EDCUtah’s Research Minute highlights interesting economic development data and timely research insights. This month, we explore productivity by industry in Utah.
An analysis of Utah’s most productive industries reveals interesting insight into what cities, counties, and the state might consider when planning for the future and targeting expansion and development opportunities.
What qualifies as a productive industry, you ask? Productivity is the total industry output (gross domestic product, plus the value of products and services used as inputs to produce other products and services) divided by industry employment. The measure is used to estimate the dollar amount per employee, per year for an industry. The higher the dollar amount, the more productive a hypothetical employee would be in that industry.
Any increase in productivity leads to economic growth as measured by GDP, and improved economic growth diversifies industry and raises wages thus improving the standard of living. Higher productivity also often means greater impact to communities in tax revenue, higher quality jobs, and a greater multiplier effect for economic growth.
EDCUtah’s research team analyzed all 96 3-digit NAICS (North Atlantic Industry Classification System) codes in the state to determine which industries contribute most to economic growth and prosperity. To do this, EDCUtah considered metrics like productivity, employment, labor density, GDP per employee, gross surplus, and the cost of labor.
In the analysis, the most productive industries tended to be the industries with the highest GDP per employee and the highest gross surplus. This makes sense because GDP is used in the calculation for those metrics. Some of the most productive industries in Utah have high employment, and some don’t. Utah has a competitive labor density for some of these industries, but not for others. The cost of labor for the most productive industries tended to be higher than those of less productive industries, since those industries generally required higher skilled labor.
Petroleum and Coal Product Manufacturing is based on the transformation of crude petroleum and coal into usable products. The process for petroleum refining involves the separation of crude petroleum into component products using complex methods. Utah has a relatively low employment in this industry, with only about 1,800 employees statewide, but a high labor density, since this industry does not have high employment nationwide. Nevertheless, this industry has grown rapidly over the last five years (+108.9% growth) and produces an astounding $1.7 million in GDP per employee.
Contrast this industry with Food Services and Drinking Places, with 119,000 employees and only $37,000 GDP per employee, and it’s clear that some industries are far more productive than others. These two industries produce roughly similar GDP, despite one having less than 2% of the employment compared to the other.
It makes sense that some industries are not highly productive. Social assistance and residential and nursing care services do not exist to produce a product output, but to provide necessary community care. The same can be said for other institutions, like museums and historical sites, which exist to serve the public and offer cultural enrichment.
Additionally, many municipal leaders prioritize attracting retailers as part of their economic development efforts. While retail industries typically rank low in productivity, GDP per employee, and gross surplus, they can provide a significant source of local sales tax revenue. Retail and service industries also contribute to a community’s livability and workforce diversification.
Productivity data can provide community leaders with an alternative lens for assessing developable areas and evaluating their economic development plans. Some communities might choose to increase their investment in real estate and infrastructure to attract non-retail commercial businesses. Other communities may not be interested in new industry development. Prosperity and “good growth” look different for every community – that's why EDCUtah collaborates with community leaders to understand their unique needs and help them achieve their economic development goals.
For more information about how industries performed in this analysis, email us at connect@edcutah.org or explore the benefits of investing with EDCUtah.
Data Sources: JobsEQ, US Bureau of Economic Analysis, US Bureau of Labor Statistics.
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