Impact of high technology industry on the Arizona economy: final report

              Final Report Submitted to: The Governor's Arizona Science and Technology Council and The Governor's Strategic Partnership for Economic Development



October 1995



Alber ta Charney Julie Leones1



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Drs. Charney and Leones are, respectively, researchers with the Economic and Business Research Program (College of Business and Public Administration) and the Department of Agricultural and Resource Economics and Arizona Cooperative Extension (College of Agriculture) at The University of Arizona.



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ACKNOWLEDGMENTS

The authors wish to thank numerous individuals and organizations for making this project possible. Our thanks to Governor Fife Symington and to the Governor's Strategic Partnership for Economic Development and the Governor's Arizona Science and Technology Council which sponsored this project and raised the funds necessary to pay for it. We are also grateful to the organizations and businesses which provided their generous financial support. In particular, we thank the following: Arizona Electronics Association; Apollo Group, Inc.; Arizona Public Service Company; Hughes Missile Systems; Intel Corporation; Inter-Tel, Inc.; Lansdale Semiconductor, Inc.; MechTronics of Arizona, Inc.; Medtronic Micro-Rel, Inc.; Meyer, Hendricks, Victor, Osborn, and Maledon; MicroAge, Inc.; Motorola, Inc.; Pillar Financial; Quarles and Brady; SGS Thompson Microelectronics, Inc.; Simula, Inc.; Snell and Wilmer; Tally Defense Systems; Three-Five Systems, Inc.; Tiffany & Hoffman; and Tucson Electric Power. We wish to extend special thanks to Frank Plencner, Executive Director of the Governor's Strategic Partnership for Economic Development, and Jack Haenichen, Co-Chair of the Governor's Arizona Science and Technology Council, for their support and willingness to allow us the time necessary to do a complete and thorough study of the high technology industry. Without the cooperation of high technology firms and their willingness to provide us with confidential and difficult to assemble information, this study could not have been completed. We received extraordinary cooperation from firms involved in Optics and Electronic Components. We also had tremendous cooperation from several of the high technology organizations in Arizona. The Arizona Software Association and the Center for Software Excellence provided membership lists and the latter organization also provided the results of a member survey that it had conducted. The American Electronics Association of Arizona offered its support by encouraging members to respond to our questionnaire. We wish to thank Bill Tompkin of the Arizona Department of Commerce for his assistance, encouragement and support throughout this project and Mobin Qaheri, also of the Arizona Department of Commerce, for his comments on our proposal and questionnaire, and for his assistance in documenting past ADOC high technology studies and for his comments on the first draft of this study. We thank Dr. Bruce Beattie of the Department of Agricultural and Resource Economics for reviewing the first draft of this report. The authors extend thanks to our respective departments and colleges for their technical and support services. Pia Montoya, Database Manager, and Valerie Rice, Librarian in the Economic and Business Research Program, provided assistance with secondary data collection. Kitty Stoops, Administrative Assistant in the Economic and Business Research Program, and Loretta Cosgrove, Accounting Specialist, in the Department of Agricultural and Resource Economics, provided bookkeeping and purchasing services. Connie McKay, Administrative Assistant in the Department of Agricultural and Resource Economics, organized mailing lists and printed numerous sets of mailing labels. We are grateful to Linda Phipps, the graphics artist in the College of Agriculture, who, on very short notice, provided the layout of this final report. Finally, we wish to thank our student research assistants. W. Alex Moseley helped us assemble our mailing lists, kept track of our respondents, made telephone contacts with firms to increase our response rates, assisted us with data summaries and graphics, and was consistently willing and eager to go out of his way to make the project a success. Valerie Ralph entered survey data and did the first rounds of data editing. Her attention to detail and her efficient handling of the data were of tremendous help to us.



TABLE OF CONTENTS

Executive Summary ........................................................................................................................ i Highlights .................................................................................................................................... iii



Introduction ................................................................................................................................... 1 Overview ........................................................................................................................................ 3 High Technology Business in Arizona .......................................................................................... 3 Arizona's High Technology Employment from 1972 to 1994 ...................................................... 5 Arizona vs. the U.S. Economy ...................................................................................................... 8 Impact Model Description ............................................................................................................. 9 Impact Results ............................................................................................................................. 10 Survey Results ............................................................................................................................. 12 Industry Organization .................................................................................................................. 12 Research and Development ......................................................................................................... 13 Expenditures ................................................................................................................................ 15 Marketing ..................................................................................................................................... 15 Employment ................................................................................................................................. 18 Finance ........................................................................................................................................ 19 Summary and Conclusions .......................................................................................................... 20 References ................................................................................................................................... 23 Biographies of Principle Investigators ......................................................................................... 25



Appendix A. Defining High Technology Business ..................................................................... 27 Table A-1. High Technology Definitions ......................................................................... 29 Appendix B. Arizona Gross State Product in Percentages ......................................................... 31 Appendix C. Arizona Gross State Product in 1994 Dollars ....................................................... 33 Appendix D. Arizona Industry Location Quotient Analysis....................................................... 35 Appendix E. Survey Methodology ............................................................................................. 39 Appendix F. Arizona Industry Survey ........................................................................................ 41



EXECUTIVE SUMMARY

Among states and cities that actively recruit businesses to relocate, high technology firms are coveted. There is good reason for this. First and foremost, the high technology industry offers high quality jobs. High technology firms often offer high wages, attractive benefit packages and opportunities for advancement. In addition, high technology firms tend to be export oriented and make important contributions to the balance of trade. For states like Arizona that have a dynamic and growing high technology cluster, information on high technology businesses is important to guide policy decisions and educate the public about the nature and contributions of this industry. This study represents is an in-depth look at the economics of high technology businesses. The study included use of existing secondary data available from government sources (the most recent year available was usually 1992) and use of information from a survey of firms in the high technology industry (information from this survey was for 1994). High technology appears to be a lot like `quality': people know it when they see it, but it is not easy to define. A large number of alternative definitions were identified during the course of this study. Some of the important characteristics used in these definitions include a high percentage of employees working as engineers, scientists, mathematicians and computer specialists, a high percentage of total sales spent on research and development, a high level of product sophistication, a high percentage of sophisticated components in the product or service, and high employment growth rates. Some studies arbitrarily selected certain sectors as `high technology.' In this study, a consensus approach was used to identify manufacturing sectors (i.e., a sector was included if it was identified under five or more different high technology definitions as being high tech) and professional judgment was used to identify service sectors. The sectors included a variety of chemicals, aircraft, missiles, ordnance and engines, computers, communications equipment and electronic components, scientific instruments (all of SIC 38), computer software and services and physical research services. Under this definition, there were over 95,000 high technology jobs in Arizona in 1994. The largest employer is the electronic component and computer sector (46,545 jobs). The next largest are aircraft and missiles (18,597 jobs), instruments (16,903 jobs) and computer and research services (10,779 jobs). The high technology industry paid $4.36 billion in employee compensation in 1994 and generated $5.931 billion in value added (i.e., direct contribution to Gross State Product). The industry paid an estimated $250 million in state taxes. In addition, the high technology industry exported an estimated $5.369 billion in goods and services from Arizona in 1994. In terms of percent of state totals, the high technology industry directly provided 4.8 percent of all jobs in the state, it generated 6.8 percent of total Gross State Product and provided 63 percent of total foreign exports from Arizona in 1994. Through the multiplier effect (i.e., through purchases made in Arizona by high technology businesses and their employees), the high technology industry had a total economic impact of 180,261 jobs (9 percent of Arizona's employment), $6.498 billion in employee compensation and $9.546 billion in total value added (11 percent of Arizona's GSP). High technology firms purchased many products and services from each other (estimated at $1.79 billion). The total tax revenue impacts of the industry were $609 million. The high technology industry in Arizona paid an average of $45,800 in employee compensation (this includes wages and all benefits). The average payroll per employee in the high technology industry is $38,376 which is 75% higher than average payroll per employee across all Arizona industries. In addition, high technology firms spent an average of $900 per employee on training in 1994. The high technology workforce contains a significant share of Ph.D. scientists and engineers in the state. Overall, 35 percent of all employees in the industry have a four-year college degree or higher. High technology firms make substantial investments in research and development. On average, high technology firms spend from 6 to 8 percent of total sales on research and development. More than 28 percent of the survey firms spend 13 percent or more of total sales on research and development. Twenty percent of the high tech workforce is involved in research and development. Approximately 87 percent of research funding came from internal sources. Another 10 percent came from the U.S. Department of Defense. The high technology industry grew rapidly in Arizona from 1972 to 1987. Employment nearly doubled and real payroll increased at a rate of 5.6 percent per year. The total number of establishments more than tripled. However, high technology declined in Arizona from 1987 through 1992. Employment fell by 11 percent and payroll by 13 percent. i



EXECUTIVE SUMMARY (cont.)

1992 was the trough of a recession in Arizona and it also marks the beginning of declining defense spending. From 1992 to 1994, the high technology industry regained much of what it had lost during the last recession. Employment grew almost 13 percent and payroll increased by slightly more than this from 1992 to 1994. The high technology industry has grown significantly in importance as a share of Arizona's economy, even during the 1987 to 1992 period. Several high technology sectors are better represented in Arizona than in the U.S. as a whole. These well-represented sectors include electronics and electronic components, where employment in Arizona is 31 percent higher than it is for the entire U.S.; aircraft and parts which is 24 percent higher; guided missiles, space vehicles and parts which is 43 percent higher; search and navigation equipment (23 percent higher) and process control instruments (95 percent higher). Employment in other high technology sectors in Arizona tends to be lower than for the nation as a whole. Arizona's high technology industry is very export oriented. While only 7 percent of high technology sales were made in Arizona, 59 percent were to the rest of the U.S. and 34 percent were to foreign customers in 1994. Europe and Asia (particularly Japan) were the most important foreign markets for Arizona's high technology exports. Arizona's high technology industry depends on the U.S. Department of Defense for approximately 25 percent of its total sales. Approximately two-thirds of all high technology sales are custom-made for the buying firm. The high technology industry's largest customer typically represents 24 percent of total sales and the five largest customers average 49 percent of total sales. These figures indicate that high technology firms are highly dependent on orders of a few large buyers. This is especially true for aerospace and missiles, instrument and chemical manufacturers. As mentioned earlier, Arizona's high technology firms buy from and sell to each other in significant amounts. The survey results indicate that 48 percent of surveyed firms purchase from the 14 largest high tech firms and 53 percent sell to the 14 largest high tech firms in Arizona. Almost one-third of the survey firms indicated that one or more of the 14 largest high technology firms was one of their five largest customers. Buyer-seller relations are not the only type of relationship that exists between high technology firms. Thirty-five percent of surveyed firms purchase important components that are available from only one supplier located outside of Arizona. Another 32 percent are involved in joint research and development ventures and 26 percent share development or engineering resources with firms outside of Arizona. With other firms located in Arizona, 20 percent share development or engineering resources, 20 percent are involved in joint research and development ventures and 15 percent of the surveyed high technology firms buy key inputs available from only one seller. Some of the risks and challenges that Arizona's high technology industry faces are related to continuing declines in defense spending and the significant amount of buying and selling that goes on within the industry. One risk of dependence on defense contracts is fluctuations in numbers of jobs depending on the number and type of defense contracts won. As overall defense spending levels off or declines, those high technology firms most dependent on defense contracts are likely to shrink, go out of business, look for alternative markets for their products, or begin diversifying their product line. The high technology industry as a whole is very dynamic. New high technology sectors are emerging even as others face declining or more competitive markets. A challenge faced by the state is to encourage the emergence of new high technology sectors, particularly through availability of venture capital and support of research and development and at the same time maintain a business environment that allows mature sectors to retain their competitive edge. Another risk of relying too heavily on any one industry is that a downturn in that industry can be devastating to the entire state economy. This is especially true for industries that do have strong buyer-seller relationships with local firms outside of the industry. So, while strong buyer-seller relations between high technology firms and other firms in the state can have important benefits during growth periods, during contractions they can lead to serious declines in total economic activity. Arizona Department of Commerce should track high technology employment carefully and should consider a survey of firms every five years. What happens in the high technology industry has serious implications for the availability of high-skill, high-paying jobs in Arizona. ii



HIGHLIGHTS

An understanding of the economics of high technology industry is important to state policy makers and to Arizona citizens: - a much higher component of Arizona's manufacturing is high technology than is found nationally - high technology manufacturing and high technology services provides a significant proportion of the high wages jobs available in the state - high technology accounts for 63 percent of Arizona's foreign exports. High technology consists of the following industries in Arizona (shown is the percent of high technology employment, by major group): electronic components and computers (49%) aircraft and missiles (20%) scientific instruments (including optics) (18%) computer software and services (8%) research services (3%). chemicals (including biotechnology products) (2%)



The estimated direct contribution of high technology industry to Arizona's economy in 1994 was enormous: - 95,099 jobs (4.8 percent of total state employment) - $4.360 billion in employee compensation - $5.369 billion in foreign exports, an estimated 63 percent of total Arizona exports - $6.626 billion in total expenditures on goods and services, of which $2.862 billion is spent in Arizona - $1.202 billion spent on construction from 1990 to 1994 - $5.931 billion in value added to the state economy, which is 6.8 percent of Gross State Product (GSP = $86.699 billion) - $250 million paid in state taxes. The total economic impact of the high technology industry in 1994, including direct, indirect and induced impacts are: - 180,261 jobs (9 percent of Arizona's employment) - $6.498 billion in employee compensation - $9.546 billion in total value added impacts, which is 11 percent of Arizona's Gross State Product - $609 million in state taxes, of which 73% is retained by the state and the rest is shared with cities and counties. High technology business grew rapidly from 1972 through 1987: - Employment more than doubled, increasing from 49,426 to 95,304 jobs - Real payroll increased by 5.6 percent per year - The number of establishments more than tripled. High technology declined in Arizona from 1987 through 1992: - Employment declined by 11 percent (by 11,000 jobs) - Real payroll fell by over 13 percent (adjusted for inflation) - The number of establishments continued to show strong growth. High technology employment grew between 1992 and 1994: - employment estimates for 1994 suggest that high technology business grew by almost 13 percent between 1992 and 1994, or 6.2 percent annually - 1994 estimated employment of 95,099 is almost as high as 1987 levels - high technology industry payroll is estimated to have grown by 6.9 percent annually between 1992 and 1994 to $3.699 billion. iii



HIGHLIGHTS (cont.)

The high technology sectors that are more strongly represented in Arizona than the U.S. and have substantial employment are: - Semiconductors and related devices (16,357 jobs) - Printed circuit boards (2,665 jobs) - Electronic connectors (785 jobs) - Electronic components, other (2,765 jobs) - Guided missiles and space vehicles (6,064 jobs) - Space vehicle equipment, other (1,750 jobs) - Aircraft engines and engine parts (7,500 jobs) - Aircraft parts and equipment (4,345 jobs) - Search and navigation equipment (8,059 jobs) - Process control instruments (1,986 jobs). The following high technology sectors are under-represented in Arizona when compared to the U.S.: - high technology chemicals - computer and office equipment - high technology services, such as computer software and research - ordnance. High technology firms were surveyed: - 613 questionnaires were distributed - 15.7 percent responded - 82 percent response rate for 17 largest high technology firms - respondents represented 55 percent of all high technology jobs. Survey results indicated the following regarding organization: - 58 percent of survey firms began operations since 1980 - 71 percent of sample firms, representing 11 percent of jobs in the industry, began in Arizona - 67 percent of survey firms operate out of a single location. The Arizona's high technology industry has strong relationships with other Arizona firms: - 20 percent share development or engineering resources - 20 percent are involved in joint research & development ventures - 15 percent buy important materials or components available from only one seller in Arizona - 52 percent of surveyed firms have special relationships with other firms in Arizona. Arizona's high technology industry has strong business relationships with firms outside of Arizona: - 35 percent of surveyed firms purchase important materials or components that are available from only one seller outside of Arizona - 32 percent are involved in joint research and development ventures - 26 percent share development or engineering resources - 56 percent of surveyed firms have special relationships with firms outside of Arizona. Arizona's large high technology firms have strong relationships with other high technology firms: - 48 percent of all surveyed firms purchase inputs from the 14 largest Arizona high technology firms - 53 percent of survey firms indicate they sell to or are input suppliers to the 14 largest high technology firms. Arizona's high technology firms are heavily involved in research and development (R&D): - 20 percent of all employees in the industry work in R&D - overall, survey firms spend 6-8 percent of total sales on R&D - more than 28 percent of survey firms spend 13 percent or more on R&D - 87 percent of research funding came from internal sources iv



HIGHLIGHTS (cont.)

- 10 percent of research funding came from the U.S. Department of Defense - 28 percent of survey firms acquired technology from for-profit Arizona entities - 20 percent acquired technologies from universities or research facilities in Arizona. High technology firms' final sales are distributed worldwide: - 7 percent of high technology sales are in Arizona - 59 percent are to the rest of the U.S. - 34 percent of total sales are foreign exports - Europe is the largest overseas buyer of Arizona high technology products. Arizona's high technology industry is tied to U.S. defense spending: - 25 percent of final or finished products are sold to the U.S. Department of Defense - high technology services have the highest percentage of their sales to the U.S. Department of Defense. There are many high quality jobs in the high technology industry: - $45,800 compensation (including all benefits) per employee - average payroll of $38,896 per employee in 1994 - average high technology pay is 75 percent higher than the average Arizona payroll per employee - 35 percent of high technology workers have a four-year college degree or higher - high technology spends an average of $900 per employee on training every year.



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INTRODUCTION

A ri z o n a 's manufacturing sector includes a much higher component of high technology manufactur ing than is found nationally. The high technology manufacturing cluster contributes a significant share of Arizona's total expor ts. In addition, high technology manufacturing, along with related high technology ser vices, provides a significant proportion of the high wage jobs available in the state. Given these attributes, an understanding of the economics of high technology industry is important to state policy makers and to Arizona citizens. In this study, a working definition of high technology industry is developed. Inf or mation was collected on the direct economic effects of the sector on the Arizona e c o n o m y and important linkages between high technology industries and other sectors of the Arizona economy were identified. Then an input-output or interindustry model was u s e d to estimate total economic effects of h i g h technology industry on the state economy. The present study assesses the impact of high t e c h n o l o g y business sector on Arizona's economy in terms of the number of Arizona jobs and the amount of Arizona wages that are directly or indirectly related (via the multiplier effect) to high technology businesses. The study provides direct information on the na ture of high technology businesses. In addition to information on what they buy and who they buy it from, the study also provides infor mation on total expenditures, capital investments made in the state, expenditures on wor ker education and training, etc. T h e study provides new insights into the structure and dynamics of the high technolog y industry by assessing growth rates and the relative size of various components of the high technology industry in Arizona and in t h e U.S., and by identifying the high tech components in which Arizona tends to specialize relative to the U.S. The impact of Arizona's high technology ind u s t ry is discussed within the context of Ariz ona's broader economy by comparing the impact with other economic measures, such as total employment, manufacturing employment, and Arizona's total wage and income figur es. The quality of high technology jobs is assessed relative to jobs in other segments of Arizona's economy.



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OVERVIEW

This report consists of several sections. The final definition of high technology business used in this study of Arizona is contained in the section HIGH TECHNOLOGY BUSINESS IN ARIZONA. A literature survey and discussion of the definition of high technology business is in Appendix A, DEFINING HIGH TECHNOLOGY BUSINESS. The following section, ARIZONA'S HIGH TECHNOLOGY EMPLOYMENT FROM 1972 TO 1992, provides a brief analysis of Arizona's high technology industry over time. Location quotients are used in ARIZONA VS. THE U.S. ECONOMY to identify which industries have a stronger representation in Arizona than they do in the U.S. as a whole. The section entitled IMPACT MODEL DESCRIPTION describes the model used to estimate economic impacts and explains the modifications that were made to the base model. IMPACT RESULTS provide more detailed information on the direct, indirect and induced impacts of high technology industry on the Arizona economy. Impacts are described in terms of employment, employee compensation, value added, and tax revenue. The main results from the survey, including information on the organization of high technology industry, research and development activity, expenditures, marketing, and workforce issues appear in SURVEY RESULTS. Appendix E, SURVEY METHODOLOGY, provides a description of how the survey was conducted, firm lists used, and sampling methodology. The important findings of this research effort are highlighted in SUMMARY AND CONCLUSIONS.



of alternative definitions of high technology is provided in Appendix A. In this study, we utilized a "consensus" definition of high technology for manufacturing sectors and have utilized a "professional judgment" definition of high technology for service industries. This consensus definition appears in the last column of Appendix A, Table A-1. Prior to selecting the "consensus" definition, we examined the alternative definitions in Table A-1 for Arizona. We found that the industries in Arizona that are considered high technology by most researchers and lay people in Arizona easily fall within the "consensus" group of sectors derived from Table A-1. For our definition of high technology manufacturing sectors, we selected those that occurred in at least five of the definitions. The one exception to this is SIC 369 which did not exist prior to 1987. The reason it was included was that virtually all of 369 was moved from communications equipment (366). Communications equipment was identified as high tech in all of the 12 classifications in Table A-1. In analyzing alternative definitions of high technology, we found that the selection of a definition for Arizona is less critical than it may be for some states. We analyzed all the definitions in Table A-1 and computed high technology employment based on each of these definitions. With the exception of the growth definition (Column II), Phillip's Arbitrary definition (Column VII), and the combined criteria of research and development (Column VIII), employment levels fall within a range that is only 3 percent less than and 11 percent more than the consensus definition employment.2 The reason for this is that Arizona's high technology manufacturing employment is concentrated in a relatively small number of sectors that tend to be universally recognized as high technology industries. (This can be seen in Table A-1 employment figures). For services, we utilized the SIC codes and definitions and selected those associated with software development and research and development.

The growth definition resulted in larger employment figures. This definition excludes some sectors that clearly should be included, e.g., office computing machines, but includes fabricated metals, which in Arizona is mostly construction-related, such as sheet metal work for air ducts. The Phillips' definition and the definition that combines the R & D and occupational criteria both exclude space vehicles and guided missiles, which appears to be a significant oversight.

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HIGH TECHNOLOGY BUSINESS IN

ARIZONA

The first task of this study was to establish criteria for identification of firms in the high technology industry in Arizona. The researchers reviewed the existing academic literature on the definition of and identification of high technology industry firms. The comparatively small body of academic literature on this topic includes several alternative definitions of high technology industry, most of which are limited to the manufacturing sector only. A detailed discussion



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Table 1. High Technology Definitions.

SIC Code 281 282 283 286 289 348 351 357 Industry Description Industrial Inorganic Chemicals Plastics Materials and Synthetic Resins, Rubber, Cellulosic and Other Manmade Fibers, Except Glass Drugs Industrial Organic Chemicals Miscellaneous Chemical Products Ordnance and Accessories, Except Vehicles and Guided Missiles Engines and Turbines Computer and Office Equipment Electronic Computers; Computer Storage Devices; Computer Terminals; Computer Peripheral Equipment; Calculating and Accounting Machines; Office Machines Not Elsewhere Classified Electrical Industrial Apparatus Communications Equipment Telephone and Telegraph Apparatus; Radio and Television Broadcasting & Communication Equipment; Communication Equipment, not elsewhere classified. Electronic Components and Accessories Electron Tubes; Printed Circuit Boards; Semiconductors and Related Devices; Electronic Capacitors; Electronic Resistors, Electronic Coils, Transformers and Other Inductors; Electronic Connectors; Electronic Components, not elsewhere classified. Miscellaneous Electrical Machinery, Equipment and Supplies Stora ge Batteries; Primary Batteries; Electrical Equipment for Internal Combustion Engines; Magnetic and Optical Recording Media; Electrical Machinery, Equipment & Supplies, not elsewhere classified. Aircraft and Parts Aircraft; Aircraft Engines and Engine Parts, Aircraft Parts and Auxiliary Equipment, not elsewhere classified. Guided Missiles and Space Vehicles and Parts Scientific Instruments Measuring, Analyzing, and Controlling Instruments; Photographic, Medical, and Optical Goods; Watches and Clocks Computer Programming Services Prepac kaged Software Computer Integrated Systems Design Computer Related Services, not elsewhere classified Commercial Physical and Biological Research Noncommercial Research Organizations Testing Laboratories TOTAL JOBS No. of 1992 Jobs 249 207 1,170 0 411 510 15



2,843 690



362 366



4,539



367



31,660



369



1,452



372



12,113 5,340



376 38



14,655 2,168 1,459 1,375 830 651 703 1,362 84,402



7371 7372 7373 7379 8731 8733 8734



Engineering services (SIC 871) were not included because close examination of firms in this category revealed that the bulk of these firms are involved in construction and other non-high technology activities. Table 1 provides a detailed list and description of the high technology sectors that we used for this study of Arizona, along with an estimate of Arizona's 1992 high technology employment.3 The bulk of Arizona's high technology employment is in only six or seven of the categories listed 4



in Table 1 (also see Figure 1). Electronic components and accessories sector, combined with the related computer and office equipment and miscellaneous electrical equipment and supplies and communications equipment represents almost half

Employment estimates for 1992 in Table 1 are based on a combination of a) County Business Patterns, 1992, b) information derived from the present survey, c) Arizona Daily Star 200, a list of the largest employers in southern Arizona, d) Arizona Republic's list of 100 largest employers in Arizona, and e) information provided by the Arizona Department of Commerce.

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Figure 1. 1994 High Technology Industry

Employment by Sector.

Instruments' 16,903



Figure 2. Number of High Technology Industry

Establishments.

1,400 1,200 1,000 905 1,288



Electronic Components and Computers 46,545



Aircraft and Aricraft and Missiles Missiles 18,597



800 593 600 407 400 270



Computer and Research Services Computer and Researc High igh Tech Chemicals h Services HTech 10,779 Chemicals 2,274 Source: The University of Arizona High Technology Study.



200 0 1972 1977 1982 Year Source: The University of Arizona High Technology Industry Study, figures based on County Business Patterns. 1987 1992



(49 percent) of Arizona's high technology employment. Scientific instruments and high technology chemicals (such as drugs) represent about 20 percent of the total and the defense-related sectors of ordnance, aircraft and parts, and guided missiles represents 20 percent. High technology services, represented by computer programming, integrated systems design and research and testing facilities represent about 11 percent of total high technology jobs in Arizona. The SIC categories do not necessarily group industries the way the industries themselves would choose to be grouped or clustered. Also, some of the smaller young high technology industries in the state are subsumed under broader SIC categories. For example, biotechnology is found primarily under high technology chemicals, and specifically under drugs (SIC 283). Optics are a subset of the scientific instruments category and found predominantly under optical instruments and lenses (SIC 3827). Environmental technology is contained in various manufacturing sectors and in research and testing services. Industry groups may also involve a great deal of overlap as the same firm may produce goods or services that fit into several industry clusters. In contrast, the SIC categories are exclusive. Each fir m is included under only one category.



Figure 3. High Technology Industry Employment.

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1972 1977 1982 Year Source: The University of Arizona High Technology Industry Study, figures based on County Business Patterns. 1987 1992 1994

49,425 50,742 84,729 95,304 84,402 95,099



Figure 4. High Technology Industry Payroll.

(in millions of 1994 $)



4,000 3,500 2,964 3,000 2,500 2,000 1,500 1,000 1,662 1,776



3,757 3,239



3,699



ARIZONA'S HIGH TECHNOLOGY

EMPLOYMENT FROM 1972 TO 1994

F igures 2, 3, and 4 show the change from 1972 t h ro u g h 1994 in Arizona's high technology



500 0 1972

Source:



1977



1982



1987 Year



1992



1994



The University of Arizona High Technology Industry Study, figures based on County Business Patterns.



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employment, payroll (in 1994 dollars), and the number of establishments, respectively.4 Growth in high technology business was substantial from 1972 through 1987. Employment more than doubled during these years, increasing from 49,426 to 95,304 jobs (an annual compound growth rate of almost 4.5 percent.) Real payroll (in 1994 dollars) also showed substantial growth during these years, increasing from $1.66 billion to $3.76 billion (an annual compound growth rate of 5.6 per year). The number of establishments more than tripled over this period. However, business activity in high technology showed a decline between 1987 and 1992. Employment declined by over 11 percent (from 95,304 jobs to 84,402 jobs) and real payroll (in 1994 dollars) fell by over 13 percent. This fall was despite the continued strong growth in the number of establishments during this five-year period. The decline from 1987 to 1992 appeared to be concentrated in the following three sectors: computer and office equipment (SIC 357); communications equipment (SIC 366); and aircraft and parts (SIC 372). The decline in these sectors was substantial to result in an overall loss of over 11,000 jobs since there was continued growth in several of the other sectors, e.g., electronic components and accessories (SIC 369), scientific instruments (SIC 38), and high technology services (SICs 7371, 7372, 7373, 7379, 8731, 8733, 8734). Part of the reason for the decline in employment in SICs 357, 366 and 372 was due to the U.S . Department of Commerce redefining its Standard Industrial Classification (SIC) Codes. For example, part of SIC 366 was shifted to SIC 38, and to 369, both of which are high technology SICs. This change would show a decline in communications equipment (SIC 366) and a corresponding increase in scientific instruments (SIC 38) and in miscellaneous electrical equipment (SIC 369), but would not ex4



plain any of the 11,000 job loss in the overall high technology group. Other changes in SIC codes between 1987 and 1992 could contribute to the measured decline in high technology. For example, part of aircraft and parts (SIC 372) that dealt with fluid power valves, fluid powerhouse fittings, fluid power pumps and motors, and fluid power cylinders and actuators were shifted to non-high technology sectors (SICs 349 and 359). In addition, part of electrical industrial apparatus (SIC 362) and part of electronic components and accessories (SIC 367) were shifted to SIC 3548 (welding apparatus) and SIC 3264 (porcelain electric supplies), respectively, also non-high technology sectors.5 It is not known for certain how much of the 11,000 decline in jobs is due to these SIC code changes. However, we do not believe that these SIC codes changes contribute significantly to explaining the decline in reported high technology jobs. A more likely explanation is that several downsizings of large high technology firms took place between 1987 and 1992. The following firms announced downsizing plans during this period: IBM, McDonnell Douglas Helicopter, Intel, Hughes Missiles, Bull HN Information Systems, Honeywell (Commercial Flight Systems Group and Aviation Systems Division), Motorola's Government Electronics Group, Digital Equipment Corp, Loral Defense Systems, Intertec Aviation (closure, move to Dallas), AG Communications Systems Corporation, AlliedSignal Aerospace Company (Garrett Auxiliary Power Division, Garrett Engine Division, G a rr e t t Fluid Systems). 6 These layoffs amounted to over 15,000 employees. However, some of these same firms as well as other high technology firms announced expansions or consolidations that would have provided additional jobs over this same five-year period:



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Source: Standard Industrial Classification Manual, 1987. Executive Office of the President, Office of Management and Budget, for sale by National Information Service, 5285 Port Royal Road, Springfield, Virginia 22161 Order PB87-100012.



Data for 1992 is identical to that in Table 2. All remaining data for Figures 1, 2, and 3 are from the County Business Patterns, 1972, 1977, 1982, 1987. County Business Patterns was used rather than the Economic Census because the 1992 Census of Manufacturing for Arizona had not yet been released at the time this study was written. The 1994 figures are estimates based on the employment estimates presented in Table 1.



Announced business cuts and layoffs taken from the business press. The Arizona Republic, Phoenix Business Journal and What's New in Arizona publications were monitored. The compilation of business cuts and layoffs are courtesy of The Forecasting Project, Economic and Business Research Program, College of Business and Public Administration, The University of Arizona.



6



6



Hughes Missiles, Garrett General Aviation, TRW, Honeywell, Motorola, McDonnell Douglas, AlliedSignal, and Loral Corporation. These a n n o u n c e d expansions total approximately 8,500 jobs. Thus, based on publicly available information, downsizing of large firms can explain a significant portion of the decline in high technology jobs loss in Arizona, but not all of it. Underlying causes of job loss included a decrease in defense spending, the recession of the early 1990's and the increase in competition in the computer industry. In the survey, firms were asked to provide their employment figures for March 1994 and for five years previous, March 1989. Comparing 1994 employment to 1989 employment for the survey firms reveals that employment in 1994 was 9 percent lower than in 1989. While firms with fewer than 100 employees grew by 33 percent over this period, employment at medium-sized fir ms declined by 9 percent and at large firms (over 1,000 employees) by 11 percent. The 1987-1992 period can be characterized as a very volatile period for high technology business in Arizona. Small firms continued to be created; some large firms downsized or consolidated; and some large firms grew or experienced large swings in employment. Although precise employment and payroll figures are not available for 1994, employment and payroll estimates for 1994 reveal that high technology business has shown strong growth between 1992 and 1994. Employment is estimated to have grown almost 13 percent during this period, which is approximately a 6.2 annual compound growth rate. Similarly, real payroll (measured in 1994 dollars) is estimated to have grown 6.9 percent annually since 1994. The contraction in high technology business during the 1987 to 1992 period, followed by strong growth from 1992 through 1994 mirrors the overall performance of the Arizona economy. Despite the significant loss in employment between 1987 and 1992, there is some evidence that Arizona's dependence on high technology business continued to expand even during that time. Appendix B shows the share of Arizona's Gross State Product represented by 71 economic sectors. The sectors in italics include high technology firms, i.e., only part of each sector in italics are high technology businesses. The most recent detailed data available are for 1992.



The bulk of electronic and other electric equipment is high technology, including communications equipment (4,539 jobs), electronic components and accessories (31,660 jobs) and miscellaneous electrical machinery (1,452 jobs). This sector grew from 2.1 percent of Arizona's economy in 1977 to 4.7 percent in 1992. Although this sector's share shows a strong underlying growth trend, there is some volatility, with the sector reaching a high of 5.3 percent of Arizona's share in 1990, falling back to 4.7 by 1992. All of instruments and related products is considered high technology business. This sector's share of the Arizona economy has also shown a strong upward trend over time, increasing 160 percent from 1977 to 1992. Other transportation equipment in Arizona is predominantly defense-related, consisting of aircraft and parts (12,113 jobs) and guided missiles and space vehicles (5,340 jobs). This sector rose from 2.2 percent of Arizona's economy in 1977 to a high of 3.2 percent in 1991, but fell back to 2.7 percent in 1992. Only a very small portion of fabricated metal products is high technology, i.e., ordnance and accessories is 510 jobs out of 9,998 jobs in the whole sector. Most of fabricated metals is construction related, which accounts for the volatile nature of this sector in Appendix B. Similarly, only a small portion of industrial machinery and equipment is considered to be high technology (1,481 out of 12,491 jobs), thus it is difficult to draw conclusions regarding high technology business in this sector from Appendices B and C. About 42 percent of chemicals is high technology and this sector, although relatively small (4,610 jobs in chemicals), has doubled as a share of Arizona's economy (0.3 percent to 0.6 percent). High technology services are very small portions of their respective service category, i.e., high technology computer and data processing services is only 6.8 percent of business services and research and testing services is only 8.3 percent of other services. Thus, the very strong growth trends in business services and other services cannot be used to make any conclusions about the growth in sector share of their high technology components. 7



ARIZONA VS. THE U.S. ECONOMY

Appendix D illustrates which of Arizona's e c o n o m i c sectors are better represented in Arizona than in the U.S. as a whole. Table 4 utilizes a concept known as the location quotient to measure whether each economic sector is comparatively stronger in Arizona than it is in the U.S. or whether it is weaker. A location quotient for each sector in Arizona is computed by dividing each sector's share of the total Arizona economy by the corresponding sectoral share in the U.S. Thus if a location quotient is greater than 1 for a particular sector, then that sector has a stronger repr esentation in Arizona than it does for the U.S. as a whole. If a location quotient is equal to 1, then that sector is equally important in Arizona as it is in the U.S. and if a location quotient in Arizona is less than 1, the sector is less important in Arizona than it is in the U.S. Appendix D provides a list of industries in Arizona. Some are reported at the 1-digit SIC level (e.g., AGRICULTURAL SERVICES, FORESTRY & FISHING), some at the 2-digit SIC level (food and kindred products, SIC 20), some at the 3-digit SIC level (copper ores, SIC 102), and some at the 4-digit level (electron tubes, SIC 3671). Various levels of detail were retained in this table because some sectors are of more or less interest for this particular study and for Arizona, in general, and because all high technology sectors are reported at the same detail as their definition, i.e., at the 3-digit or 4-digit levels. In Appendix D, all high technology sectors are designated with an asterisk (*) in front of the industry descriptions given in the first column and SIC codes are given in the second column. Arizona 1992 employment from County Business Patterns is in the third column.7 Several of the employment figures have a double asterisk



(**) beside them, indicating that County Business Patterns could not disclose exact employment figures. Thus the employment figures denoted by (**) in Appendix C are the midpoint of the employment range reported by County Business Patterns. The last column in Appendix C is the location quotient for each sector. Interpretation of location quotients is quite straightforward. The agricultural services sector has a location of 2.63, which means that agricultural services is 2.63 times more important in Arizona than it is in the U.S. as a whole. Specifically, the location quotient says that the agricultural services sector in Arizona (as a share of total Arizona employment) is 2.63 times larger than it is in the U.S. (as a share of total U.S. employment). The location quotient for copper ores is 32, which means that this sector is 32 times more important in Arizona than it is in the U.S. as a whole. Other non-high technology sectors with location quotients of interest are tourism-related sectors, e.g., hotels and other lodging places (SIC 70, location quotient of 3.12), eating and drinking places (SIC 58, location quotient of 3.75) and a variety of other retail sectors (SIC 52 through 59, retail trade in total had a location quotient of 2.15), and amusement and recreation services (SIC 79, location quotient of 1.96). Sectors dependent on high population growth rates also have high location quotients in Arizona. Construction-related sectors demonstrate location quotients over 1, (i.e., construction, SIC 15 has a location quotient of 1.33), real estate (SIC 65, location quotient of 1.52). In addition, several business services have high location quotients. Services to buildings (SIC 734, location quotient of 2.21) and personnel supply services (location quotient of 2.15). Unlike location quotients for agricultural services, construction, retail trade, and services, the location quotient for manufacturing is less than 1 (i.e., .55). However, several sectors in manufacturing have much higher location quotients. Among the high technology sectors, Arizona is substantially under represented in high technology chemicals (SICs 281, 282, 283, 386, and 289) and ordnance (SIC 348). Two high technology components of industrial machinery and equipment (SICs 351 and 357) represent a smaller share of Arizona's employment than they do in the U.S. While this is not surprising for engines and turbines (SIC 351), it is somewhat surprising for SIC 357, which is the computer and office equipment sector.



7



Note that the Arizona 1992 employment figures presented in Appendix D are taken directly from County Business Patterns. Thus, they may not be consistent with the 1992 employment figures present in Table 1, which were derived from a variety of sources. Since the 1992 Census of Manufacturers were not available at the time this final report was prepared, the authors had to rely on County Business Patterns for 1992 to obtain a consistent set of employment figures for all sectors for both the U.S. and Arizona.



8



Arizona is also under represented in high technology services. Virtually all of the computerrelated high technology services (SICs 7371, 7372, 7273, and 7379) have location quotients substantially less than one. In addition, Arizona has substantially fewer workers, as a share of its economy than the U.S. in commercial and noncommercial research facilities and testing laboratories (SICs 8731, 8733, and 8743). Although scientific instruments (instruments and related products, SIC 38) represents substantial employment in Arizona (over 13,000 jobs), the overall category is only 70 percent as important as it is in the United States as a whole. Within SIC 38, only two subsectors are more important in Arizona than in the U.S., namely search and navigation equipment (SIC 381) and process control instruments (SIC 3823). Arizona is substantially represented in several of the high technology sectors within the transportation equipment sector (SIC 37). Aircraft and parts (SIC 372) is 24 percent larger than it is for the U.S. as a whole. Within aircraft and parts, both aircraft engines and engine parts (SIC 3724) and aircraft parts and equipment, n.e.c. (SIC 3728) are strong sectors for Arizona, with location quotients of 2.50 and 1.12, respectively. Guided missiles, space vehicles and parts (SIC 376) is 43 percent larger than other states in t h e U.S., on average. Two of the three subsectors of guided missiles have stronger representation in Arizona than other states, i.e., guided missiles and space vehicles (SIC 3761) and space vehicle equipment, n.e.c. (SIC 3769). A ri z o n a 's electronic and other electronic equipment (SIC 36) sector is 31 percent larger as a share of Arizona's economy than it is for the United States. Although not all of this 2digit sector is defined to be high technology fo r purposes of this study, several of its subsectors are. In particular, the electronic components and accessories sector (SIC 367) is extremely strong in Arizona, when compared to the U.S., as well as several of its subsectors. Overall, the electronic components and accessories sector is 2.69 times more important in Arizona than it is in the U.S. The most important subsector, both in terms of its location quotient (4.11) and its employment



level (over 16,000 jobs), is semiconductors and re l a t e d devices (SIC 3674). Several other subsectors are more strongly represented in Arizona than the U.S.: electron tubes (SIC 3671) with a location quotient of 1.39; printed circuit boards (SIC 3672) with a location quotient of 2.63; electronic coils and transformers (SIC 3677) with a location quotient of 1.61; electronic connectors (SIC 3678) with a location quotient of 1.56; and electronic components, n.e.c. (SIC 3679) with a location quotient 1.50.



IMPACT MODEL DESCRIPTION

To estimate what effect the high technology industry has on the overall economy of Arizona, we used an input-output or interindustry model of the Arizona economy. The advantage of such a model is that it can provide detailed information on many different sectors. The drawback of an input-output model is that it is a very simple model based on assumptions that may not be very realistic. Among those assumptions are that industries create products using fixed proportions of inputs. This means that when relative prices of inputs change, the model does not have the capability to allow producers to change their input mix. Input-output models can be run to estimate multipliers, or what are known as direct, indirect and induced impacts or effects. In this case, the direct effects are the employment, employee compensation, and value added generated directly by the high technology industry. Indirect impacts are the employment, employee compensation and value added that result from other firms in a state economy selling to the high technology industry. Induced effects or impacts are the employment, compensation and value added, created as workers in the high technology industry and workers in industries that sell to high technology industry spend their wages and salaries in Arizona. T h e input-output model we used is called IMPLAN (Input-Output Model for Planning and Analysis). It was originally designed by the U.S. Forest Service. It was further developed at the Univ ersity of Minnesota, and currently, the model and the data sets necessary to run the model are being maintained and improved by a private firm. The 1990 IMPLAN model was used in this study. The model provides a snapshot of the Arizona economy at one point in time. The 9



impacts it estimates are medium run impacts (i.e., impacts that might be expected to occur within five years of a shock to the economy). The model breaks the state economy into 528 sectors with the most detail in manufacturing and lesser detail in serviceoriented sectors. The model was adjusted in the following ways. First, all estimated direct effects were deflated to 1990 dollars prior to entering into the model which is based on 1990 data. After running the model, the impact estimates were inflated to 1994 dollars. In addition, 50 of the 528 regional purchase coefficients were modified to better reflect trade patterns in Arizona. Regional purchase coefficients are simply that portion of local demand for goods and services from a specific industry that is met by industry within the state.



Table 3. Employment Impacts by Sector.

Direct Agriculture Mining Construction High Tech Manufacturing Other Manufacturing TCPU Trade Fire High Tech Services Other Services Total 0 0 0 84,320 0 0 0 0 10,779 0 95,099 Direct Agriculture Mining Construction High Tech Manufacturing Other Manufacturing TCPU Trade FIRE High Tech Services Other Services 0 0 0 89 0 0 0 0 11 0 100% Indirect 110 43 1,180 0 2,827 2,514 8,848 1,579 0 12,682 29,783 Indirect 0 0 4 0 9 8 30 5 0 43 100% Induced 523 14 802 193 1,784 2,077 19,986 6,581 221 23,198 55,379 Induced 1 0 1 0 3 4 36 12 0 42 100% Total 634 56 1,982 84,513 4,611 4,592 28,834 8,160 11,440 35,440 180,261 Total 0 0 1 47 3 3 16 5 6 20 100%

(number of jobs)



(percentages)



Another challenge with using the IMPLAN model is that it does not Total calculate induced effects in a way that reflects the difference in average wages across industries. This means that for a high wage industry such as high technology industry, induced effects would be significantly underestimated. Consequently, we developed a method for estimating correct induced effects using IMPLAN.



IMPACT RESULTS

The estimated impacts for Arizona's high technology industry are presented in Table 2. The first row of the table includes the estimated direct effects or impacts of high technology industry. This included 95,099 jobs generated,



Table 2. Economic Impacts of High Technology

Industry.

Employee Employment Compensation

(jobs) (in billions $)



$4.360 billion in employee compensation and $5.931 billion in value added. The second row contains the indirect effects of the high technology industry including 29,783 jobs, $.8 billion in employee compensation and $1.3 billion in value added. The indirect effects may look somewhat low. Part of the reason for this is that high technology firms buy large amounts of their materials and supplies from other high technology firms. Arizona high technology firms bought an estimated $1.79 billion in goods and services from each other. These purchases have been reflected in the direct effects and can not be counted in the indirect effects. This explains why the indirect effects in high technology manufacturing and high technology services are zero in Table 3. The third row of Table 2 contains the induced effects, including 55,379 jobs, $1.3 billion in employee compensation and $2.3 billion in value added. The induced effects for this industry are quite substantial because of the high level of compensation in the industry. The final row is the total impact or the sum of the direct, indirect and induced effects. The bottom line is that the high technology industry provides 4.8 percent of all jobs in Ari-



Value Added

(in billions $)



Direct Indirect Induced Total 10



95,099 29,783 55,379 180,261



4.360 .815 1.323 $6.498



5.931 1.315 2.301 $9.546



zona directly and generates another 4.2 percent of all jobs indirectly and through induced effects. The total employment impact of 180,261 represents 9 percent of all jobs in Arizona in 1994. Likewise, the $5.931 billion in value added from high technology industry results in $9.546 billion in total value added impacts in Arizona. These value added impacts are 11 percent of the Gross State Product. In addition to jobs, compensation and value a dd e d , high technology business directly and indirectly contributed to state revenues. Based on survey data, high technology busin e s s e s directly paid approximately $250 million in state taxes. Additional revenues ar e generated as workers spend their paychec ks. Workers employed in high technolo gy industries as well as workers in related and induced sectors paid an estimated $359 million in state taxes. These state taxes include income taxes, sales taxes, motor fuel taxes, other vehicle related taxes, and state p ro p e r t y taxes. Of the $359 million, approximately $263 million is retained by the state; the additional $96 million is distributed to Arizona cities and counties. 8 In estimating impacts for any industry, it is important to use the appropriate multiplier for a given direct effect. For example, to estimate employment impacts, we need to star t with total employment in high technolo gy industry and use the employment multiplier. Similarly with value added, and employee compensation. Likewise , if you are interested in the impacts of high technology industry, you must calculate a multiplier for the entire industry and not for each subsector of the industry. The larger the industry you are looking at, the smaller the multiplier is likely to be. So, for example, the employment multiplier for high technology industry is 1.9, however, the employment multiplier for one subsector of the industry, such as computers, is likely to be significantly higher (probably in the rang e of 2.2 to 2.8). The reason for this is that as the size of the industry increases, the percentage of total purchases that industry



members make from each other increases. As purchases in the industry increase, the indirect effects decline because there is less spent on goods provided by businesses in the state that are outside of the industry. For this reason, the size of a multiplier is not necessarily a good indicator of a particular sector's importance. Some of the best indicators of the importance of a sector are its direct share of exports, emp l oy m e n t and Gross State Product and its total employment and value added impacts as a percent of total employment and Gross State Product. In all of these measures, high technolo gy industry is quite large. There are subtle differences between some of measures of economic impact that may not be apparent. For example, employee compensation is not the same as total payroll, although they are related. Employee compensation includes more of the benefits received by employees than does total payroll (for example, such benefits as retirement and pension plans, health and life insurance, etc.). Similarly, gross output and value added by the industry are very different. Gross output can be thought of as the total sales or gross receipts of an industry, while value added r e p r e s e n t s the diff e r e n c e between the industry's gross receipts and the materials and supplies purchased in order to produce industry output. Value added can be thought of as a form of net receipts; it is net of what is referred to as intermediate inputs (i.e., inputs produced by other firms, as opposed to primary inputs such as labor and capital). One of the most common measures of total economic activity in a state is the Gross State Product (GSP), which is basically comparable to the Gross Domestic Product at the na tional level. However, the GSP really reflects the value added to the economy by each industry, NOT the gross receipts or total output of each industry. By only including valueadded, no double counting occurs (i.e., the integ rated circuits produced in Arizona are not counted by the electronic component industry and again by the computer manufacturer s and again by computer retailers - they are only counted by the integrated circuit producers). Thus, in an impact analysis, it is only appropriate to compare Gross State Product to value added. 11



Induced revenue impacts are computed using the Revenue Impact Model developed by Alberta H. Charney and Craig M. Horn for the Arizona Department of Commerce.



8



SURVEY RESULTS

This is a particularly long section of the report because of the large amount of data collected through the survey. It has been organized to parallel the sections in the survey questionnaire. These sections include: industry organization, research a n d development, expenditures, marketing, employment, and finance.



Table 4. When Survey Firms were Established.

Number Established Prior to 1951 1951-1959 1960's 1970's 1980's 1990-1994 Total 12 3 13 17 35 13 93 P er cent 13 3 14 18 38 14 100% No. Established in AZ 3 9 8 20 41 14 95 P er cent 3 9 8 21 43 15 100%



Many of the research questions that we had concerning the high technology industry were not easy to answer using secondary data sources alone. Consequently a survey was conducted as part of this research project. Details concerning how the survey was conducted are provided in Appendix E. A copy of the questionnaire is in Appendix F. Overall response rate for the survey was 15.7 percent. However, because of an 82 percent response rate among the largest firms, a large share (55 percent) of total industry employment is captured in the survey.



Figure 5. Location of Branch Facilities.

Foreign Countries (34%) Arizona (13%)



INDUSTRY ORGANIZATION

The high technology industry is characterized by a large number of young firms. Fifty-eight percent of the sample firms began operations in Arizona in the past 15 years (since 1980) and 52 percent of the sample firms did not exist in any state or country prior to 1980 (Table 4). Despite their relatively young age, 63 percent of the facilities described by the survey firms had been located somewhere other than their current location. Seventy percent of the firms that relocated moved from another location in Arizona (26 percent of the firms did not indicate where they had moved from). Seventy-one percent of the survey firms began in Arizona. These predominantly smaller firms provided an estimated 11 percent of total jobs in the industry. Over two-thirds of the survey firms operated out of a single location. Seventeen percent had branch plants in Arizona but headquarters located in another state. Six percent were headquartered in Arizona but had no other Arizona facilities and 8 percent had both headquarters and other facili12



Other States (53%)



ties in Arizona. Of the 870 branches that the survey firms operated, 13 percent are in Arizona, 53 percent are in other states and 34 percent are in other countries (Figure 5). Several questions in the survey asked firms to describe some of the relationships within their business and between their business and other businesses. One of the first questions concerned where decisions about hiring workers and purchasing inputs were made. Overall, for those firms that had more than one location, 23 percent indicated that hiring decisions were made a t the company headquarters and 26 percent i n d i c a t e d that purchasing decisions were m a d e at company headquarters (Figure 6). For ty-two percent and 35 percent respectively indicated that hiring and purchasing decisions wer e made at individual facilities or branch plants. A large percentage (35 percent for hiring and 39 percent for purchasing) of the firms indicated that these decisions were made at both locations.



Figure 6. Where Purchasing and Hiring Decisions

are Made in Multilocation Firms.

45 40 35

Percentages



more of these relationships. Those firms with special relationships with other firms were involved in an average of four different types of relationships. Another issue related to business relations is the buyer-seller relationships within and between high technology industry sectors. For the sample firms, a large number of these relationships existed between the largest firms in the high technology sector and all high technology firms. Overall, 48 percent of the surveyed firms indicated that they purchased inputs from one of 14 large firms. Fifty-three percent indicated that they sell to or are input suppliers to these 14 firms. The 14 large firms listed were Alcatel Information Systems, AlliedSignal, Bull Worldwide Information Systems, BurrB ro w n , Digital Equipment, IBM (Adstar), Intel, AT&T Network Cable Systems. McDonnell Douglas Helicopter Division, Microage, Motorola, H o n ey w e l l , Hughes Missile, and TRW Vehicle Safety Systems. Ten percent of all survey firms indicated that the 14 large firms were among their five largest input suppliers. However, on the other side of the rela tionship 31 percent of all survey firms indicated that one or more of these large firms was among their five largest customers in terms of dollar value of sales. The implications of this are that the largest high technology firms, in addition to providing a large share of employment and value added in the industry, are also important purchasers of products from other high technology firms in the state. While these large firms are also suppliers of inputs to almost half of all high technology firms in Arizona, they do not tend to be among the five largest suppliers to these firms.



30 25 20 15 10 5 0 Headquarters Hiring Decisions Branch Both Purchasing Decisions



Table 5. Percentage of Firms Involved in New Forms of

Business Relations.

Type of Relationship Involved with AZ firm (percentages) Exclusive subcontractor to Exclusive buyer of inputs Key inputs available from 1 seller Product bundling with Joint R&D ventures Share development or engineering resources License your technology to Buy technology licenses from 16 14 15 7 20 20 10 9 19 12 35 19 32 26 21 19



Involved with Non-AZ firm



Other Number of firms reporting



10 % 81



A variety of business relationships exist between high technology firms and other firms. In addition, because high technology industries use very sophisticated inputs that are often custom-made for specific end products, questions were asked about subcontracting and licensing agreements. The responses of the sample firms are presented in Table 5. Some of the most common relationships are that a firm is purchasing key inputs that are available from only one seller who is located outside of Arizona, or that the fir m is involved in joint R & D ventures with a fir m outside of Arizona or that the firm shares development or engineering resources with a fir m outside of Arizona. Although the percentage of firms involved in any one of these special relationships with other firms is low, over two-thirds of the firms were involved in one or



RESEARCH AND DEVELOPMENT

Approximately 20 percent of all employees in the high technology industry are believed to work in research and development. This varies somewhat by sector and by the size of the firm, as evident in Table 6. In particular, a high percentage of workers in electronic components and computers and computer software and services are involved in R & D. As might 13



Table 6. Percentage of Workers in R & D to Total Workers by

Sector and Firm Size.

All Firms Small Firms Medium Firms Large Firms Sector Electronic Components and Computers Aerospace, Instruments and Chemicals High Technology Services Total



the other sectors, small firms had the smallest share of workers in R & D. The median size of R & D expenditures as a percentage of total sales is approximately 6-8 percent for the survey firms. The distribution of firms according to their R & D expenditures was similar for small compared to medium and large firms. In particular, almost 28 percent of the survey firms spent 13 percent or more of total sales on R & D. On the other end of the spectrum, 16 percent spent less than 1 percent of total sales on R & D (Table 7).



17 22 22 20%



11 16 24 15%



13 7 30 18%



18 25 NA 20%



Table 7. Research and Development Expenditures as a Percentage of Total Sales.

Number firms Less than 1% 1-3% 4-5% 6-8% 9-12% 13-25% Greater than 25% Total 14 13 10 12 13 15 9 86 Percent 16 15 12 14 15 17 11 100%



Firms relied heavily on internal sources of funds for their research. Eighty-seven percent of all research funding for the survey firms came from inter nal sources. The next most significant source was U.S. Department of Defense which provided approximately 10 percent of funding for research (Figure 7). In addition to doing their own research, firms have the option of acquiring technology from other sources. Eighty-one percent of the survey firms indicated that they rely on sources of technology within the firm. However, 28 percent of the survey firms indicated that they acquired technology from private for-profit entities in Arizona and 20 percent acquired technologies from universities or research facilities (Figure 8). Small and medium-sized firms tend to be less likely to develop technology within the firm than large firms. Smaller firms also tend to be more



Figure 7. Sources of Research and Development

Funds.

Dept. of Defense (10%) Private, For Profit Sources (2%) Private, Nonprofit (1%)



Figure 8. Sources of Technology for High

Technology Survey Firms.

Universities and nd Researchh Institutes Researc Institutes



From Other m Other PrivateeFirms Privat Firms



Internal to Firm (87%)



be expected, the share of employees involved in R & D is larger for large firms (with more than 1,000 employees) than for medium and small sized firms (Table 6). In the case of aerospace, missiles, instruments and chemicals, small firms had a higher percentage of employees working in R & D than medium firms. In 14



Within the Firm



Percentages



0



10



20



30



40 50 60 Percentages



70



80



90



Within Arizona



Outside Arizona



likely to acquire technologies in Arizona rather than outside it. F i r m s were also asked about whether they had facilities that either were ISO-9000 certified or that met ISO-9000 standards. About 13 percent of the facilities run by the survey firms were ISO-9000 certified. Another 38 p e r c e n t of the facilities meet I S O - 9 0 0 0 standards although they are not certified (Table 8). ISO-9000 refers to the quality s t a n d a r d s set by the International Standards Organization in S w i t z e r l a n d . Meeting these standards is often required for a company to bid on large public and private contracts in Europe and elsewhere. Certification is done at the facility not the firm l ev e l .



Table 8. Percentage of Facilities with ISO 9000

Certification or Following ISO Standards.

Number Certified Yes No 13 89 Number Meeting Standards 37 49 Percent 13 87 Percent 38 62



Table 9. Expenditures by High Technology

Industry.

Expenditure Category Wages and Benefits Materials and Supplies Equipment Buildings and Land State Taxes Utilities Other1 Total

1



Amount (in billions of $) 4.360 3.635 1.517 0.307 0.250 0.215 0.702 $10.986



Percent of Total 40 33 14 3 2 2 6 100%



EXPENDITURES T



T he estimated expenditures of high technology industry in seve r a l broad categories are presented in Table 9. Some of the able 10. Arizona Expenditures as a Percentage of Total m a j o r expenditur e s are on Expenditures by Category. wag es and benefits ($4.36 billion or 40 percent of total exIn Outside In Outside p e n d i t u r e s ) and on materials Category Arizona Arizona Arizona Arizona and supplies ($3.635 billion or 3 3 percent of total expendi(percent) (billions of $) tur es). Smaller expenditure catTotal1 60% 40% $6.592 $4.394 e g o r i e s include $250 million paid in state taxes, $215 million Equipment 29 71 0.440 1.077 spent on utilities and $702 milMaterials & Supplies 39 61 1.418 2.217 lion in miscellaneous spending. Other 33 67 0.232 0.470 Of these total expenditures, 60 1 Includes all expenses described in the previous table. However, percent or $6.592 billion were expenses occurred outside Arizona in only 3 categories of expense. made in Arizona (Table 10). The t o t a l materials and supplies a l o n e purc h a s e d in Ariz o n a purchased in the past five years and 87 perwer e valued at $1.418 billion in 1994. This cent has been purchased in the last 10 years. represents approximately 39 percent of all materials and supplies purchased by high technolo gy firms. Over the past five years, high technology industry has spent an estimated $1.202 billion on construction. An estimated 17 percent of all capital equipment in the industry was purc hased in the past one year, 56 percent was



This includes federal taxes, transfer payments, and other expenses.



MARKETING



H i g h technology firms are important contributor s to international exports from Arizona. High technology foreign exports from 15



Table 11. Percentage of Sales by Destination.

Sector Electronic Components & Computers Aerospace, Instruments & Chemicals High Technology Services High Technology Industry Total Sold to: AZ CA 2 7 31 7% 3 4 1 3% Rest of U.S. 57 57 50 56% Mexico 2 2 0 2%

a



Japan 8 3 1 5%



Rest of Asia 11 7 7 9%



Europe 18 12 9 14%



Other 1 8 2 4%



Table 12. Destination of Arizona Exports, by Sector, 1993.

Fab. Metal Prod. (incl. Chemicals Ordnance) SIC-28 SIC-34 World Canada Mexico Japan EUROPE Rest of ASIA Other 100 15 33 18 21 9 3 SIC-28 World Canada Mexico Japan EUROPE Rest of ASIA Other

a



Industrial Mach (incl. Computers) SIC-35 100 8 29 6 33 18 6 SIC-35 831.4 66.2 241.2 50.8 276.0 143.8 53.4



Electronic Aerospace, Electronic Trans. Equip. Equipment & Instruments Equipment Aerospace Instruments Computers & Chemicals SIC-36 SIC-37 SIC-38 SIC35+36 OTHER TOTAL 100 5 10 14 26 43 2 SIC-36 3,224.1 173.6 329.1 453.8 843.7 1,373.1 50.8 (percent) 100 7 32 1 25 32 3 (in millions of $) SIC-37 1,160.0 77.1 378.9 12.9 290.0 369.6 31.4 100 11 6 5 55 20 3 SIC-38 426.4 47.0 26.6 21.2 232.3 85.2 14.2 100 6 14 12 28 37 3 SIC35+36 4,055.6 239.7 570.3 504.7 1,119.7 1,516.9 104.2 100 8 32 3 29 25 3 OTHER 1,912.8 152.3 623.9 49.8 553.0 482.7 51.2 100 6 17 11 28 35 3 TOTAL 9,945.1 619.6 1,738.3 1,044.9 2,775.9 3,509.4 257.0



100 7 77 1 6 8 1 SIC-34 247.6 16.0 192.2 1.5 14.0 20.9 2.9



78.9 12.1 26.3 14.2 16.6 7.0 2.7



Export data is only available at the 2-digit SIC level. Only portions of all of these 2-digit sectors (except 39) are high technology. Source: Derived from the National Trade Data Base, University of Massachusetts, MISER Files



Arizona were approximately $5.369 billion in 1994. 9 This represents an estimated 63 p e r c e n t of total foreign exports from the state. Only approximately 7 percent of total sales in the high technology industry remains in the state of Arizona. Other important export markets are described in Table 11. Basically, about 59 percent of total sales remain in the U.S. in states other than Arizona. Of the remaining 34 percent that is exported overseas, 14 percent is sent to Europe and 14 percent is exported to Asia. These represent two of the largest markets for high technology products from Arizona. Japan alone is a market for roughly 5 percent of total high tech-



nology exports from Arizona. As might be expected, high technology services sell a higher percentage of their services within the United States, but still have exports totaling 18 percent of total sales. The electronic components and computer s sector is the most export-oriented with 38 percent of total sales abroad. Note that the export estimates based on the survey differ somewhat from published export data for Arizona. Table 12 presents the destination of Arizona exports, by 2-digit sector for 1993. T he percentages of exports going to Mexico and the Rest of Asia in Table 12 are substantially higher than the percentages of exports going to these regions as reported by survey firms and reported in Table 11. The reason for this is that surv ey firms reported distribution of the sale o f final products but Table 12 reports the value of all shipments leaving the state for these destinations. Thus, Table 12 includes



This estimate is based on the University of Massachusetts MISER files and information from the Arizona Department of Commerce, International Trade Office, not on information from the survey.



9



16



Table 13. Percentage of Sales that are Inputs Versus

Final Products.

Sector Electronic Components & Computers Aerospace and Missiles Instruments Chemicals Computer Software & Services Research Services Inputs 78 34 62 95 67 18 Final Products 22 66 38 5 33 82



shipments of components or intermediate goods to Mexico and Rest of Asia that are destined for further assembly, not for final sale. The difference in the percentages of exports reflect the maquiladora operations in Mexico and off-shore assembly in parts of Southeast Asia.



T



T



T



The percentage of total sales of inputs or components versus final products varies significantly by sector (Table 13). Research services and aerospace and missiles tended to have a larger percentage of sales in final products. Overall, 45 Total 45% 55% percent of high technology sales were of inputs or components a n d 55 percent were of final able 14. Percentage of Sales by Type of Purchasing Agreement. products. Informal Formal Purchasing For those firms that sold inputs Sector Subcontracts Agreements Other or components, 78 percent were sold based on formal subconElectronic Components & Computers 77 23 0 t r a c t s with the buying firms Aerospace and Missiles 94 0 6 (Table 14). The high technology Instruments 88 11 1 service sectors tended to rely Chemicals 67 33 0 more on informal purchasing Computer Software & Services 42 54 4 agreements (representing about Research Services 45 55 0 55-66 percent of their total sales) t h a n on formal subcontracts. Total 78% 20% 2% Over 88 percent of total sales of inputs or components were made to able 15. Percentage of Sales of Inputs by Size of Purchasing Firm. large firms with more than 1,000 employees Small Firms Medium Firms Large Firms (Tab le 15). Only high (less than (101 to 1,000 (over 1,000 technology chemicals Sector 100 workers) workers) workers) and services tended to Electronic Components & Computers 2 9 89 sell a large percentage Aerospace and Missiles 0 1 99 of their inputs/compoInstruments 2 5 93 nents to small and meChemicals 24 27 49 dium-sized firms. Computer Software & Services 21 1 78 Research Services 20 24 56 F o r those firms that s o l d final or finished Total 4% 8% 88% products to the end users of that product, alm o s t a quarter were able 16. Percentage of Sales of Final Products to Government. s o l d to the U.S. Dep a r t m e n t of Defense U.S. Military Non-Military All Other (Ta ble 16). Although Sector Dept. of Defense Federal Agencies Customers this percentage may be lower than if this surElectronic Components & Computers 27 2 71 v e y had been conAerospace and Missiles 29 1 70 ducted 10 years ago, it Instruments 11 4 85 still indicates a signifiChemicals 0 1 99 c a n t dependency on Computer Software & Services 55 36 9 d e f e n s e contracts in Research Services 1 2 97 A r i zo n a 's high techTotal 24% 4% 72% n o l o g y industry. See 17



Table 17. Arizona Prime Contract Awards.

Fiscal Year 1992 1991 1985 1979 1975 1974 Contract Awards Real $ 1994 (in thousands) 2,055,509 2,731,774 3,360,500 1,440,179 1,699,664 1,535,668



In addition, sales in the high technology industry are fairly concentrated. On average, almost one-fourth of a high technology firm's sales are to its largest customer. Almost half of all the fir m's sales are to its five largest customers (Table 19). This would indicate that major buyers of high technology products and services have significant bargaining power.



EMPLOYMENT



T



Direct employment in the high technology industry as defined here was approximately 95,099 in 1994. The high technology industry is a high-wage employer in Arizona, with an average payroll of $38,896 per able 18. Percentage of Sales in Customized Versus employ ee. Not surprisingly, the industry Standardized Products/Service. is a major employer of engineers, scientists, computer specialists and professionCustom Made For the Standardized als (Figure 9). Over a quarter of all docSector Buying Firm Product toral scientists and engineers estimated to wor k in the state of Arizona are employed Electronic Components & Computers 55 45 in the high technology industry.10 Aerospace and Missiles 100 0 Over a third of the high technology work ers have a four year college degree or higher (Figure 10). A large percentage of the work force is involved in research Total 66% 34% a n d development as mentioned earlier (F igure 11). Approximately 20 to 25 perable 19. Average Percentage of Sales to Largest Customers. cent of the total high technology work for ce is involved in research and deSales to Largest Sales to Five ve l o p m e n t work. However, over Sector Customer Largest Customers half of all employees in the high tec hnology industry have at most a Electronic Components & Computers 21 46 high school degree. Aerospace and Missiles 36 57

Instruments & Chemicals Computer Software & Services Research Services Total 18 31 12 24% 52 40 22 Instruments Chemicals Computer Software & Services Research Services 81 71 26 32 19 29 74 68



Derived from: U.S. Department of Defense, Prime Contr act Awards; Balancing the Books: Military Spending in Arizona by Nina Mohit; and The Rise of Military-Industrial Spending in Arizona 1970-1972 by Davis A. Tansik and R. Bruce Billings.



T



Table 17 for real defense contracts in Arizona for various years from 1971 to 1992. The highest percentage of sales of final products to the U.S. Military are for high technology services, aerospace and missiles and electronic components and computers. Clearly, the U.S. Department of Defense is not only an important customer for firms in aerospace and missiles, but also for other producers of high technology products and services. Almost two-thirds of the value of all high technology products and services are custom-made for the buyer. Virtually all products in the aerospace and missiles sector are custom-made (Table 18). 18



P e r employee wages and s a l a r i e s by occupation are presented in Table 20. Several of the 49% lar gest high technology firms did n o t provide information on this question, hence, it reflects more of the average pay per employee for small and mediums i z e d firms. Drawing on secondary data sources, the average payroll per employee fo r Arizona in 1992 was $21,925 (1992 County Business Patterns). The average payroll per employee for high technology industry was $38,376 per employee in 1992. We e s t i m a t e that payroll per employee was



10



Based on National Science Foundation figures on doctoral scientists and engineers in Arizona in 1991 and survey data.



Figure 9. Employment in High Technology

Industries by Occupation.

Other (5%) Clerical Workers (8%) Skilled Workers (5%) Professionals (10%) Executives (10%)



Figure 10. Education and Attainment of High

Technology Industry Employees.

Master's or Law Degree (8%) College Degree (Bachelor's) (25%) (25%) (57%) Ph.D., M.D. or Similar (2%)



Unskilled U ork ls (2%) Wnskielred Workers (2%)



Production Production Workerss(26%) Worker (26%)



and Engineers & Scientists (23%) Scientists (23%)



Technical Degree (9%)

Sales Representatives (4%) Compu e Programmers, Computterr Programmers, Specialists, Analysts (6%) Specialists, Analysts (6%)



High School Degree or Less (57%)



Figure 11. Distribution of Employment by

Task or Department.

User Support porServices (7%) t Services (7%) Sales (6%) Administration (12%) Research (8%)



Table 20. Payroll Per Employee by Occupation.

Occupation Executives and Managers Professionals (lawyers, accountants, etc.) Engineers, Scientists and Mathematicians Computer Programmers, Specialists and Analysts Sales Representatives Skilled Workers (mechanics, craftsman and machinists) Production Workers (assemblers, fabricators, operators) Unskilled Workers (material handlers, laborers) Clerical Workers All Workers Payroll per Employee ($) 57,220 46,351 50,759 46,268 24,750 28,477 28,168 14,825 32,492 37,000



Product Development P17%)ct Development ( ( rodu



Distribution (2%) Manufacturing (48%)



$38,896 in 1994. Our survey results indic a t e wages and salaries per employee of $37,000. High technology industry provides high wages to its employees compared to other industries in Arizona. Sever al of the largest high technology firms i n Arizona are noted for their employee training programs. Motorola is especially well known for its employee education and training programs. High technology firms spend an average of $900 per employee on training each year. Fifty-three percent of this was spent on in-house training. Total e m p l oy e e training expenditures by high technology firms were estimated at $86 million in 1994. The highest training expenditure is for in-house or on-the-job training. For 12 percent of the firms responding to this question, it was the only type of training indicated. The next highest expenditure for training was generally for sending employees to seminars, meetings and work-



shops. The third and fourth highest expenditures were for providing incentives/support for employees to complete additional course wor k or degrees and to bring in consultants to train employees.



FINANCE

Only two questions were asked in this section: How would you rate the availability of s t a r t - u p and expansion financing for your fir m? These questions evoked more written comments than any other question. Sixty-one p e rc e n t of the survey firms indicated that availability of financing for start up was poor 19



Figure 12. Availability of Financing for

Start-Up.

Poor (57%) Excellent (21%)



Figure 13. Availability of Financing for

Expansion.

Poor (25%) Excellent (27%)



Good (8%)

Mediocre (11%)



Fair (11%)



Good (14%)



Mediocre (4%)



Fair (23%)



to mediocre versus 29 percent who rated it as excellent or good. Only 36 percent rated availability of funds for expansion as poor to mediocr e versus 41 percent who rated availability of funds for expansion as excellent or good (Figures 12 and 13).



technology services. Arizona is also under represented in scientific instruments when compared to the U.S., but two of its subsectors, search and navigation equipment and process control instruments, are more important in Arizona than in the U.S. Aircraft and parts is 24 percent larger, and guided missiles, space vehicles and parts is 43 percent larger than they are in the U.S., respectively. The electronic and other electronic equipment sector is by far the largest high technology sector in Arizona and it is 31 percent larger as a share of Arizona's economy than it is for the U.S. Growth in high technology business was substantial from 1972 through 1987, with employment more than doubling and payroll increasing 5.6 percent per year. High technology showed a decline between 1987 and 1992. Employment fell by 11 percent, despite a strong growth in the number of establishments. The 1987 to 1992 decline in jobs appeared to be concentrated in computer and office equipment, communication equipment and aircraft and parts. Downsizing of some of the larger firms in these high technology groups contributed significantly to this five-year loss in jobs, but does not account for all of it. The year 1992 was the trough of the recession in Arizona. Since 1992, high technology business has shown strong growth. Based on estimated employment and payroll figures, high technology employment and real payroll have grown by 6.2 and 6.9 percent per year, respectively, between 1992 and 1994. Based on the definitions used in this study, high technology made a direct contribution to the 1994 state economy of 95,099 jobs, which is 4.8 per-



SUMMARY AND CONCLUSIONS

After reviewing numerous articles on high technology, the authors chose a consensus definition for high technology business in Arizona. High technolo gy employment is concentrated in a handful of sectors that tend to be universally recognized as high technology. Thus, the size of the high technology sector in Arizona does not vary substantially when different definitions are applied. The final selection of high technology sectors for use in this study are Standard Industrial Classifications 281, 283, 286, 289, 348, 351, 357, 362, 366, 367, 369, 372, 376, 38, 7371, 7372, 7373, 7379, 8731, 8733, and 8734. Arizona's high technology business falls into the following six major groupings: electronic components and computers (48.9 percent of total high technology in Arizona; aircraft and missiles (19.6 percent); scientific instruments, including optics (17.8 percent); chemicals, including biotechnology products (2.4 percent); computer software and services (8.1 percent); and research services (3.2 percent). (Environmental technology is distributed throughout these other sectors.) Arizona is not well represented in all sectors identified as high technology. Arizona is substantially under-represented in high technology chemicals, industrial machinery and equipment, and high 20



cent of 1994 total Arizona employment. These more than 95,000 jobs contributed more than $4.360 billion in employee compensation, which was more than $45,800 per job, including all benefits. High technology directly contributed $5.369 billion to Arizona's foreign exports (this is 63 percent of total Arizona exports) and they spent $6.626 billion, of which $2.862 was spent in Arizona. High technology constituted 6.8 percent of Arizona's Gross State Product, contributing $5.931 billion in value added. High technology industry spent $1.202 billion on construction from 1990 through 1994. High technology business pays approximately $250 million in state taxes and workers in high technology and related businesses generate an additional $359 million in state taxes through their spending. Approximately 73 percent of these state tax revenues are retained by the state with the remainder shared with cities and counties. The high technology industry purchases many inputs in Arizona, creating additional, indirect, impacts. Further, the workers in both the high technology industry and the industries that supply high technology industries spend the bulk of their wages in Arizona creating induced impacts. Total economic impacts associated with high technology are the sum of the direct, indirect and induced impacts. Counting all these multiplier effects, high technology business in Arizona represents 9 percent of total state employment, representing 180,261 jobs. High technology contributes, either directly or indirectly, $6.498 billion in employee compensation and represents $9.546 billion of Arizona's value added, which is 11 percent of the state's Gross State Product. The following information is taken from a survey of firms in the industry. Of 613 surveys distributed to high technology firms, 96 valid completed surveys were returned for a response rate of 15.7 percent. This includes a census of the 17 largest firms (the response rate among largest firms alone was 82 percent). Survey respondents provide 55 percent of total jobs in the high technology industry. The high technology industry consists primarily of young firms. Fifty-eight percent of the sample fir ms began operations in Arizona in the past 15 years. Over two-thirds of the survey firms operated from one location only. High technology survey firms are involved in a variety of unique relationships with other firms.



Thirty-five percent of the sample firms purchase key inputs that are available from only one seller located outside Arizona (15 percent purchase key inputs available from only one seller inside Arizona). The percentage of firms involved in joint R &D ventures was 20 percent with Arizona firms and 32 percent with firms outside Arizona. Similarly, 20 percent of the respondents share development or engineering resources with Arizona firms and 26 percent share with firms outside Arizona. Over two-thirds of the respondents had special business relationships with other firms. High technology firms frequently buy from and sell to each other. The relationship between the largest firms and other firms is especially important in the industry. It was hypothesized that sales from respondents to the largest high technology firms would be significant. These are sales by both large and small firms to the largest high technology companies. Fifty-three percent of the responding firms sell to the largest firms and 31 percent of the these firms indicated that one or more of the large firms were among their five largest customers in terms of total sales. Interestingly, 48 percent of the sample firms purchased inputs from the large firms but only 10 percent indicated that the largest high technology firms in Arizona were among their five largest input suppliers. High technology industries are distinguished by their high level of activity in research and product development. Approximately 20 percent of total high technology employees work in R &D and the median expenditure on R & D was 6-8 percent of total sales. Well over a quarter of the survey firms spent 13 percent or more of total sales on R & D. The survey firms rely heavily on internal sources for both funds for research and new technologies. However, the U.S. Department of Defense provided about 10 percent of research funding to the industry. Firms did turn to private for-pr ofit entities and to universities and research institutes for some of their technology. They relied on these external sources more heavily when they were located inside of Arizona. Only 7 percent of total sales from high technology firms stayed in Arizona. Another 59 percent is sold to other U.S. customers and 34 percent is exported. The two most important destinations for these exports are Europe and Asia. Almost one-quarter of total sales were to the U.S. Department of Defense. Secondary data on defense contracts has declined since it peaked in 21



the mid-1980's. However, dependence on defense contracts is still high. A large percentage of sales in high technology industry are of custom-made products. In addition, roughly onefourth of a high technology firm's sales tend to be to its largest customer and almost half of total sales are to its five largest customers. The high technology industry offers a significant number of high paying professional jobs. The industry is believed to employ over a quarter of all doctoral scientists and engineers in Arizona. Twenty-nine percent of all workers in high technology industry are engineers, scientists, mathematicians or computer programmers, specialists and analysts. Over a third of high technolog y workers have a college degree or higher. However, over half of all employees have at most a high school degree. Per employee wages averaged $37,000 in the high technology industry in 1994. According to County Business Patterns, 1992, high technology industry payroll per employee was 75 percent higher than total non-agricultural payroll per employee of $21,925. In addition to offering high wages and benefits, high technology firms tend to make significant investments in employee training, spending an average of $900 per employee per year. Just over half of this amount was spent on in-house training. Total expenditures on training were an estimated $86 million in 1994. Sixty-one percent of the survey firms indicated that availability of funds for start up was poor to mediocre versus 36 percent who rated availability of capital for expansion as poor to mediocre. T his study has shown that the high technology industry in Arizona either directly or indirectly through purchases from other firms and employees spending, provides approximately one out of every 11 jobs in the State of Arizona. Many high technology jobs are high quality jobs with average earnings that are 70 percent higher than the average earnings computed across all jobs in Arizona. Although the high technology industr y has suffered some job losses between 1987 and 1992, the industry continued to grow in importance as a share of Arizona's economy. Previous studies have implied that very little of the high technology industry's expenditures on materials and supplies were occurring within the State of Arizona. In contrast, this study in22



dicates that the linkages between high technology firms in the state are strong. This study finds that the percentage of goods and services purchased within Arizona as opposed to outside has probably doubled since 1989. Not only do we find evidence of strong purchasing and selling relationships, but also of joint R & D ventures and shared expenditures on engineering and development resources. Because the state is so dependent on high technology industry, it is critical that policy makers be aware of areas where risks for the industry may lie. First, a significant portion of this industry is defense related. Ten percent of research and development funding comes from the U.S. Department of Defense and approximately 25 percent of high technology sales are to the U.S. Department of Defense. Thus, the portion of high technology jobs associated with these sales are subject to risks associated with changes in the Federal budget. Second, although the strong relationships between high technology firms and the strong impact that high technology firms have on employment in services and trade as reflected in the induced impacts are a plus for Arizona, they are not without risk. These strong linkages suggest that if there are shocks to the high technology industry, such as severe cuts in defense spending, there will be large ripple effects resulting in severe economic losses to the state. Another area of risk has to do with the portion of high technology products and services that are custom-made (almost two-thirds) and the high concentration of sales to only a few customers. These two findings suggest that there is significant bargaining power among the buyers of high technology products and services. Consequently, high technology suppliers may be at a disadvantage in negotiating prices for their products from major buyers. We would strongly recommend that the Arizona Department of Commerce keep close track of employment in the high technology industry over time. Occasionally a benchmark survey such as the one conducted for this study would be helpful to determine the composition of employment (i.e., between those in highly paid positions and those in less well paid positions) and to monitor linkages between high technology firms and other firms in the state. If the State of Arizona wants to encourage an increase in the number of well-paid positions in the state, paying attention to what is happening in the high technology industry is crucial.



REFERENCES

Armington, C., C. Harris and M. Odle (1983). "Formation and Growth in High Technology Busin e s s : A Regional Assessment," Business Microdata Project, The Brookings Institution, Washington D.C., September. A r i z o n a Department of Commerce Economic Researc h Unit. (1989) High Technology in Arizona. A Market Analysis of Suppliers in Arizona and the Southwest. Phoenix, Az, Januar y. Barkley, David L. (1988). "The Decentralization of H i g h - Te c h n o l o g y Manufactur i n g to N o n m e t r o p o l i t a n Ar e a s ," Growth and Chang e, Winter, 13-30. Clair, Robert T. (1986). " The Labor-Intensive Nat u r e of Manufacturing High-Technology Capital Goods," Economic Review, Federal Reserve Bank of Dallas, p. 17-. Diwan, Romesh and Chandana Chakroborty (1991). High Tech and International Competitiveness. New York: Praeger. Executive Office of the President of the United States ( 1 9 8 7 ) . Standard Industrial Classification M a n u a l 1987. Office of Management and Budget. Washington, D.C. Glasmeier, Amy K. (1991). The High-Tech Potential: E c o n o m i c Development in Rural America. Rutgers, the State University of New Jersey (Center for Urban Policy Research). Markusen, Ann H., Peter Hall and Amy Glasmeier (1986). High Tech America: The what, how, w h e r e, and why of the sunrise industries. Boston: Allen & Unwin. Miller, James P. (1989). "The Product Cycle and High Tec hnolog y Industry in Nonmetropolitan Areas, 1976-1980." Review of Regional Studies 19: 1-12. Mohit, Nina (1986). Balancing the Books: Military Spending in Arizona, the Impact & Alternatives . A Project of the Arizona Center to Rev e rs e the Arms Race, 1210 East Virginia Str eet, Phoenix, Arizona 85006, 25pp. C. O ff i c e of Economic Planning and Development (1982), Opportunities in Arizona for Suppliers of High Technology Manufacturers. Phoenix, AZ. Phillips, Bruce D. (1991). "The Increasing Role of Small Firms in the High Technology Sector: Evidence From the 1980s." Business Economics: January. Riche , Richard W., Daniel E. Hecker, and John U. Burgan (1983). "High Technology Today and Tomorrow: A Small Slice of the Employment Pie." National Labor Review. Tansik, David A. and R. Bruce Billings (1973). "The Rise of Military-Industrial Spending in Arizona: 1970-72," Arizona Review, V. 22, Nos. 6,7 (June-July,), Division of Economic and Business Research, Business and Public Administration, University of Arizona, Tucson Arizona 85721. United States Bureau of Labor Statistics (1992). Employment and Wages, Annual Averages 1992, BLS Bulletin 2433. Table reported in U.S. S t at i s t i c a l Abstract, U.S. Department of C o m m e r c e , Bureau of the Census, 1994, Tab le No. 642. High Technology IndustriesSummary. United States Bureau of the Census (1992). County Business Patterns, 1992, Arizona, CBP-924. Bureau of the Census, U.S. Department of Commerce, Economics and Statistics Administration. United States, Congress of the (1982). Location of High Technology Firms and Regional Economic Development. A Staff Study, prepared for the use of the Subcommittee on Mone t a ry and Fiscal Policy of the Joint Economic Committee, Congress of the United States. U.S. Government Printing Office, Washington, June 1, 1982. U.S. Department of Defense, Prime Contract Awards, by State, Various Years, Directorate for Informa tion, Operations and Reports. For sale by U.S. Government Printing Office, Washington D.C. 20402 DIOR/P09-92/02.



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24



BIOGRAPHIES OF PRINCIPAL INVESTIGATORS

Alberta Charney is a tenured Research Specialist. She received her Ph.D. from the University of Illinois in Economics, with specializations in quantitative methods, public finance and regional economics. She has been at The University of Arizona since 1977. She is an expert on tax analysis, econometric model building, regional economic forecasting and impact studies. She has built numerous revenue and economic forecasting models for Arizona and its substate areas. Funding for these studies has come from the Arizona Joint Legislative Budg et Committee, the Arizona Department of Transportation, the City of Tucson, Pima County, Tucson Economic Development Corporation, the Chamber of Commerce, and the National Science Foundation. She has also received funding for studies on tax policy, population estimation/projection methods, and economic impact analysis from the Arizona Department of Economic Security, the Maricopa Council of Governments, the Arizona Legislature, the Arizona Joint Select Committee on Revenues and Expenditures, the Tucson Convention and Visitors' Bureau and the University Medical Center. Her diverse academic publications deal with transportation, taxation, econometric model building, forecasting accuracy, water allocation, migration and manufacturing location issues. Her articles have appeared in Land Economics, Journal of Regional Science, International Regional Science Review, Review of Public Data Use, Journal of Urban Economics, Logistics and Transportation Review, Quarterly Review of Economics and Business, Resources and Energy, American Journal of Agricultural Economics, Western Tax Review, Regional Studies, and in various books. Recently completed impact studies include an assessment of the economic impact of the University Medical Center, The University of Arizona, and Hughes Aircraft's recent consolidation and relocation of engineers.



Julie Leones is an assistant extension specialist in the Department of Agricultural and Resource Economics in the Economic Development area. Dr. Leones received her Ph.D. from Cornell University in Agricultural and Resource Economics with specialization in economic development and production economics. She has been at The University of Arizona for five years. She was selected as The University of Arizona extension faculty of the year for 1992. Her education and research programs have focused on general economic development issues, economic impact assessment, the regional economic impacts of recreational activity, the North American Free Trade Agreement, economics of solid waste reduction and rural labor market issues. Recent studies include assessments of the role of agriculture in the Arizona economy, of nature-based tourism in Southeastern Arizona, of agricultural tourism in Cochise County, and of the potential effects of NAFTA on agriculture. She is the editor of a quarterly publication distributed statewide entitled Community Development Issues. Her academic publications include work on issues concerning input-output analysis, landscape services sector, water conservation in agriculture, and international development issues that have appeared in American Journal of Agricultural Economics, Water Resources Bulletin, Agribusiness, Journal of the Community Development Society, Tulsa Law Journal, and in various working paper series at Cornell and The University of Arizona. Dr. Leones recently served as chair of the Community Economics Network of the American Agricultural Economics Association and chair



25



26



APPENDIX A. DEFINING HIGH

TECHNOLOGY BUSINESS

There is no consensus in the academic literature on the definition of "high tech" industries. Markusen, Hall and Glasmeier (1986) summarize and provide a brief overview of some of the alternative definitions. These and others are discussed below and summarized on Table A-1. The left-hand column lists Standard Industrial Classifications (SICs) of both high technology and non-high technology industries. SIC codes are a logical classification of firms. SIC codes are either 1-digit, 2-digit, 3-digit, or 4-digit. 1-digit SIC codes represent the eight major sectors of the economy, e.g., agriculture, construction, manufacturing, etc. 2-digit SIC codes are more detailed than the corresponding 1-digit codes. For example, SIC codes 7 and 8 represents all services. SIC code 87 is a subcomponent of SIC 8 and represents engineering and management services; SIC code 873 represents research and testing services, a subcomponent of 87; and 8731 is a subcomponent of 873 representing commercial physical research. The first definition relates to the idea of Product Sophistication (Column I, Table A-11). This definition is a group of selected products of Standard Industrial Classifications (SICs) which, a c c o r d i n g to the descriptions in the SIC Manual,11 are selected on the basis of perceived product sophistication. This "definition" was developed by the Massachusetts Division of Employment Security (MDES) for use in analysis of Massachusetts industries. Although an interesting view of high technology products, this definition lacks operational procedure and is extremely subjective. One advantage of MDES' selection of industries is that several non-manufacturing sectors are included. Several other criteria are not appropriate for non-manufacturing sectors. Growth in Employment (Column II, Table A-1) is a widely used notion of high technology industries. This definition simply assumes that industries which grow faster than manufacturing as a whole must be high-technology. Using the

11



employment growth data reported in Markusen, Hall and Glassmeier (1986), the industries selected are shown in Table A-1. The problems with this approach are clear. First, sectors producing very traditional products (e.g., furniture and fixtures) may be included, particularly when there is an upswing in the construction cycle. S e c o n d , because of sporadic employment changes, some very technical industries (such as those related to the defense industry) may be excluded. Third, this type of definition would alter the list of industries that would be included over time, as industry growth changes with the business cycle (and defense spending). Probably the most serious problem with using this definition, however, is that some fundamental questions regarding high technology industries cannot be answered with this approach. Specifically, researchers could not answer one of the basic questions - Do high tech industries grow faster than low technology industries? - because the definition already presumes that they do. Research and Development Intensity (Column III, Table A-1) is also to be used as a criteria for high technology industry selection. A cited problem with using R & D intensity as a criteria for selection of industries is that it aggregates over several different types of R & D activities, e.g., basic research, applied research, development costs, etc. Table A-1 (Column III) illustrates the definition based on R & D expenditures, when selected industries are those with greater than average R & D expenditures per dollar of sales, based on a 1979 Technical Marketing Associates Report, as reported by Markusen, Hall and Glassmeier (1986). Occupational Mix (Column IV, Table A-1) is also used as the basis for identification of high technology industries. Glasmeier (1991) and Markusen, Hall and Glasmeier (1986) utilize this approach to identify high technology industries. They use an occupational category obtained from the Occupational Employment Statistics (OES) to determine which industries contain the highest percentage of employment in the following occupations: engineers, engineering technicians, computer scientists, scientists (including chemists, geologists, physicists, and biologists), and mathematicians. Their resulting list of 29 three-digit SIC codes are also shown in Column IV. Technology Intensity (Column V, Table A-1) examines the total technology embodied in an industry both directly (as might be measured by 27



SIC Manual refers to the Standard Industrial Classification Handbook, Standard Industrial Classification Manual, 1987. Executive Office of the President, Office of Management and Budget. For sale by National Information Service, 5285 Port Royal Road, Springfield, Virginia 22161 Order PB87-100012.



the R & D figures) but also indirectly through interindustry linkages such as those found in input-output tables. This definition argues that the technology intensity of U.S. manufactured products should be based on their total technology intensity, not just the technology applied by the final producer (direct technology inputs). By considering only the technology applied by the final producer in defining high tech, the technology applied in the production of intermediate inputs (indirect technology inputs) used in the production of the final goods is ignored. Using the definitions derived by Davis (1982), the industries listed in Column V result. Arbitrary Groupings are also identified as high technology. While there may be some basic logic behind them, some studies simply select a group of industries which fit the researcher's intuitive criteria. For example, a study by the staff of the Joint Economic Committee of the Congress of the United States (1982) selected SIC codes 28, 35, 36, 37, and 38. The U.S. Department of Commerce (Column VI, Table A-1) has established a very narrow definition of high-technology equipment, which consists of office, computing, and accounting equipment; communications equipment; instruments; and electronic components (SICs 357, 366, 367 and 38). They also define a heavy industrial equipment group, a transportation group and an "other" group. Defense and space equipment are included among the "other" group along with recreational motor vehicles such as motorcycles and motor homes. Bruce Phillips (1991) identified the sectors indicated in Column VII for his study of the importance of small firms in the growth of the high technology industry. While these basic definitions result in different sets of industries being identified as "high tech," the actual definitions used are almost infinite because some researchers use combinations of these definitions. Some use two or more of these basic definitions and combine them using either an "and" (a less inclusive approach) or an "or" (a more inclusive approach) criteria, e.g., Diwan and Chakroborty (1991), and The Brookings Institute (see Armington, Harris and Odle, 1983;



Barkley, 1988; Miller, 1989). The Brookings Institute definition (Column VIII, Table 1) combines the concepts of Research and Development and Occupations Mix. To further complicate matters, not all researchers use "above averag e" as their criteria for selection. For example, Riche, Hecker and Burgan 1983) used 1.5 times the average as the criteria for breaking out industries. By varying the amount by which industries must exceed the manufacturing average for a given definition and by combining definitions, researchers can utilize almost an infinite number of criteria for identification of high tech industries. The U.S. Bureau of Labor Statistics allocates 3-digit SIC codes to high technolo gy if the percent of employment involved in research and development is 50 percent above average (Column IX, Table A-1). Ariz ona Department of Commerce (ADOC, formerly the Office of Economic Planning and Development, OEPAD) has used several sets of definitions of high technology in the past. Column "1," Table A-1 depicts the industries identified as high technology and related industries in their 1983 OEPAD study. A 1989 study by ADOC used a very similar list of firms.12 Column "2," Table A-1 is the list of industries identified as high technology in a 1984 OEPAD study.13 ADOC currently uses the list of firms identified in column 3.14



The 1989 ADOC study did not list SIC codes. Rather, it indicated the following industries: communications and aerospace equipment; electronic components; electronic and optical instruments; office and computer machines and parts; and medical electronics equipment. The present authors converted this list to SIC codes using the 1987 Standard Industrial Classification Handbook. Actually, OEPAD listed 34 4-digit SIC codes. What is shown in Column 2 is the inclusive 3-digit SIC codes. Thus, Column 2 may implicitly include some subsectors that were not included in this OEPAD study. Source: FAX from Mobin Qaheri, Economist at ADOC, 1994.

14



12



13



28



VIII. Brookings Institute - R & D



VI. U.S. Dept. of Commerce



II. Gro wth in employment



VII. Phillips - arbitrary



III. R & D Intensity



IX. U.S. Bureau of Labor



IV. Occupational Mix



V. Technolog y Intensity



1. 1983 OEPAD and 1989 ADOC



Table A-1. High Technology Definitions.

I. Product sophistication



and Occupation



3. Current ADOC



2. 1984 OEPAD



SIC

211 25 27 28



Industry

cigar ettes furniture & fixtures printing and publishing chemicals 281 industrial inorganic chemicals 282 plastics & synthetic resins 283 drugs 284 soap 285 paints and varnishes 286 industrial organic chemicals 287 agricultural chemicals 289 miscellaneous chemicals petroleum refining & related 291 petroleum refining 299 misc. petro and coal products rubber & plastic products 303 reclaimed rubber 335 nonfer rous rolling and drawing fabr icated metals 344 fabr icated structural metal products 346 metal stampings 348 ordnance, n.e.c. 349 fabr icated metal products, n.e.c. machinery 351 engines & turbines 353 construction equipment 354 metal working machinery 355 special industry machinery 356 general industrial machinery 357 office computing machines 359 machinery except electrical NEC electrical equipment 361 electrical transmission equipment 362 electrical industrial apparatus 365 radio & TV receiving equipment 366 communication equipment 367 electronic components & assembly 369 misc. electrical equipment & supplies 371 motor vehicles and equipment 372 aircraft & parts 374 railroad equipment 376 space vehicles & guided missiles scientific instruments 381 engineering; lab & sci. instruments 382 measuring & controlling instruments 383 optical instruments & lenses 384 surgical, medical, dental instruments 385 ophthalmic goods 386 photographic equipment 387 watches, clocks, clockwork devices miscellaneous manufacturing industries 737 computer programming services 873 research and testing services 874 management and public relations 871 engineering & architectural service 899 services, n.e.c



1 1 1 1a 1 1 1



1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1



1 1 1



1 1 1



29



1



30



1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1b 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1



34



1 1 1 1 1 1 1 1



1



1



1



35



1



1 1



1 1 1 1 1



1 1 1 1 1 1



1



1



1 1



1



36



1 1



1 1 1



1 1



1 1 1 1 1 1 1



1 1 1 1 1 1 1 1 1



1 1 1 1 1 1 1 1



1 1 1



1 1



1



1 1



38



39



a



A one in a 2-digit category such as chemicals, means that all the 3-digit areas listed below it (in this case 281-287 and 289) were included in this definition of high technology. b Only the definitions in columns 1,6,8,9,11, and 12 included high technology services at all. The other definitions were strictly confined to manufacturing. Hence, some services may have qualified under other definitions presented in columns where services are blank (i.e., 2,3,4,5,7 and 10). However, in several cases, there is insufficient data for these services to confirm this with national data.



4. Consensus



1 1



1



1



29



30



Appendix B. Arizona Gross State Product.

(percent of total economy) 1977 100.0 2.8 2.1 0.6 1.6 1.3 0.1 0.1 0.1 10.0 14.7 11.8 0.6 0.1 0.9 1.5 0.5 3.1 2.1 0.2 2.2 0.5 0.2 2.9 0.7 0.0 0.3 0.2 1.1 0.3 0.0 0.1 0.0 12.4 3.2 0.5 0.5 1.3 0.0 0.6 0.1 0.2 3.1 6.1 4.6 100.0 2.4 1.8 0.6 1.1 0.9 0.2 0.0 0.1 11.5 14.5 11.6 0.6 0.1 1.0 1.4 0.6 2.8 2.2 0.2 1.9 0.6 0.2 2.8 0.8 0.0 0.2 0.2 1.0 0.3 0.0 0.2 0.0 12.0 3.1 0.5 0.4 1.3 0.0 0.7 0.1 0.2 3.1 5.8 4.9 100.0 2.4 1.8 0.6 1.1 0.8 0.1 0.0 0.1 11.9 14.9 12.0 0.6 0.1 1.0 1.5 0.6 2.9 2.5 0.2 1.9 0.6 0.2 2.9 0.8 0.0 0.2 0.2 1.0 0.4 0.0 0.2 0.0 11.5 3.0 0.5 0.3 1.3 0.0 0.6 0.1 0.2 3.0 5.5 4.7 100.0 2.7 2.1 0.6 1.1 0.8 0.2 0.0 0.1 10.4 15.5 12.6 0.5 0.1 0.8 1.5 0.7 2.8 3.0 0.2 2.0 0.8 0.2 3.0 0.8 0.0 0.2 0.2 1.1 0.4 0.0 0.2 0.0 11.7 3.0 0.5 0.3 1.3 0.0 0.6 0.0 0.2 3.3 5.4 4.6 100.0 2.7 2.1 0.6 1.7 1.4 0.2 0.0 0.1 9.3 15.5 12.5 0.5 0.1 0.7 1.7 0.7 2.7 3.3 0.1 1.6 0.8 0.2 3.1 0.8 0.0 0.2 0.2 1.1 0.4 0.0 0.2 0.0 11.7 2.9 0.5 0.3 1.2 0.0 0.6 0.1 0.2 3.5 5.3 5.0 100.0 2.5 1.8 0.7 1.7 1.4 0.2 0.0 0.1 8.5 15.7 12.4 0.5 0.1 0.6 1.3 0.7 2.3 3.5 0.1 2.4 0.7 0.2 3.3 0.9 0.0 0.2 0.2 1.2 0.5 0.0 0.2 0.0 10.5 3.0 0.5 0.3 1.3 0.0 0.7 0.1 0.2 3.6 3.9 5.4 100.0 2.0 1.4 0.7 1.6 1.3 0.2 0.0 0.1 8.9 16.3 13.0 0.5 0.1 0.7 1.2 0.6 2.7 4.0 0.1 2.3 0.7 0.2 3.3 0.8 0.0 0.2 0.2 1.1 0.7 0.0 0.2 0.0 10.6 3.3 0.5 0.3 1.4 0.0 0.8 0.1 0.2 3.6 3.8 5.2 100.0 2.1 1.5 0.7 1.5 1.2 0.2 0.0 0.1 9.4 16.4 13.4 0.6 0.2 0.7 0.8 0.8 2.3 4.8 0.1 2.2 0.7 0.3 3.0 0.7 0.0 0.2 0.2 1.0 0.7 0.0 0.2 0.0 10.3 3.2 0.6 0.3 1.4 0.0 0.7 0.1 0.2 3.4 3.6 5.7 100.0 2.3 1.7 0.6 1.3 1.0 0.2 0.0 0.1 10.2 15.2 12.0 0.5 0.2 0.7 0.8 0.6 2.1 3.6 0.1 2.2 0.7 0.3 3.2 0.8 0.0 0.2 0.2 1.2 0.6 0.0 0.2 0.0 10.2 3.1 0.6 0.3 1.4 0.0 0.6 0.1 0.2 3.3 3.7 5.9 100.0 2.3 1.6 0.7 1.3 1.0 0.2 0.0 0.1 9.1 16.1 12.7 0.6 0.1 0.8 0.9 0.6 1.9 4.3 0.1 2.5 0.6 0.3 3.4 0.9 0.0 0.2 0.2 1.2 0.6 0.0 0.3 0.0 10.1 3.2 0.6 0.2 1.4 0.0 0.7 0.0 0.2 3.2 3.7 6.3 100.0 2.6 1.9 0.7 1.1 0.8 0.2 0.0 0.1 7.8 16.7 13.3 0.7 0.1 0.7 1.0 0.5 2.2 4.0 0.1 2.6 1.1 0.3 3.3 0.9 0.0 0.2 0.2 1.3 0.5 0.0 0.3 0.0 11.0 3.6 0.7 0.2 1.4 0.0 1.0 0.1 0.2 3.3 4.1 6.3 100.0 2.7 2.0 0.7 1.7 1.4 0.2 0.0 0.1 6.5 17.2 13.9 0.6 0.1 0.7 0.9 0.5 2.0 4.8 0.1 2.7 1.2 0.4 3.3 0.8 0.0 0.2 0.2 1.3 0.6 0.0 0.3 0.0 11.5 3.7 0.7 0.2 1.4 0.0 1.1 0.1 0.3 3.3 4.5 5.9 100.0 2.3 1.7 0.7 1.6 1.3 0.3 0.0 0.1 6.0 17.3 13.9 0.4 0.1 0.5 0.7 0.5 2.0 4.9 0.1 2.9 1.4 0.3 3.4 0.8 0.0 0.2 0.2 1.3 0.6 0.0 0.3 0.0 11.0 3.8 0.6 0.2 1.4 0.0 1.2 0.1 0.3 3.3 3.9 6.4 100.0 2.4 1.7 0.7 2.1 1.8 0.3 0.0 0.1 5.7 17.4 14.1 0.4 0.1 0.5 0.6 0.5 1.6 5.3 0.2 3.1 1.3 0.4 3.4 0.8 0.0 0.2 0.2 1.2 0.6 0.0 0.3 0.0 10.7 4.2 0.6 0.2 1.5 0.0 1.5 0.0 0.3 3.5 3.1 6.3 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 100.0 2.7 1.8 0.9 2.5 2.1 0.3 0.0 0.1 5.4 16.9 13.7 0.4 0.1 0.4 0.6 0.6 1.6 4.9 0.2 3.2 1.3 0.3 3.2 0.8 0.0 0.2 0.2 1.1 0.5 0.0 0.4 0.0 10.0 4.4 0.7 0.2 1.7 0.0 1.5 0.0 0.3 3.7 1.8 6.6



1992 100.0 2.6 1.7 0.9 2.7 2.3 0.3 0.0 0.1 5.7 16.0 12.8 0.3 0.2 0.4 0.7 0.7 1.3 4.7 0.2 2.7 1.3 0.3 3.2 0.8 0.0 0.1 0.2 1.0 0.6 0.0 0.4 0.0 10.2 4.6 0.7 0.2 1.8 0.0 1.6 0.0 0.3 3.7 2.0 6.9



Private industries Agriculture, forestry, and fisheries Farms Agricultural services, forestry, & fisheries Mining Metal mining Coal mining Oil and gas extraction Nonmetallic minerals, excluding fuels Construction Manufacturing Durable goods Lumber and wood products Furniture and fixtures Stone, clay, and glass products Primary metal products Fabricated metal products Industrial machinery and equipment Electronic & other electric equipment Motor vehicle sand equipment Other transportation equipment Instruments and related products Misc. manufacturing industries Nondurable goods Food and kindred products Tobacco manufactures Textile mill products Apparel and other textiles Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber & misc. plastics products Leather and leather products Transportation and public utilities Transportation Railroad transportation Local and interurban passenger transit Truc king and warehousing Water transportation Transportation by air Pipelines, except natural gas Transportation services Communications Electric, gas, and sanitary services Wholesale trade



31



Italics = Only parts of these 2-digit sectors are high technology.



Appendix B (cont.)

1977 13.3 20.9 3.1 0.7 0.3 1.6 0.8 14.5 19.7 2.2 1.1 2.9 1.2 0.4 0.1 0.5 6.2 1.6 0.4 1.5 1.4 0.3 20.2 4.5 3.0 12.7 13.5 20.9 3.0 0.7 0.4 1.6 0.7 14.5 19.2 2.1 1.0 2.9 1.2 0.4 0.1 0.5 5.9 1.6 0.4 1.5 1.4 0.2 19.1 4.3 2.7 12.1 13.0 21.6 3.0 0.7 0.4 1.5 0.7 15.3 18.9 1.9 1.0 3.0 1.2 0.4 0.1 0.5 5.7 1.5 0.4 1.6 1.4 0.2 18.1 4.0 2.5 11.6 12.2 22.3 3.1 0.7 0.5 1.6 0.7 15.6 19.5 1.7 1.0 3.3 1.2 0.4 0.1 0.5 6.0 1.5 0.4 1.6 1.5 0.2 18.6 4.1 2.4 12.1 12.4 22.2 3.3 0.3 0.8 1.5 0.7 15.5 19.6 1.7 0.9 3.4 1.1 0.4 0.1 0.6 6.1 1.5 0.4 1.5 1.6 0.2 18.5 3.9 2.3 12.3 1978 1979 1980 1981 Retail trade Finance, insurance, and real estate Depository institutions Nondepository institutions Holding companies & investment serv. Insurance carriers Insurance agents, brokers, & services Real estate Services Hotels and other lodging places Personal services Business services Auto repair, services, and parking Miscellaneous repair services Motion pictures Amus