The Comptroller’s office identified 18 manufacturing subsectors within the Texas economy. This manufacturing subsector is trade intensive and invests heavily in research and development (R&D). It includes the manufacturing of electric transformers and switchboards, communication wires such as fiber-optic cables, as well as household appliances and lighting fixtures.
The electrical equipment, appliance and components manufacturing subsector’s Texas GDP rose by 13 percent from 1997 to 2015. During this period, its total Texas employment declined by 8 percent (Exhibit 1).
The 13 percent GDP growth represented average annual growth of 0.7 percent, yet annual GDP fluctuated greatly, including a 26 percent increase from 2005 to 2006 and a 14 percent decrease from 2008 to 2009.
Sources: Emsi, U.S. Bureau of Economic Analysis and Texas Comptroller of Public Accounts
Sources: Texas Workforce Commission and Texas Comptroller of Public Accounts
Texas’ electrical equipment, appliance and components manufacturing employment rose by 47 percent in the 1990s, peaking at 23,700 jobs in 2000. The job count has declined since then, yet remains 16 percent above the 1990 level. U.S. employment in this subsector, by contrast, is nearly 40 percent below the 1990 level (Exhibit 2).
Productivity gains in the subsector have contributed heavily to job losses in the U.S. and Texas. According to a Ball State University study, the electrical equipment, appliance and components manufacturing sector’s productivity rose by 57 percent from 2000 to 2010, while employment declined by 233,000. The study estimates that productivity gains accounted for 88 percent of these losses.
Furthermore, demand for these products is moving abroad — and so are the jobs. Demand for these goods is rising much more quickly in emerging markets. And it’s more cost-effective to manufacture them more closely to areas of higher demand for a variety of reasons, including lower costs for shipping and wages and the need to provide customers with repairs and maintenance.
Finally, demand is cyclical by nature and generally follows the movements of the market. Since its products often are used in homes, for instance, the sector felt the effects of the U.S. housing-market recession from 2007 to 2010.
Several factors beyond the general productivity increases seen throughout manufacturing have contributed to this downturn. The electronics industry — and specifically semiconductor production — is very capital intensive and expensive. A new fabrication plant can cost more than $10 billion. Many nations offer tax incentives to lure such businesses. Unfortunately, high corporate tax rates and low R&D tax credits prevent the U.S. from receiving more of these projects and, consequently, more manufacturing jobs.
In addition, ever-changing technology requires companies to invest heavily in R&D — from 15 to 20 percent of gross sales on average. This combination of high upfront costs, lack of incentives and required R&D investments has compounded the decline in manufacturing employment.
Electrical equipment, appliance and components manufacturing includes four industries: manufacturers of electric lighting equipment, household appliances, electrical equipment and other electrical components (Exhibit 3).
All four are considered “advanced industries” as defined by the Brookings Institution. Such industries have two distinguishing criteria: R&D spending per worker ranks in the top 20 percent of industries, and their share of workers with high levels of scientific and technical knowledge exceeds the national average. In 2015, advanced industries accounted for just 8.7 percent of total U.S. jobs yet generated 60 percent of exports, 81 percent of patents and 89 percent of private-sector R&D. Their emphasis on innovation and highly skilled workers makes the advanced industries essential to prosperity and rising standards of living.
One way to assess industries is with location quotient (LQ), a measure of employment concentration in a given area: the higher the LQ value, the more “concentrated” the industry.
Texas’ electrical equipment, appliance and components manufacturing industry subsector LQ was 0.60 in 2016, meaning its share of employment in Texas is just 60 percent of the subsector’s average share throughout the U.S. (Exhibit 3). Among the industries, the electrical equipment industry had the highest LQ at 0.78, indicating its employment share is 22 percent lower in Texas than in the nation as a whole. Yet its LQ value has risen from 0.57 in 2001, indicating the industry is gaining some market share.
|Description||NAICS Code||2016 Jobs||2001 to 2010
|2010 to 2016
|2016 Average Salaries||2001 Location Quotient||2016 Location Quotient|
|Electric Lighting Equipment||3351||2,198||-30%||17.90%||$66,559||0.48||0.55|
|Other Electrical Equipment and Component||3359||6,235||-30%||11.10%||$68,975||0.63||0.58|
|Electrical Equipment, Appliance and Components Total||335||19,023||-24%||12.30%||$70,750||0.56||0.6|
Sources: Emsi and Texas Comptroller of Public Accounts
Manufacturing is an important part of the Texas economy, driving innovation and providing thousands of jobs with high wages. While manufacturing employment has declined in the last 20 years, its contribution to Texas GDP has increased more than twice as much as its contribution to U.S. GDP. Its growth in economic output has exceeded the growth of Texas’ total GDP by 15 percent. In 2015, Texas accounted for 10.6 percent of the nation’s manufacturing GDP.
Electrical equipment, appliance and components accounted for $11.7 billion in exports in 2016, sixth among all manufacturing subsectors. The electrical equipment, appliance and components subsector supports 19,000 direct Texas jobs with an average annual wage of $71,000.