Kansas Geological Survey, Bulletin 204, pt. 1, originally published in 1972

Industrial Profiles as an Aid in Expanding Economic Activity

by Ronald G. Hardy

Originally published in 1972 as part of Kansas Geological Survey Bulletin 204, pt. 1, p. 33-38. This is, in general, the original text as published. The information has not been updated. An Acrobat PDF version of the complete bulletin (15 MB) is also available.

Abstract

Some relative industry characteristics are outlined in this paper to aid in developing a program for selecting new industries for a region. These characteristics are used to catalog industries to determine which would be the most suitable for a given community.

The strongest manufacturing industries in Kansas are determined to be the petroleum and coal products industries and the chemical-allied products industries.

To a community or region seeking to expand economic activity through industrial development, any industry not previously existing in that community may be considered "new." Shifting resource patterns, shifting and expanding markets, and development of new processes make familiar products proper objects for consideration as new ventures for area development. To be successful, any new undertaking must begin with process and product features that meet the anticipated market changes. Industrial development is a dynamic phenomenon and is constantly responding to changes in technology, to destruction or emergence of resources, and to changes in composition of the demand.

Rural communities predominate in Kansas except for the metropolitan areas of Kansas City and Wichita. However, rural areas provide natural locations for processing many farm, forest, fishery, and mineral raw materials. Actually, a rural area can be a highly attractive location for a wide range of products that have no rural origins or demands. If the area can provide good transportation, water, community facilities, and a trainable labor supply, it may support a profitable industry.

Those individuals or groups concerned with promoting industrial development have many factors to weigh. In the mineral industry, for example, there are a number of mineral industry profiles that are useful as take-off points for more detailed analysis.

It is important to note that Kansas industry, in general, is characterized by a fairly high percentage of labor engaged in agriculture and a less than average proportion of labor involved in manufacturing. This distribution is changing, in part at least, because of a steady release of farm labor, yet no decrease of agricultural production is evident.

Kansas industry can also be characterized by the preponderance of industries employing fewer than 100 people. For example, almost 99 percent of manufacturing units have 100 or fewer employees and 57 percent have three or less employees. The same employment distribution is true in the mineral resource industries. The larger employment industries are the petroleum and coal products industries.

A quality profile of the manufacturing industry can be revealed through available ratios. For example, value added by manufacturing can be used as the measure of productivity from which comparisons of productivity per dollar of wages, productivity per employee, and productivity as a percent of shipment can be drawn. The first two ratios are measures of labor costs and the last one is an indirect indication of product marketability. The conclusion to be drawn is that products with a high ratio of value added to dollar wage require either fewer dollars, or less skilled labor, or high production per employee, or some combination of these factors. Similarly, a high ratio of value added per employee suggests that high product values can be generated with a minimum number of employees. Products having high ratios of value added in relation to value of shipment (i.e., percent) as compared with lower ratios have, in general, a history of being more restricted in marketing than those with lower ratios. Thus as a preliminary step in the assessment of the desirability of a manufacturing industry for any community, some broad characteristics can be assigned to them.

The ratios for the total United States manufacturing industry and the total Kansas manufacturing industry are listed in Table 1. Kansas industry is about par with U.S. industry with regard to value added per dollar of wages, and is somewhat lower in value added as percent of shipments. It would seem that the present Kansas manufacturing industry mix is less restricted in marketability than the national industry mix.

Table 1--Industry profiles for the United States and Kansas.

To obtain a closer look at the profile, the manufacturing industry classification can be disaggregated according to the Standard Industrial Classification (SIC). This examination shows characteristics of industry sectors which may be used to assess the most promising mineral resources users. In Table 2 these SIC factors have been arranged from maximum to minimum values for the U.S. data, and Kansas figures have been included for comparison. The excellent showing of petroleum and coal products and chemical-allied products, where Kansas figures are somewhat better than those on the national level, emphasizes the strength of these industries. The petroleum and coal products industry exhibits the lowest required productivity per unit of shipments as evidenced by the high value of shipments per production worker. Mineral-related industries, i.e., petroleum and coal products as well as stone, clay, and glass products, are in the upper range of value added per dollar of wages.

Table 2--Productivity and marketability measures of selected industries for the United States and Kansas. Data from Annual Summary of Manufacturers: U.S. Department of Commerce, Bureau of the Census, 1963

Another profile of Kansas industry is developed from its interindustry structure. The Kansas interindustry structure model, developed by the Kansas Office of Economic Analysis, shows how the output of each industry is distributed among other industries and sectors of the economy [Emerson, M. Jarvin, The Interindustry Structure of the Kansas Economy: Kansas Department of Economic Development, 1965]. At the same time, it shows the input to each industry from other industries and sectors.

The distribution of the values of total purchases is given in Table 3. It is readily apparent that among Kansas mineral producers the petroleum industry is the heaviest purchaser of goods, services, labor, etc., exceeding $400 million annually. The majority of the mineral-related industries makes purchases of less than $100 million annually.

Table 3--Size distribution of industry purchases. Data from Emerson, M. Jarvin, The Interindustry Structure of the Kansas Economy: Kansas Department of Economic Development, 1965.

The top ten purchasing industries in the Kansas economy are given in Table 4. The petroleum and coal products industry ranked third, with the crude oil and natural gas production industry ranking sixth in total value of "purchases from governments," i.e., in taxes paid. Focusing on the mineral extraction industries and possible mineral-based industries, Table 5 was developed to show the ranking of purchases. Again, petroleum-related industries top the list in dollar value of purchases.

Table 4--Ten leading Kansas industries, based on purchase of labor, goods, and services, 1965.

Table 5--Ten leading Kansas mineral industries, based on purchase of labor, goods, and services, 1965.

For comparative purposes, it is useful to determine how each dollar of an industry's purchases is distributed. Furthermore, for any region attempting to attract business, it is pertinent to ask how much labor is purchased, and how much is spent by various industries for taxes. This information is given in Table 6, which also shows the principal products purchased. For every dollar spent by the Kansas cattle industry, 20 cents was spent within the Kansas cattle industry itself, 14 cents was spent on labor (purchases from households), and nearly one cent was spent for state and federal government taxes (purchases from government). In the Kansas aerospace industry, of every dollar spent for purchases, about 1.5 cents was spent for machinery and equipment, 44.5 cents for labor, and 0.5 cent for taxes. Heavy purchases from other suppliers were made by the cattle, meat products, petroleum and coal products, and building construction industries. Aerospace, education, retail trade, and the construction industries were heavy purchasers of labor. The building construction industry is a principal "purchaser" from government.

Table 6--Purchases by ten leading Kansas industries and recreation-related industries per dollar of total purchase. Data from The Interindustry Structure of the Kansas Economy, 1965.

Table 7 shows the portion of each purchasing dollar spent by the mining industry and mineral-related industries on supplies, labor, and taxes. The petroleum and coal products industry is a heavy purchaser of supplies; the mining industry, other than nonmetallic, is also a fairly heavy purchaser. The oil and gas field service sector purchased over 50 cents of labor per total dollar of purchases. The stone and clay and cement and concrete sectors also have high labor purchases. Of the industries listed, the industrial chemical and the cement and concrete industries make the highest payments to state and local governments.

Table 7--Purchases by Kansas mineral industries per dollar of total purchase. Data from The Interindustry Structure of the Kansas Economy, 1965.

Another useful set of relationships that can be evolved from an interindustry structure table such as that developed for Kansas is the effect of an increase in final demand on all sectors. [Note: See Kansas Direct, Indirect and Induced Requirements Matrix in The Interindustry Structure of the Kansas Economy: Kansas Department of Economic Development, 1965.] For example, a change in final demand of crude oil and natural gas will affect the industries supplying the oil- and gas-producing industries. Each of these industries will in turn cause changes in industries supplying them. Thus a multiplier effect is generated via direct, indirect, and induced purchases.

If crude oil and natural gas production is increased by $1 million, there can be an expected increase of $1,000,000 x .1631 = $163,100 in the real estate and insurance trade in Kansas. On the other hand, the same increase in the aerospace industry gives an expected increase of only $1,000,000 x .008 = $8,000 in the real estate and insurance trade.

Another consideration is the type of industry growth that would have the most impact on existing local industries. If, for example, it is important to select an industry that will increase the local retail market, the following Kansas interindustry structure data shows the relative purchases by industries at the retail level.

Thus, with the use of interindustry structure tables, a number of important questions can be analyzed. Such factors as how to increase employment, improve the tax base, or improve markets for local business can be scrutinized for ideas on proper regional development.

The difficult problem is matching a product with a profitable demand with a community that can produce it advantageously. The community pool of skills, capital, and natural resources defines the range of product possibilities. For example, a type of mineral product that could be produced in a small industry and have an excellent growth potential is filler for plastic products. The plastic products industry has already experienced a phenomenal growth and is expected to be among the highest of any industry, with some sources predicting 15 percent annual growth. Even the most conservative estimate indicates that the plastic materials industry should expand rapidly over the next decade. [Note: 3 Growth Pace Setters in American Industry 1958-68: U.S. Department of Commerce, Business and Defense Services Administration, Oct. 1968.] Any supplier to this industry should enjoy the same growth benefits.

Summary

The overall worth or potential worth of an industry to a community can be estimated from three measures: ( 1) total value of output, (2) wages and salaries paid households, and (3) tax payments at the state and local level. Overall the mineral industry of Kansas has a very significant impact on the community: first and primarily through the petroleum industry, second through construction-related minerals, and third through minerals used in the chemical industry.

According to 1965 figures, the petroleum industry alone had outputs of $1.067 billion which generated $1.804 billion of outputs in all other industries of Kansas. At the same time, the industry paid $1 billion in wages and salaries while generating $405 million in wages in the remaining Kansas industries. Unfortunately, tax figures for like comparisons are not available.

It is also worth noting that the Kansas mineral industry ranked 10th out of 68 industry sectors in amount of total dollar purchases from all other Kansas industries.

Kansas minerals do offer opportunities for workable imaginative industries. In this connection the Kansas Geological Survey program is geared to maintenance of mineral resource capability, accommodation of minerals to changing end-use patterns, and resolution of problems related to environmental conflicts.

Kansas Geological Survey, Industrial Profiles as an Aid in Expanding Economic Activity
Placed on web March 24, 2016; originally published in March 1972.
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