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Expenditure Impacts of U.S. R&D

Tue, 12/18/2012 - 7:52am
Martin Grueber, Research Leader, Battelle and Tim Studt, Editorial Director, Advantage Business Media

GFF GlobeR&D is generally a long-term investment, building upon the results of previous years' expenditures, leading first to the generation of new knowledge through basic research and ultimately to products and services through applied research, development, and commercialization. These are considered to be functional impacts—benefits that occur as a function of the R&D's completion and often at a scale much larger than the original investment. There also are important economic impacts that relate directly to the annual R&D investment and the related multiplier or “ripple” effects of this spending through the economy.

Comparison of Industry Economic Impact Multipliers
Industry Jobs per $Million Industry Total Multipliers
Industry Direct Industry Total Output Employment
Aircraft 1.6 9.9 3.0 6.2
Automobiles 0.8 9.2 2.7 12.2
Computers 0.6 8.6 2.8 14.1
Comp. Services 11.5 30.7 2.1 2.7
Iron and steel 1.4 10.9 2.7 7.5
Pharmaceuticals 1.8 10.6 3.1 6.0
Scientific R&D 5.8 19.5 2.8 3.4
Software 1.9 12.3 2.6 6.4
Source: 2010 U.S. IMPLAN Economic Impact Model

Real-time Economic Impact of R&D
Various budgetary analyses have been performed on federal spending and the long-term effects of funding reductions. Other analysis has assessed the functional and economic impacts of long-term federal R&D investments (for example, the Economic Impact of the Human Genome Project published by Battelle). A pragmatic examination of the economic impacts of annual total R&D spending, however, has not been developed. This type of analysis is particularly relevant when Congress and the administration must make choices among competing uses of scarce funds. By estimating the potential economic impacts of annual U.S. R&D expenditures, we hope to add to the discussion regarding the importance of R&D to the U.S. economy by attaching a concrete "measurable" to the value of annual R&D investment to the current economy. This analysis makes no attempt to establish R&D’s total functional value, but focuses only on the economic effect of the current year's spending on the current year.

Significant Current Year Expenditure Impacts
We estimate that the 2013 forecast of $423.7 billion in U.S. R&D expenditures will directly employ 2.47 million full- and part-time U.S. workers and will support, through the ripple effect of these expenditures, the ultimate employment of 8.27 million U.S. workers in 2013. These total expenditures will also generate $1.238 trillion in the U.S. economy through the purchasing activities of these R&D performers, their suppliers, and their workers. It is important to note that this is a single-year expenditure-based analysis and these results do not include the workers or revenue/output associated with producing any product resulting from past or current R&D activities.

These results indicate that on an expenditure basis alone, the U.S. R&D enterprise has a significant impact on the U.S. economy and is a substantial "real-time" economic and employment driver for the nation. It also shows that when contrasting the potential longer-term benefits of R&D to current budgetary constraints, it is important to consider that the U.S. R&D enterprise consists of real jobs and economic impact—now.

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Methodology for Measuring R&D Impacts
In our economic model, we used the scientific R&D sector as a surrogate for all R&D activities. To that surrogate we applied total public and private R&D spending. Typically, this economic sector consists solely of standalone R&D operations, ranging from small startups to firms such as Battelle. For simplicity, this approach also models all R&D expenditures the same—spending on pharmaceutical R&D is treated the same as automotive R&D, and likewise the same as university and government R&D. While there are differences in the research being undertaken, there are strong similarities in the economic structure and purchases among these different performers—often more so than R&D has with the other activities of a firm or industry. This commonality is strong enough to warrant a focused publication, R&D Magazine. For example, from a purchasing perspective automotive R&D has more in common with pharmaceutical R&D than automotive R&D has with automotive industry production activities—automotive R&D does not buy billions of dollars of steel and glass, but rather computers, laboratory instrumentation, scientists, and engineers.

This conservative analysis is based on the application of certain economic impact ratios and multipliers (developed using a 2010 U.S. IMPLAN economic impact model, the most current available). To understand its conservative nature, a comparison of other "industry" multipliers is provided. As a service industry, scientific R&D generates more jobs per $million in output than manufacturing industries where automation and other productivity enhancements increase the output per worker. In terms of total (including multiplier effects) employment or output impacts in the economy, the values associated with scientific R&D are smaller than many "high-tech" industries. This indicates that using the scientific R&D sector as a surrogate for all R&D will likely provide a more conservative and more appropriate measurement than applying R&D expenditure values across all segments of the economy.

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