8,773 Veneer, Plywood, Reconstituted, and Engineered Wood $1,321,714,784 6,004 Prefabricated Wood Buildings and Manufactured Housing $523,282,896 3,581 Pulp and Paper Products $10,131,473,013 21,651 Woodworking and Paper Industries Machinery $60,710,076 304 Wooden Furniture and Cabinets $1,197,442,044 8,914 Windows and Doors $516,655,904 3,043 Containers, Showcases, Partitions, and Shelving $624,186,992 4,733 Custom Architectural and Miscellaneous Wood Products $176,638,616 1,275 Total $18,458,912,593 64,192 Compensation $273,307,536 $390,881,854 $290,712,656 $119,088,100 $1,602,173,672 $18,732,410 $340,697,882 $115,219,296 $190,620,928 $52,764,385 $3,394,198,719 Georgia Forestry Commission 2007 Report Page 1 The result of the multiplier effect, given by total impacts (which includes the economic activity in Table E-11), is also measured by output, employment, and income and is shown in Table E-2. Total economic activity supported by the forestry industry in Georgia (including the multiplier effect and federal payments to landowners of about $12.3 million) is over $28.5 billion. This activity employs 141,155 people whose compensation is almost $6.7 billion. Table E-2: Total Benefits by Major Industry Sector 2007 Sector Agriculture, Forestry, Fishing and Hunting Mining Utilities Construction Manufacturing Wholesale Trade Transportation and Warehousing Retail Trade Information Finance and Insurance Real Estate and Rental Professional, Technical, and Scientific Services Management of Companies Administrative and Waste Services Educational Services Health and Social Services Arts, Entertainment and Recreation Accommodation and Food Services Other Services Government and Non-NAICS Industries Total Output $2,121,796,736 $9,071,678 $494,897,184 $68,460,944 $17,923,817,472 $1,407,730,816 $937,203,648 $619,328,000 $307,665,216 $740,812,224 $492,653,120 $710,224,320 $398,028,800 $260,618,256 $70,678,272 $537,158,336 $74,889,168 $354,933,344 $353,237,664 $660,072,512 $28,547,185,557 Employment 14,138 39 725 623 61,549 7,324 7,731 9,272 860 3,539 2,754 4,624 1,984 4,344 1,229 6,366 1,396 6,268 5,683 707 141,155 Compensation $449,783,040 $2,429,163 $102,905,168 $27,370,942 $3,322,228,480 $533,253,024 $362,464,320 $251,028,640 $75,633,352 $244,182,688 $85,854,560 $286,874,368 $184,293,872 $125,709,472 $40,261,068 $286,155,264 $30,953,586 $121,684,176 $134,958,832 $27,723,508 $6,695,747,523 Another way to examine the forestry industry in Georgia is to compare it with other manufacturing sectors. Table E-3 lists 2007 income and employment totals for each major industry sector sorted by total wages. These data show that forestry ranks second in total income generated, and third in total employment. Food processing ranks first in income and second in employment; textiles (dominated by carpet) ranks first in employment and third in income. Forestry's second rank in income is very close to firstranked food processing in income, reflecting forestry's relatively higher average wages. Of particular importance to Georgia's state government is how the forestry industry affects its annual budget. This is investigated by estimating the revenues associated with 1 The economic activity in Table E-1 contains more than just the direct impacts because some of the interindustry purchasing (indirect impacts) is necessarily contained in the estimates of economic activity. Georgia Forestry Commission 2007 Report Page 2 the forestry industry's total economic activity and subtracting the costs associated with providing state services to Georgia's households and companies. Revenues include individual and corporate income tax, sales and use taxes, highway taxes, fees, and miscellaneous revenues. Costs include education, public health, safety and welfare, highways, administration, and miscellaneous. Table E-4 provides the fiscal impact estimates based on total impacts. The forestry industry generates an estimated $580 million per year in revenues for the state budget. When the costs of providing services to all employees are deducted from these revenues, net annual state revenues are almost $193 million per year. Table E-3: Comparison of Georgia Industries 2007 Sector Employment Wages & Salaries Food Processing 72,188 $3,044,130,479 Forestry Industry 64,192 $2,655,122,080 Transportation Equipment 42,892 $2,351,785,278 Textiles 64,785 $2,324,049,150 Fabricated Metal Products 29,101 $1,134,770,230 Machinery 24,371 $1,078,843,863 Chemicals 21,651 $1,242,269,565 Printing 20,907 $920,581,830 Electrical Equipment and Appliances 15,207 $895,779,998 Computers and Electronic Products 14,929 $972,445,698 Apparel 5,356 $173,052,321 Table E-5 extracts information from several tables to present a comparison of the overall results obtained in each impact analysis conducted from 2003 through 2007. All measures show growth between 2003 and 2004 and between 2004 and 2005. The highest growth rates are in industry output which grew between 10 and 14 percent depending on the year and whether it is being calculated for forestry industry activity or total activity. Compensation also increased for these periods. In the 2003 to 2004 period, forestry industry compensation increased by 9.7 percent and total compensation increased by 12 percent without considering inflation. From 2004 to 2005, the rate of increase was somewhat lower 4 percent for the forestry industry and 9 percent for total impacts. Employment increases are more modest, increasing 3 percent and 7 percent for forestry industry and total impacts, respectively, in the 2003 to 2004 period. Although employment from total impacts grew an estimated 6 percent between 2004 and 2005, forestry industry employment was essentially flat. In the 2006 to 2007 period, forestry industry employment declined by 5.2 percent and employment from total impacts fell by 5.5 percent. The two sectors which declined the most (in percentage terms) were prefabricated buildings and veneer, plywood, and reconstituted wood products. Productivity increases are apparent in forestry industry sectors (pulp and paper products, for example) as well as sectors stimulated by the multiplier effect which would serve to allow output increases with employment declines. Georgia Forestry Commission 2007 Report Page 3 Table E-4: Fiscal Impact Analysis 2007 Annual State Government Revenues Annual State Government Costs Net Annual Revenues $565,752,222 $373,046,158 $192,706,064 Table E-5: Comparison of Results 2003 to 2007 Forestry Industry Economic Activity 2003 2004 2005 Output $12,679,309,984 $14,162,671,796 $16,150,427,177 Employment 65,706 67,633 67,694 Compensation $3,007,249,626 $3,299,211,578 $3,421,577,066 Percent Change Output 2003-2004 11.70% 2004-2005 14.04% Employment 2.93% 0.09% Compensation 9.71% 3.71% 2006 $17,760,458,777 67,733 $3,512,948,218 2005-2006 9.97% 0.06% 2.67% 2007 $18,458,912,593 64,192 $3,394,198,719 2006-2007 3.93% -5.23% -3.38% Total Impacts 2003 Output $20,199,375,517 Employment 136,022 Compensation $5,600,491,974 Percent Change Output Employment Compensation 2004 $22,729,379,114 144,944 $6,276,217,393 2003-2004 12.53% 6.56% 12.07% 2005 $25,972,228,986 154,147 $6,826,524,997 2004-2005 14.27% 6.35% 8.77% 2006 $27,737,507,105 149,347 $6,772,549,782 2005-2006 6.80% -3.11% -0.79% 2007 $28,547,185,557 141,155 $6,695,747,523 2006-2007 2.92% -5.49% -1.13% Fiscal Impact 2003 2004 2005 2006 State Revenues $514,089,031 $546,361,719 $590,558,427 $579,916,979 State Costs $367,579,485 $391,523,592 $414,483,229 $399,560,260 Net Revenues $146,509,546 $154,838,126 $176,075,198 $180,356,718 Source: EII impact assessments and Georgia Department of Labor, Current Employment and Wages. 2007 $565,752,222 $373,046,158 $192,706,064 Forestry Dependent Communities The economies of Georgia's counties are all dependent upon their ability to bring resources into their areas. There is no clear definition of "dependence" so two measures were developed. The first is based on employment where "critically dependent" counties have more than 10 percent of their total private-sector employment in the forestry industry. "Very dependent" counties have between 6 percent and 10 percent of their employment in forestry industries and "moderately dependent," "somewhat dependent," and "not dependent" have between 4 percent and 5.9 percent, 1.6 percent and 3.9 percent, and less than 1.6 percent of their employment in forestry industries, respectively. Figure Georgia Forestry Commission 2007 Report Page 4 E-1 depicts the degree of economic dependence on forestry, as measured by its proportion of total employment. Another measure of dependence is provided by wages and salaries. For this measure, counties are considered "critically dependent" if more than 15 percent of total privatesector wages and salaries are from forestry-related industries. "Very dependent" counties have between 10 percent and 15 percent of their employment in forestry industries and "moderately dependent," "somewhat dependent," and "not dependent" have between 5 percent and 10 percent, 2 percent and 5 percent, and less than 2 percent of their wages and salaries from forestry industries, respectively. Figure E-2 depicts the degree of economic dependence on forestry, as measured by its proportion of total wages and salaries. Georgia Forestry Commission 2007 Report Page 5 Figure E-1 Forestry Dependency Based on Employment 2007 Georgia Forestry Commission 2007 Report Page 6 Figure E-2 Forestry Dependency Based on Income 2006 Georgia Forestry Commission 2007 Report Page 7 SECTION 1 Introduction Georgia's forestry industry contains many components and supports a significant proportion of the state's economic activity. This analysis quantifies that activity in terms of economic output, employment, and household income where economic output is defined as business revenues and household compensation is defined as wages, salaries (including benefits), and proprietor income. Additional factors considered include how the manufacturing components in the forestry industry compare to other manufacturing sectors, and how the industry affects state government costs and revenues. The first step in this process is to define the limits of what constitutes the "forestry industry." This is not as simple a task as it may appear because the borders of one industry overlap those of other industries. How this was done and its results appear in Section 2, which also contains estimates of how much economic activity is occurring in each component of the forestry industry. After the industry was defined and activities quantified, the total economic activity supported by the forestry industry was estimated. Total activity is generally referred to as the "multiplier effect." This effect occurs whenever dollars are brought into the state's economy and recirculated before leaking out. Section 3 explains the methodology used to estimate total economic activity and provides perspective on how important these activities are in the overall Georgia economy. Section 4 examines how important the forestry components are to the existing industry base in each of Georgia's counties and divides counties into five categories according to their degree of dependence on forestry. This report is the latest of a series of reports begun with an analysis of the 2002 impacts and continues annually to the present analysis. The 2002 analysis is not comparable to the subsequent analyses, however, because of a significant change in the industry classification systems implemented in the 2003 data set. The 2002 analysis is based on the Standard Industry Classification system (SIC) and the later data sets use the North American Industrial Classification System (NAICS). Georgia Forestry Commission 2007 Report Page 8 SECTION 2 Definition of the Forestry Industry in Georgia The forestry industry in Georgia has many diverse components. A general definition would include all service and manufacturing activity related to the growth, harvesting, and use of forest materials that would not exist in Georgia without the presence of extensive forests or forest industries. For example, the papermaking industry would be a part of the forestry industry definition, but retail sales of that paper would not. States without commercial forests still sell paper within their borders. Therefore, the forestry industry definition used in this analysis includes these broad sectors: forestry, logging, wood products (such as dimension lumber), paper products, manufactured housing, furniture, other miscellaneous wood products, and woodworking and papermaking machinery. The 2007 North American Industrial Classification System (NAICS) is used to define the components of the forestry industry. The NAICS codes and descriptions comprising the detailed definition appear in Table 2-1. Table 2-1: Forestry Industry Definition Components: NAICS NAICS Code Description 113 Forestry and Logging 1131 Timber Tract Operations 11311 Timber Tract Operations 1132 Forest Nurseries and Gathering of Forest Products 11321 Forest Nurseries and Gathering of Forest Products 1133 Logging 11331 Logging 321 Wood Product Manufacturing 3211 Sawmills and Wood Preservation 32111 Sawmills and Wood Preservation 321113 Sawmills 321114 Wood Preservation 3212 Veneer, Plywood, and Engineered Wood Product Manufacturing 32121 Veneer, Plywood, and Engineered Wood Product Manufacturing 321211 Hardwood Veneer and Plywood Manufacturing 321212 Softwood Veneer and Plywood Manufacturing 321213 Engineered Wood Member (except Truss) Manufacturing 321214 Truss Manufacturing 321219 Reconstituted Wood Product Manufacturing 3219 Other Wood Product Manufacturing 32191 Millwork 321911 Wood Window and Door Manufacturing 321912 Cut Stock, Resawing Lumber, and Planing Georgia Forestry Commission 2007 Report Page 9 321918 32192 32199 321991 321992 321999 322 3221 32211 32212 322121 322122 32213 3222 32221 322211 322212 322213 322214 322215 32222 322221 322222 322223 322224 322225 322226 32223 322231 322232 322233 32229 322291 322299 33321 333291 337 3371 33711 33712 337121 Other Millwork (including Flooring) Wood Container and Pallet Manufacturing All Other Wood Product Manufacturing Mobile Homes Prefabricated Wood Building Manufacturing All Other Miscellaneous Wood Product Manufacturing Paper Manufacturing Pulp, Paper, and Paperboard Mills Pulp Mills Paper Mills Paper (except Newsprint) Mills Newsprint Mills Paperboard Mills Converted Paper Product Manufacturing Paperboard Container Manufacturing Corrugated and Solid Fiber Box Manufacturing Folding Paperboard Box Manufacturing Setup Paperboard Box Manufacturing Fiber Can, Tube, Drum, and Similar Products Manufacturing Non-folding Sanitary Food Container Manufacturing Paper Bag and Coated and Treated Paper Manufacturing Coated and Laminated Packaging Paper and Plastics Film Manufacturing Coated and Laminated Paper Manufacturing Plastics, Foil, and Coated Paper Bag Manufacturing Uncoated Paper and Multiwall Bag Manufacturing Laminated with Foil for Flexible Packaging Surface-Coated Paperboard Manufacturing Stationery Product Manufacturing Die-Cut Paper and Paperboard Office Supplies Manufacturing Envelope Manufacturing Stationery, Tablet, and Related Product Manufacturing Other Converted Paper Product Manufacturing Sanitary Paper Product Manufacturing All Other Converted Paper Product Manufacturing Sawmill and Woodworking Machinery Manufacturing Paper Industry Machinery Manufacturing Furniture & Related Product Manufacturing Household and Institutional Furniture and Kitchen Cabinet Manufacturing Wood Kitchen Cabinet and Countertop Manufacturing Household and Institutional Furniture Making Upholstered Household Furniture Manufacturing Georgia Forestry Commission 2007 Report Page 10 337122 Non-Upholstered Wood Household Furniture Manufacturing 337127 Institutional Furniture Manufacturing 337129 Wood Television, Radio, and Sewing Machine Cabinet Manufacturing 337211 Wood Office Furniture Manufacturing 337212 Custom Architectural Woodwork and Millwork Manufacturing 337215 Showcase, Partition, Shelving, and Locker Manufacturing 333 Machinery Manufacturing 3332 Industrial Machinery Manufacturing 33321 Sawmill and Woodworking Machinery Manufacturing 33329 Other Industrial Machinery Manufacturing 333291 Paper Industry Machinery Manufacturing 339 Miscellaneous Manufacturing 3399 Other Miscellaneous Manufacturing 33999 All Other Miscellaneous Manufacturing 339995 Burial Casket Manufacturing Source: North American Industrial Classification System, and Georgia Tech's Enterprise Innovation Institute The organization of industries on this list is hierarchical, that is, the NAICS code digits increase as the level of detail increases. The highest level of detail is the six-digit level. In some cases, however, the six-digit industry is the same as the five-digit industry, so these duplications are not presented in Table 2-1. For example, industry 11311 (timber tract operations) does not break down into smaller components, so the six-digit industry (which would be 113110) is omitted because it's redundant. In some cases, the higher-level NAICS industries contain components that are not a part of the forestry industry. For example, metal furniture is included in NAICS 3371, but is not included at the six-digit level used to define the forestry industry. Each component containing only forestry-related industries is indicated by italicized text in the table. Non-forestry-related components have been eliminated. The level of economic activity in each forestry industry component is measured by output, employment, and income. Measures for the 2007 calendar year appear in Table 2-2, which aggregates the numerous categories from Table 2-1 to a more manageable number. This table shows that total employment in all of the forestry industry sectors is 64,192 and these jobs earned annual compensation (total wages and salaries including benefits) of almost $3.4 billion from estimated total revenue of almost $18.5 billion. Within the industry, Georgia companies have representatives in each of the sectors and subsectors down to the NAICS six-digit level. Based on this aggregation scheme, the highest employment is seen in pulp and paper with 21,651 workers followed by wooden furniture and cabinets with 8,914. Several additional segments have employment exceeding 5,000, including wood lumber and wood preservation, veneer and plywood, and logging and nurseries. Compensation, like employment, is dominated by pulp and paper with over $1.6 billion (about half the total) followed distantly by lumber and wood preservation (almost $391 million), and wood furniture and cabinets at almost $341 Georgia Forestry Commission 2007 Report Page 11 million. The largest outputs are produced by pulp and paper (about $10.1 billion) followed by lumber and logging, (about $2.1 and $1.8 billion, respectively) and veneer and plywood at over $1.3 billion. Table 2-2: Georgia Forestry Industry Economic Activity 2007 Sector Forestry Management, Logging, and Misc. Forest Products Lumber and Wood Preservation Veneer, Plywood, Reconstituted, and Engineered Wood Prefabricated Wood Buildings and Manufactured Housing Pulp and Paper Products Woodworking and Paper Industries Machinery Wooden Furniture and Cabinets Windows and Doors Containers, Showcases, Partitions, and Shelving Custom Architectural and Miscellaneous Wood Products Total Output $1,806,862,272 $2,099,945,996 $1,321,714,784 $523,282,896 $10,131,473,013 $60,710,076 $1,197,442,044 $516,655,904 $624,186,992 $176,638,616 $18,458,912,593 Employment 5,914 8,773 6,004 3,581 21,651 304 8,914 3,043 4,733 1,275 64,192 Compensation $273,307,536 $390,881,854 $290,712,656 $119,088,100 $1,602,173,672 $18,732,410 $340,697,882 $115,219,296 $190,620,928 $52,764,385 $3,394,198,719 Table 2-3 provides a comparison of the forestry industry activity for 2004 to 2007. Three measures are included in the comparison: output, employment, and compensation. Output (an estimate of the firms' revenues) increased slightly over the 2006-2007 period, but the increase was uneven across industry sectors with some (such as manufactured housing) showing declines. Overall employment dropped between 2006 and 2007 with the largest number of jobs lost in the pulp and paper sector, which has shown consistent declines over the years shown. Other sectors showing losses include the manufactured housing and plywood, veneer and reconstituted wood products sectors. These latter declines are probably due to the problems seen in the current housing markets, but this is countered by an increase in window and door employment. Changes in employee compensation are generally negative over the most recent period, but with a few exceptions. From 2006 to 2007, the largest declines are in the same sectors as the declines in employment (manufactured housing, and veneer & plywood) and the smaller increases found in containers, showcases, partitions and shelving, and in wooden windows and doors. Georgia Forestry Commission 2007 Report Page 12 Table 2-3: Forestry Industry Activity 2004 - 2007 Comparison Output Sector Forestry Management, Logging, and Misc. Forest Products 2004 2005 2006 2007 $1,384,113,152 $1,447,089,632 $1,845,804,352 $1,806,862,272 Lumber and Wood Preservation $1,481,513,824 $1,811,062,188 $2,057,422,972 $2,099,945,996 Veneer, Plywood, Reconstituted, and Engineered Wood $1,062,298,144 $1,290,298,688 $1,259,775,984 $1,321,714,784 Prefabricated Wood Buildings and Manufactured Housing $388,201,924 $561,314,328 $595,598,848 $523,282,896 Pulp and Paper Products $7,887,861,361 $8,808,187,803 $9,589,567,207 $10,131,473,013 Woodworking and Paper Industries Machinery $46,696,992 $53,197,020 $52,269,742 $60,710,076 Wooden Furniture and Cabinets $841,050,860 $1,065,724,056 $1,176,198,972 $1,197,442,044 Windows and Doors $343,669,472 $405,603,168 $445,641,376 $516,655,904 Containers, Showcases, Partitions, and Shelving $453,711,824 $532,826,960 $548,023,952 $624,186,992 Custom Architectural and Miscellaneous Wood Products $273,554,243 $175,123,334 $190,155,372 $176,638,616 Total $14,162,673,800 $16,150,427,177 $17,760,458,777 $18,458,912,593 Forestry Management, Logging, and Misc. Forest Products Lumber and Wood Preservation Veneer, Plywood, Reconstituted, and Engineered Wood Prefabricated Wood Buildings and Manufactured Housing Pulp and Paper Products Woodworking and Paper Industries Machinery Wooden Furniture and Cabinets Windows and Doors Containers, Showcases, Partitions, and Shelving Custom Architectural and Miscellaneous Wood Products Total 2004 6,005 8,505 6,588 3,494 25,032 292 8,685 2,522 5,031 1,479 67,633 Employment 2005 2006 6,133 6,152 8,839 8,957 7,110 6,963 4,531 4,500 23,150 22,861 319 314 8,867 9,308 2,446 2,598 4,788 4,618 1,511 1,462 67,694 67,733 2007 5,914 8,773 6,004 3,581 21,651 304 8,914 3,043 4,733 1,275 64,192 Forestry Management, Logging, and Misc. Forest Products Lumber and Wood Preservation Veneer, Plywood, Reconstituted, and Engineered Wood Prefabricated Wood Buildings and Manufactured Housing Pulp and Paper Products Woodworking and Paper Industries Machinery Wooden Furniture and Cabinets Windows and Doors Containers, Showcases, Partitions, and Shelving Custom Architectural and Miscellaneous Wood Products Total 2004 $234,098,548 $352,721,316 $312,041,524 $121,569,812 $1,616,422,198 $18,023,702 $301,810,254 $104,148,424 $180,908,656 $57,467,145 $3,299,213,583 Compensation 2005 2006 $254,133,792 $267,437,328 $384,895,901 $399,561,280 $340,977,212 $352,537,400 $164,212,402 $165,216,458 $1,594,677,218 $1,630,396,895 $20,414,041 $18,256,298 $323,074,793 $342,927,437 $104,375,704 $100,483,456 $169,143,160 $175,315,696 $65,672,843 $60,815,971 $3,421,577,066 $3,512,948,218 2007 $273,307,536 $390,881,854 $290,712,656 $119,088,100 $1,602,173,672 $18,732,410 $340,697,882 $115,219,296 $190,620,928 $52,764,385 $3,394,198,719 Georgia Forestry Commission 2007 Report Page 13 SECTION 3 Economic Benefits Economic impact analyses have used basically the same methods for over 40 years. The tools, although greatly improved in quality and ease of use, are also similar to those in long-time use. The conceptual basis for estimating economic benefits of an industry is that resources brought into Georgia's economy by the industry raise the level of economic activity. This additional economic activity, commonly called the multiplier effect, supports increased employment, income, and business revenues. These increases are estimated from an input-output model (I/O). The purpose of an I/O model is to estimate the flows of resources among various economic sectors by using the "recipes" followed by producers. These recipes provide the type and amount of goods and services purchased during production, which are produced by other firms. For example, a pulp mill purchases wood from a logger. The logger, in turn, purchases equipment and fuel from firms, that, in turn, purchase their raw materials from still other firms. Combined with estimates of what percentages of these items are supplied by Georgia firms, the recipes can be used to estimate how much of each item is purchased from Georgia firms and how much is purchased from outside Georgia. Purchases from sources outside the Georgia economy are known as "leakage," which puts the brakes on the multiplier effect; the higher the leakage, the lower the multiplier effect. The I/O model used in this analysis is called IMPLAN, devised by the Minnesota IMPLAN Group. It is a nationally recognized model that uses Georgia data to tailor its estimates to the state economy. Still, the model must be modified somewhat to account for differences in specific industry sectors revealed by more current data. For example, the wage and salary data used in this analysis is from 2007, whereas the wage and salary data available to IMPLAN is from 2006. One area of uncertainty that persists, however, is the level of benefits provided to workers in each of the forestry industry sectors. The available wage and salary information does not include benefits, but the I/O model bases its analysis on wages and salaries that include benefits. An average of 25 percent was assumed for this analysis, based on the latest available U.S. Bureau of Labor Statistics compensation cost data for all civilian employment. The analytical process includes three steps after the industry sectors are defined, as described in the previous section. The first step is to quantify employment, income, and output associated with each of the defined sectors. Several data sources are used to accomplish this. Georgia Forestry Commission 2007 Report Page 14 The best source for employment and wages is the employment security data collected and maintained by the Georgia Department of Labor. Commonly called ES202 data or, more recently CEW (covered employment and wages) data, it has the advantage of being current, allowing an estimate of the economic benefits occurring in 2007. It has the drawback, however, of not including single-proprietorships (because they have no employees), and it also does not include employees not covered by unemployment insurance, such as governmental employees. The second task is to divide the forestry industry output into two categories, (1) output that is sold to another Georgia firm and (2) output sold outside the state. Another way to look at this is to recall that the multiplier effect starts from dollars brought into the Georgia economy. Output not sold to another Georgia firm is, by definition, bringing in resources from outside the Georgia economy, and it is these "exports" that fuel the multiplier effect. Forestry industry output used as an input to another Georgia forestryindustry firm is already accounted for in the multiplier effect; counting it again would result in double-counting and would imply a level of production from the input-supplying industry higher than actually observed. For example, if the multiplier effect is calculated for the paper industry, it will include some of the activities of Georgia logging operations. If the entire output from logging was then added to the multiplier effect for paper, it would double-count the logging output that went to the paper industry. The I/O model is used iteratively for these estimations, with the resulting estimates called "direct impacts." Direct impacts are measures of the output from, in this case, forestry industries that is exported to entities outside Georgia (these are considered exports even if they only go to Alabama). The third step is to use the I/O model to estimate total impacts, which are divided into three components. The first is the direct impacts (the value of resources brought into the state); the second is indirect impacts (impacts from recirculation of resources resulting from forestry industry purchases from other industries; and the third is induced impacts, which result from activities in the household sector. Adding direct, indirect, and induced impacts yields total impacts. Three measures of economic impacts are provided. The first, output, is a measure of how much each industry or sector produced in 2007 roughly equivalent to a measure of sales revenue. The second measure is income, including all household income and employee benefits. The third measure is employment, or number of jobs, in each forestry-related industry. Results Table 3-1 provides estimates of direct impacts for each of the forestry industry sectors contained in the industry's definition. These differ from the level of economic activity shown in Tables 2-2 and 2-3 because Table 3-1 eliminates production consumed by another sector. This eliminates the double counting of production in the multiplier effect of the consuming industry sector. For example, Table 3-1 does not contain much output from the Forestry Management, Logging, and Misc. Forest Products industry segment because most of it appears to be consumed by the various Georgia wood-using industries Georgia Forestry Commission 2007 Report Page 15 such as paper and lumber. Logging operations are included primarily as part of the multiplier effect by these consuming industries, not as a direct impact separate from them. Another way to interpret Table 3-1 is to consider the direct impacts to be estimates of the exports of forestry-related industries. This exporting (to anyone outside Georgia) brings resources into the state to support the increase in economic activity estimated by the multiplier effect. The largest industry segment by far is "Pulp and Paper", which includes all pulping and paper-making activities representing about half of the total industry. The entire forestry industry (totals in Table 3-1) is estimated to export (to a non-Georgia destination) almost $16.4 billion with this activity supporting 55,559 jobs with an employee compensation of over $3.0 billion. Recirculation of dollars brought into Georgia's economy (as measured by the direct impacts) support a higher level of economic activity. This higher level is estimated by applying the IMPLAN input-output model to the direct impacts provided in Table 3-1. The results of this analysis are presented in Table 3-2. Because all industries in Georgia are affected by the forestry industry, Table 3-2 summarizes the impacts by aggregated industry codes (used in the input-output model), which are roughly equivalent to twodigit NAICS codes. Table 3-1: Direct Impacts by Forest Industry Sector 2007 Sector Output Employment Compensation Forestry Management, Logging, and Misc. Forest Products $546,537,344 799 $55,566,132 Lumber and Wood Preservation $1,522,831,656 6,509 $293,829,793 Veneer, Plywood, Reconstituted, and Engineered Wood $1,190,529,728 5,503 $263,517,812 Prefabricated Wood Buildings and Manufactured Housing $523,282,896 3,581 $119,088,100 Pulp and Paper Products $10,117,197,570 21,614 $1,600,087,059 Woodworking and Paper Industries Machinery $51,612,988 262 $15,970,305 Wooden Furniture and Cabinets $1,165,399,654 8,661 $331,298,712 Windows and Doors $502,563,776 2,960 $112,076,616 Containers, Showcases, Partitions, and Shelving $602,243,904 4,556 $183,943,416 Custom Architectural and Miscellaneous Wood Products $152,564,216 1,114 $46,609,172 Total $16,374,763,732 55,559 $3,021,987,117 The largest sector impacts are seen, not surprisingly, in the manufacturing sector, with some $17 billion in output, 61,549 employees, and about $3.3 billion in compensation. A distant second is held by agriculture, forestry, fishing and hunting (which includes logging and nurseries), with over $2.1 billion in output, 14,138 employees, and almost $450 million in compensation. Together, the economic activity supported by Georgia's forestry industry (including federal payments to landowners of about $12.3 million) totals over $28.5 billion, involving employment of 141,155 people whose compensation is Georgia Forestry Commission 2007 Report Page 16 about $6.7 billion. This employment represents about 3.3 percent and 3.1 percent of total Georgia employment, and wages and salaries, respectively. Table 3-2: Total Benefits by Major Industry Sector 2007 Sector Agriculture, Forestry, Fishing and Hunting Output $2,121,796,736 Mining $9,071,678 Utilities $494,897,184 Construction $68,460,944 Manufacturing $17,923,817,472 Wholesale Trade $1,407,730,816 Transportation and Warehousing $937,203,648 Retail Trade $619,328,000 Information $307,665,216 Finance and Insurance $740,812,224 Real Estate and Rental $492,653,120 Professional, Technical, and Scientific Services $710,224,320 Management of Companies $398,028,800 Administrative and Waste Services $260,618,256 Educational Services $70,678,272 Health and Social Services $537,158,336 Arts, Entertainment and Recreation $74,889,168 Accommodation and Food Services $354,933,344 Other Services $353,237,664 Government and Non-NAICS Industries $660,072,512 Total $28,547,185,557 Employment 14,138 39 725 623 61,549 7,324 7,731 9,272 860 3,539 2,754 4,624 1,984 4,344 1,229 6,366 1,396 6,268 5,683 707 141,155 Compensation $449,783,040 $2,429,163 $102,905,168 $27,370,942 $3,322,228,480 $533,253,024 $362,464,320 $251,028,640 $75,633,352 $244,182,688 $85,854,560 $286,874,368 $184,293,872 $125,709,472 $40,261,068 $286,155,264 $30,953,586 $121,684,176 $134,958,832 $27,723,508 $6,695,747,523 Source: Georgia Tech's Enterprise Innovation Institute Comparison of the Forestry Industry with Other Industry Sectors It is difficult to appreciate the significance of the impacts generated by the forestry industry without some basis of comparison. This comparison is provided in Table 3-3, which shows that the forestry industry is the third largest industry sector in Georgia, (behind food processing and textiles) in employment and the second largest in wages and salaries. Georgia Forestry Commission 2007 Report Page 17 Table 3-3: Comparison of Georgia Industries 2007 Sector Food Processing Forestry Industry Transportation Equipment Textiles Fabricated Metal Products Machinery Chemicals Printing Electrical Equipment and Appliances Computers and Electronic Products Apparel Employment 72,188 64,192 42,892 64,785 29,101 24,371 21,651 20,907 15,207 14,929 5,356 Wages & Salaries $3,044,130,479 $2,655,122,080 $2,351,785,278 $2,324,049,150 $1,134,770,230 $1,078,843,863 $1,242,269,565 $920,581,830 $895,779,998 $972,445,698 $173,052,321 Georgia Forestry Commission 2007 Report Page 18 SECTION 4 Economic Dependence What Is Economic Dependence? Economies are interwoven in a complex web. In general, however, a local economy's economic health depends on the inflow and outflow of resources. Economic base theory calls those sectors within an economy that are responsible for bringing resources in "basic" or "traded" sectors. The resources that are brought in are then (at least partially) recirculated within the local economy to support the "non-basic" sectors. For example, a sawmill will generally sell its products to builders or lumber supply houses outside the local economy. The revenue it receives from these sales is then used to purchase logs from, perhaps, a local logging firm, and it also pays wages to its employees who spend their wages in local restaurants, grocery stores, and the like. As the basic sector grows or declines, so does the non-basic sector. Forestry industry components are very much part of Georgia's basic industry sector, with products sold worldwide. As such, it is one of the key sources of funds flowing into many local Georgia economies. Where the local economy has many sources of such flows, the growth or decline of any specific sector, such as forestry, may not have significant effects. However, in those communities where forestry is a large proportion of the local basic industry, all economic support activities, such as retail, are likewise generally dependent. Approach There is no clear delineation between economic dependence and non-dependence, and there are many possible facets that can be examined to depict the spectrum that describes the degree of dependence. This analysis examines the proportion of the county-level employment and income (as defined by wages and salaries) indicated by the ES202 data that is attributable directly to forestry industries. Multiplier effects are difficult to distribute to individual counties, and were therefore not included in the definition of forestry-related industries. This exclusion serves to underestimate the true proportion of the county economy supported by forestry. The ranges of county employment attributable to forestry-related industries used to define the degree of dependence is provided in Table 4-1, which also provided the definitions used to define dependence according to the percentage of income (wages and salaries) attributable to forestry-related industries. These ranges were developed judgmentally, and are intended to define "dependence" in a very general sense. Applying these criteria to Georgia's counties results in a distribution of counties as depicted in Table 4-2 for employment and income. While most (110 for both employment and income) counties are considered either not, or somewhat, dependent on forestry industries, the remaining counties, concentrated in south Georgia, owe significant proportions of their livelihood to forestry. Georgia Forestry Commission 2007 Report Page 19 Figure 4-1 depicts the degree of forestry-related dependence based on employment and Figure 4-2 depicts the degree of dependence based on income. Table 4-3 provides the percentages of forestry to county employment and wages and salaries used to assign the degree of dependence. Table 4-1: Definitions of Levels of Dependence Critically Dependent Very Dependent Moderately Dependent Somewhat Dependent Not Dependent Forestry Employment > 10% 6% - 9.9% 4% - 5.9% 1.6% - 3.9% < 1.6% Forestry Wages & Salaries > 15% 10% - 14.9% 9.9% - 5% 2% - 4.9% < 2% Table 4-2: Distribution of Georgia Counties by Level of Dependence Number of Counties Employment Wages & Salaries Critically Dependent 20 12 Very Dependent 17 21 Moderately Dependent 12 17 Somewhat Dependent 48 40 Not Dependent 62 69 Total 159 159 Source: EII estimates using Georgia Department of Labor, Current Employment and Wages data. Tables 4-3 and 4-4 show how overall dependency has changed (for dependency based on employment and income, respectively) over the three years these statistics have been produced. Generally, the number of counties in each of the dependency categories has remained quite stable. The year 2006, however, shows an increase in those counties considered critically dependent largely at the expense of counties considered very dependent. Table 4-3 Forestry Dependency Over Time: Employment Critically Dependent Very Dependent Moderately Dependent Somewhat Dependent Not Dependent Number of Counties 2004 2005 2006 2007 19 19 22 20 18 18 15 17 20 20 18 12 49 49 50 48 53 53 54 62 Georgia Forestry Commission 2007 Report Page 20 Table 4-4 Forestry Dependency Over Time: Income Critically Dependent Very Dependent Moderately Dependent Somewhat Dependent Not Dependent Number of Counties 2004 2005 2006 2007 14 14 16 12 17 17 13 21 26 26 26 17 42 42 42 40 60 60 62 69 Georgia Forestry Commission 2007 Report Page 21 Figure 4-1 Forestry Dependency Based on Employment 2007 Georgia Forestry Commission 2007 Report Page 22 Figure 4-2 Forestry Dependency Based on Income Georgia Forestry Commission 2007 Report Page 23 Table 4-5: Level and Percent of Forestry in County Economies Based on Employment and Income: 2007 County Appling Atkinson Bacon Baker Baldwin Banks Barrow Bartow Ben Hill Berrien Bibb Bleckley Brantley Brooks Bryan Bulloch Burke Butts Calhoun Camden Candler Carroll Catoosa Charlton Chatham Chattahoochee Chattooga Cherokee Clarke Clay Clayton Clinch Cobb Coffee Colquitt Columbia Cook Level of Forestry: Employment Wages and Salaries 346 $13,603,364 528 $16,313,260 313 $9,021,858 12 $391,172 214 $6,122,461 55 $1,322,406 176 $8,080,268 494 $17,953,216 424 $13,694,178 120 $2,997,947 1,634 $90,984,971 51 $1,807,443 203 $6,102,128 221 $7,797,853 86 $3,039,656 336 $10,558,824 27 $708,575 462 $12,155,458 7 $56,038 236 $9,745,076 23 $610,319 987 $47,345,187 285 $8,327,889 677 $12,716,328 1,430 $89,090,942 1 $21,840 154 $4,966,578 669 $21,057,481 537 $24,192,689 15 $355,373 339 $14,819,482 260 $8,309,346 3,413 $129,497,468 707 $19,359,274 750 $19,203,851 387 $13,728,193 247 $7,097,325 Percent of Forestry to Total: Employment Wages and Salaries 5.4% 6.3% 30.0% 38.4% 8.3% 9.8% 2.1% 2.7% 1.1% 1.1% 1.1% 1.0% 1.0% 1.5% 1.4% 1.5% 5.6% 6.6% 2.3% 2.1% 1.9% 3.1% 1.4% 1.4% 9.7% 12.1% 7.4% 10.5% 1.3% 1.6% 1.4% 1.6% 0.4% 0.3% 7.8% 7.5% 0.5% 0.2% 1.5% 1.9% 0.7% 0.8% 2.4% 3.5% 1.8% 1.8% 25.5% 19.2% 1.0% 1.7% 0.1% 0.0% 2.3% 2.7% 1.3% 1.3% 0.8% 1.0% 1.6% 1.7% 0.3% 0.3% 10.5% 12.4% 1.0% 0.9% 4.1% 4.1% 4.7% 4.6% 1.3% 1.5% 4.8% 5.9% Georgia Forestry Commission 2007 Report Page 24 Coweta Crawford Crisp Dade Dawson Decatur DeKalb Dodge Dooly Dougherty Douglas Early Echols Effingham Elbert Emanuel Evans Fannin Fayette Floyd Forsyth Franklin Fulton Gilmer Glascock Glynn Gordon Grady Greene Gwinnett Habersham Hall Hancock Haralson Harris Hart Heard Henry Houston Irwin Jackson Jasper Jeff Davis 206 42 223 15 27 298 2,134 42 146 1,548 289 639 22 280 39 209 164 47 290 1,029 738 243 3,826 226 46 262 123 218 130 3,012 270 968 9 30 77 404 35 311 308 155 441 640 549 $6,706,952 $1,698,594 $6,636,577 $389,914 $941,429 $8,455,591 $100,858,858 $1,073,892 $7,270,611 $94,800,468 $15,798,823 $48,913,047 $869,727 $87,915,534 $1,253,439 $6,875,524 $6,071,715 $1,154,974 $15,367,047 $31,327,523 $28,860,908 $6,535,169 $204,715,286 $5,702,690 $1,168,682 $11,953,338 $3,398,295 $6,077,934 $4,397,082 $114,286,259 $6,831,242 $32,420,889 $188,794 $881,008 $2,528,899 $21,119,411 $1,416,939 $16,392,117 $12,109,312 $2,345,146 $22,518,892 $23,765,880 $18,537,397 Georgia Forestry Commission 2007 Report 0.6% 2.7% 2.4% 0.4% 0.3% 2.9% 0.7% 0.6% 4.1% 2.9% 0.7% 14.6% 3.2% 2.8% 0.6% 2.6% 3.5% 0.8% 0.7% 2.5% 1.3% 3.1% 0.5% 2.5% 11.3% 0.7% 0.5% 3.3% 2.2% 0.9% 1.8% 1.3% 0.7% 0.4% 1.8% 6.0% 1.5% 0.6% 0.5% 6.3% 2.3% 22.9% 12.6% 0.6% 4.2% 2.8% 0.4% 0.5% 3.2% 0.7% 0.7% 7.4% 5.4% 1.3% 32.0% 6.1% 27.4% 0.6% 3.5% 4.6% 0.8% 1.0% 2.4% 1.2% 2.9% 0.5% 2.3% 13.4% 0.9% 0.5% 3.6% 2.6% 0.8% 1.6% 1.2% 0.6% 0.4% 2.5% 10.8% 1.6% 1.0% 0.5% 3.8% 3.9% 30.3% 15.6% Page 25 Jefferson Jenkins Johnson Jones Lamar Lanier Laurens Lee Liberty Lincoln Long Lowndes Lumpkin McDuffie McIntosh Macon Madison Marion Meriwether Miller Mitchell Monroe Montgomery Morgan Murray Muscogee Newton Oconee Oglethorpe Paulding Peach Pickens Pierce Pike Polk Pulaski Putnam Quitman Rabun Randolph Richmond Rockdale Schley 665 432 222 56 138 85 1,247 97 478 145 11 1,627 101 985 6 371 277 318 398 4 109 167 155 455 116 515 325 123 24 196 12 358 395 37 293 88 892 41 53 223 2,108 1,189 184 $21,511,528 $8,006,648 $5,635,776 $1,357,441 $5,902,031 $2,124,302 $59,016,228 $3,146,632 $25,080,725 $4,722,488 $333,104 $65,836,140 $2,130,888 $66,181,019 $137,109 $23,670,908 $11,204,061 $7,877,357 $16,502,350 $73,780 $2,967,690 $6,333,734 $5,935,657 $19,610,068 $2,966,853 $18,888,893 $14,349,319 $3,234,124 $495,839 $5,487,153 $449,345 $23,667,015 $12,896,040 $1,113,509 $10,619,197 $4,545,722 $25,175,478 $1,587,936 $1,440,841 $6,448,775 $112,801,585 $53,348,647 $6,176,824 Georgia Forestry Commission 2007 Report 12.0% 19.3% 11.2% 1.5% 3.7% 5.6% 6.1% 1.8% 2.8% 9.4% 1.3% 3.1% 1.5% 11.4% 0.2% 10.6% 7.3% 18.8% 8.1% 0.2% 1.2% 2.6% 8.0% 7.0% 0.9% 0.5% 1.5% 1.4% 1.3% 0.9% 0.1% 4.5% 9.2% 1.6% 2.4% 2.7% 12.4% 8.9% 1.0% 10.5% 2.0% 3.5% 12.4% 13.4% 14.9% 11.8% 1.3% 5.5% 5.5% 9.3% 2.1% 4.5% 12.6% 1.6% 4.6% 1.1% 24.4% 0.2% 23.6% 10.8% 18.7% 12.5% 0.2% 1.4% 3.2% 11.0% 10.4% 0.8% 0.5% 1.9% 1.2% 1.1% 0.9% 0.2% 9.7% 11.4% 1.8% 3.0% 5.1% 12.0% 14.2% 1.0% 11.6% 3.0% 4.6% 13.8% Page 26 Screven Seminole Spalding Stephens Stewart Sumter Talbot Taliaferro Tattnall Taylor Telfair Terrell Thomas Tift Toombs Towns Treutlen Troup Turner Twiggs Union Upson Walker Walton Ware Warren Washington Wayne Webster Wheeler White Whitfield Wilcox Wilkes Wilkinson Worth Non-County State Total 155 4 245 767 32 510 66 8 163 28 113 44 931 294 421 8 7 246 192 38 63 325 27 377 629 302 133 1,198 262 157 137 751 49 401 168 124 1,566 64,192 $4,264,645 $86,760 $9,292,107 $24,567,383 $1,213,826 $13,889,598 $1,778,813 $368,331 $4,602,156 $444,309 $3,256,258 $680,145 $23,907,682 $9,710,088 $14,003,852 $137,509 $255,904 $7,725,873 $5,806,533 $1,043,596 $1,509,400 $11,456,152 $772,145 $13,740,974 $17,697,589 $10,378,372 $4,628,604 $77,450,796 $7,846,941 $4,811,577 $2,759,907 $23,591,315 $793,024 $9,809,380 $4,809,520 $2,520,202 $755,909,169 $3,394,198,719 4.0% 0.2% 1.0% 7.6% 2.4% 4.0% 7.6% 3.5% 2.9% 1.5% 2.4% 1.7% 3.9% 1.5% 3.5% 0.2% 0.6% 0.8% 7.6% 3.2% 0.9% 4.1% 0.2% 1.8% 3.9% 23.4% 1.6% 13.0% 46.8% 9.9% 2.0% 1.2% 3.6% 11.8% 5.4% 3.4% 4.1% 0.1% 1.3% 8.1% 3.6% 3.9% 6.9% 7.5% 3.2% 0.8% 3.2% 1.0% 3.2% 1.6% 4.3% 0.1% 1.0% 0.7% 10.0% 2.5% 0.8% 5.3% 0.2% 2.1% 4.1% 29.8% 1.9% 25.2% 51.9% 12.7% 1.5% 1.1% 2.5% 11.4% 4.3% 2.6% Georgia Forestry Commission 2007 Report Page 27 References Georgia Department of Labor, ES202 Wage and Employment Data: 2007. U.S. Bureau of the Census, "Census of Manufacturers 2002," http://www.census.gov/epcd/ec97/ga/GA000.HTM U.S. Department of Labor, Bureau of Labor Statistics, "Employer Costs for Employee Compensation," http://data.bls.gov/cgi-bin/surveymost North American Industrial Classification System (NAICS), http://www.census.gov/epcd/www/naicstab.htm Bureau of Economic Analysis Input-Output Sectors as contained in "IMPLAN Pro: Data Guide," Minnesota IMPLAN Group, Inc., Stillwater, Minn., 1997. Georgia Forestry Commission 2007 Report Page 28