Employment Security Department
Labor Market & Economic Analysis Branch
The chemicals and allied products industry is one of the nation’s most successful industry over the last few decades. Chemicals can be characterized as huge, complex, highly interdependent, and capitalintensive. The industries consists of many large, highly diversified and vertically integrated firms, as well as many smaller and highly specialized firms. While the industry is concentrated in specific market segments, it is characterized by a high degree of competition. In 1998, the chemical and allied products industry employed 1.04 million workers with shipments valued at $391.2 billion. The U.S. has been a net exporter in chemical and allied products, with exports valued at $68 billion in 1998, while chemical imports from other nations were valued at $54.6 billion.
The industry produces tens of thousands of products, ranging from basic commodities, such as ethylene and sulfuric acid to the most sophisticated drugs and highly specialized high-tech composites used in aircraft and spacecraft. These products can be broadly classified into three major groups:

Basic chemicals (organic and inorganic);

Chemical products used as intermediate materials in further manufacture (such as synthetic materials —plastic resins, fibers, and rubber), as well as dyes and pigments; and

Finished chemical products ready for consumption (such as drugs, cosmetics, soaps, and paints) or to be used as supplies in other industries (such as fertilizers, printing ink, and explosives).
The chemical industry is the largest single purchaser of its own output, with about 25 percent of its production of basic chemicals used further in the production process in the form of raw or intermediate materials.
This industry report uses industry definitions and concepts that underlie the U.S. government's Standard
Industrial Classification (SIC) system. In the SIC system, chemicals and allied products (SIC 28) is a major industry, one of twenty such industries that form the manufacturing sector. According to the
Standard Industrial Classification, there are eight separate chemical and allied products subsectors and
28 market segments defined by broad product categories. Each of the 12,400 chemical establishments operating in the United States in 1997 was placed in one of these eight industry subsectors:

Industrial inorganic chemicals (SIC 281) —including alkalies and chlorine, industrial gases, inorganic pigments, and other industrial inorganics;

Plastic materials and synthetic resins (SIC 282) —including plastic materials, synthetic resins, polomers, synthetic rubber, cellulosic manmade fibers, and other manmade organic fibers;

Drugs and pharmaceuticals (SIC 283) —including medicinal chemicals and botanical products, pharmaceutical preparations, in vitro and in vitro diagnostric substances, and other biological products;

Soaps, detergents, and cleaning preparations (SIC 284) —including soap and other detergents, specialty cleaning and sanitation preparations, surface active agents, perfumes, and cosmetics;

Paints, varnishes, lacquers, enamels, and allied products (SIC 285);


Industrial organic chemicals (SIC 286) —including gum and wood chemicals, cyclic organic crudes and intermediates, organic dyes and pigments, and other industrial organics;

Agricultural chemicals (SIC 287) —including nitrogenous fertilizers, phosphatic fertilizers, other fertilizers, pesticides, and other agricultural chemicals; and

Miscellaneous chemical products (SIC 289) —including adhesives and sealants, explosives, printing ink, carbon black and other chemical and chemical preparations, not elsewhere classified.
Some related chemicals are classified elsewhere, including (1) mined products such as sulfur, soda, ash, and potash produced in substantially pure form and sold for their chemical properties; (2) hydrocarbon feedstocks such as ethylene produced by the petroleum refining industry for chemical conversion; (3) coal-tar crudes produced as by-products by the steel industry for chemical conversion; and (4) photographic formulations.
Petrochemicals —defined as any chemical or chemical product derived from petroleum or natural gas— comprises a significant part of the chemicals industry. More than 90 percent of the organic chemicals are petrochemicals; the rest are derived from coal and agricultural products. Petrochemical feedstocks
(inputs) are supplied by the natural gas and the petroleum refining industries.
A sizeable share of the chemical industry —drugs and pharmaceuticals—is contained in the emerging biotechnology sector. Biotechnology is rapidly revolutionizing the medical, agricultural, environmental, and other fields through the introduction of breakthrough processes and products. Over a span of two decades, the industry has already successfully commercialized over 40 products. These include a wide variety of therapeutic pharmaceuticals, vaccines, diagnostic products, agricultural products, and environmental products, many generating hundreds of millions of dollars in annual sales. In Washington
State, the majority of biotechnology companies develop products that detect or fight cancer, diabetics,
AIDS, asthma, cystic fibrosis, rheumatoid arthritis, multiple sclerosis, and other diseases. Other biotechnology firms develop products for agriculture, veterinary medicine, forestry, fisheries, waste management and environmental cleanup.
In 1998, the Washington chemicals and allied products industry employed 5,900 workers; representing less than 2 percent of the state’s manufacturing work force. Growth in the number of chemical industry establishments in Washington has been steady; between 1981 and 1998, the average annual growth in establishments has been 3.7 percent, with drugs and soaps, detergents, perfumes and cosmetics capturing the lion’s share of the industry’s growth.

Figure 1
Number of Establishments in Washington Chemicals & Allied Products, 1981-1998
Source: Washington Employment Security Department
240
200
160
120
80
40
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
The current employment picture in Washington chemicals and allied products is much different than in the
1980s. Due to a reclassification of some firms within industrial inorganic chemicals (SIC 281) to engineering, accounting, research, management, and related services (SIC 87) sector, current employment within the chemicals and allied products industry is about three-fifths less than what it was in
1990. However, the reclassification conceals the net employment growth the industry has enjoyed since
1991. Between 1991 and 1998, the industry has added 740 employees, mostly in drugs and pharmaceuticals with some job growth within soaps, detergents, perfumes and cosmetics; and miscellaneous chemicals. Other subsectors, notably agricultural chemicals, industrial inorganic chemicals, plastic materials and resins, and paints and varnishes, lost employment in recent years.
Key factors that affect the demand for many chemical subsectors include health of end-use markets, growth in the overall economy, and trends in foreign trade. Due to the commodity nature of many of these chemicals, currency fluctuations play an important part in global shipping patterns. For instance, inorganic chemicals are used primarily by the construction, paper, packaging, paints and coatings, and fertilizer industries. Industrial organic chemicals are used within a broad range of chemical products as well as in the production of fuels, plastics, fibers, elastomers, and fertilizers. The status of agricultural chemicals —fertilizers and pesticides and the like—is often reflected in the growth or stagnation within the underlying U.S. farm economy. Plastic materials and resins are affected by trends in key-use markets such as packaging, construction, motor vehicles, and consumer durables. These markets are in turn affected by trends in consumer spending, overall growth in the national economy, and population growth.
Drugs and pharmaceuticals, which has enjoyed strong growth in recent years, are affected by several factors including demographics (e.g., increased life expectancies), rising standard of living in developing countries, and a steady stream of new products.

Figure 2
Employment in Washington Chemicals & Allied Products Industry, 1981-1998
Source: Washington Employment Security Department
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Industrial inorganic chemicals Drugs Other chemicals
Note: Reclassification of some firms out of chemical & allied products in 1991.
Similar to the national industry, chemicals and allied products in the state is dominated by the drugs and pharmaceuticals subsector, which accounts for nearly one-third of the total employment in chemicals and allied products. Formerly the largest subsector, industrial inorganic chemicals now accounts for one-third of chemicals and allied products’ total employment. Of the entire industry, drugs and pharmaceuticals subsector has been the stellar performer since 1981, expanding seven-fold. Drugs and pharmaceuticals is considered to be a part of the rapidly growing biotechnology and medical technology industry in
Washington. A majority of these firms are located within Seattle, oriented toward the leading-edge research and technologies developed at the University of Washington and the Fred Hutchinson Cancer
Research Center.
Chemicals and allied products in Washington is largely composed of small companies that manufacture various chemicals and allied products. Six of the subsectors (industrial inorganics; drugs and pharmaceuticals; soaps, detergents, perfumes, and cosmetics; paints and varnishes; agricultural chemicals; and miscellaneous chemicals) account for over 90 percent of the total 220 establishments, yet they average around 27 employees per establishment. By contrast, the industrial organics subsector averages 39 employees per establishment, while plastic materials and resins averages around 8 employees per establishment. Over 51 percent of all chemicals and allied products workers are found in establishments with 100 or more employees.

Figure 3
Size of Establishments of Washington Chemicals and Allied Products Industry, 1998
Source: Washington Employment Security Department
60%
50%
State
Chemicals
40%
30%
20%
10%
0%
1-19 20-49 50-99 100-249 250-499 500+
Number of employees per establishment
Note: Due to nondisclosure, information on employees for size categories of 250-499 and 500+ employees are shown in the size category of 100-249 employees.
Average covered wages for chemical and allied products workers was $52,446 in 1998, nearly 55 percent above the statewide nonfarm average of $33,922. In 1998, chemical and allied products employees’ wages and salaries ranked third (behind petroleum refining, and instruments) among all manufacturing industries, and substantially higher than the statewide manufacturing industry average at $42,247.
Substantial wage growth has occurred in drugs and pharmaceuticals; between 1981 and 1997, real (i.e., without inflation) wages and salaries more than doubled.
The distribution of hourly wages for chemical and allied products is dissimilar to the state, with a pronounced disposition toward higher hourly wages. Nearly half of all workers in the chemical and allied products industry earn $20 or more per hour, compared with 28 percent of all nonfarm workers in the state.

Table 1
Real Average Wages for Washington Covered Chemical & Allied Products Workers, 1981-1998
(1998 dollars)
Sources: Washington Employment Security Department, U.S. Bureau of Economic Analysis
Sector 1981 1983 1985 1987 1989 1991 1993 1995 1997 1998
All chemicals
Drugs & pharmaceuticals
Other chemicals
Manufacturing
Statewide nonfarm
$42,192 $45,076 $46,379 $45,871 $46,023 $43,565 $47,707 $45,803 $49,291 $52,446
$22,389 $29,819 $34,032 $38,307 $33,145 $44,703 $61,474 $45,471 $49,166 $58,457
$42,810 $45,614 $46,819 $46,143 $46,698 $43,290 $43,026 $45,931 $49,348 $49,485
$38,352 $37,909 $38,024 $37,876 $37,338 $37,667 $38,018 $38,942 $40,954 $42,247
$28,783 $27,789 $27,313 $27,304 $27,167 $27,928 $28,575 $29,046 $31,504 $33,922
Figure 4
Hourly Wages for Washington Chemical & Allied Products Workers, 1997
Source: Washington Employment Security Department
40%
35%
30%
25%
20%
15%
10%
5%
0%
<$6 $6-$8 $8-$10 $10-$12 $12-$14 $14-$16 $16-$18 $18-$20 $20-$22 $22-$24 $24-$26 >$26
Hourly wage
State All Chemicals Pharmaceuticals Other Chemicals
The labor force in the chemical and allied products sector is dominated by operatives and laborers.
Common chemical and allied products occupations within this group are machinists, and equipment operators. Professional and technical and clerical occupations are also important in chemical and allied products. Although the majority of electronic components workers are within the operatives and laborer grouping, a sizable share of the subsector’s employees are classified as professional and technical workers. This greater proportion of professional and technical helps to explain the difference in wages between electronic components and the rest of electronic and electrical equipment.

Table 2
Occupational Profile of Chemicals & Allied Products Workers in Washington, 1998 and 2008
Source: Washington Employment Security Department
Estimated 1998 Projected 2008
Percent of Percent of
Chemicals, SIC 28 Estimated Total Projected Total
Employment Employment Employment Employment
Managerial & Administrative
Professional, Paraprofessional & Technical
Sales & Related Occupations
Clerical & Administrative Support
Service Occupations
Production, Operating & Maintenance
Operators, Helpers & Laborers
Undefined Occupations
TOTAL
534
710
303
724
41
586
1,942
644
5,484
9.7%
13.0%
5.5%
13.2%
0.8%
10.7%
35.4%
11.7%
100.0%
555
836
295
678
38
571
1,859
689
5,521
10.1%
15.1%
5.3%
12.3%
0.7%
10.3%
33.7%
12.5%
100.0%
Drugs and pharmaceuticals have a different occupational profile than the overall chemicals and allied products industry. In contrast to chemicals, professional and technical occupations dominate drugs and pharmaceuticals in Washington State. These occupations underscore the importance of product research and development within the industry. Clerical and administrative support along with managerial and administrative positions are also important in drugs and pharmaceuticals. Operatives and laborers have a declining share of total workers in this subsector.
Several industries in the Washington economy are dependent on inputs from the chemical industry.
Although chemicals and allied products industry is small in relative size with 5,900 employees, employment in Washington industries most dependent upon chemical inputs totaled 589,000 workers, or nearly one-fourth of the statewide employment in 1998.

Table 4
Washington Dependent Industries on Chemical Inputs, 1998
Sources: Washington State Input-Output Study, Chemical Manufacturers Association,
Washington Employment Security Department
Sector 1998
Rubber & plastic products
Textiles
Health care
Leather products
Personal services
Agriculture
Stone, clay & glass products
Paper products
Instruments
Miscellaneous manufacturing
Furniture & fixtures
Printing & publishing
Electric & electronic equipment
Lumber & wood products
Primary metals
Fabricated metal products
Petroleum & coal products
Transportation equipment
9,200
1,100
180,300
400
22,100
91,700
9,400
16,100
14,700
8,600
4,500
23,600
18,200
33,400
11,900
14,300
2,100
127,400
TOTAL 589,000
Note: Industries are ranked in order of chemicals’ importance to each industry nationwide, relative to other inputs
Compared to the nation, the relative importance of chemicals and allied products to the Washington economy is low. Except for a few years during the late 1980s, the index of specialization for Washington chemicals and allied products has remained well below 0.5 since 1977 (an index of 1.0 signals the same importance of an industry for Washington a s for the U.S.). Since 1991, chemicals and allied products’ relative importance has been below 0.20 and not trending upward. Drugs and pharmaceuticals’ index of specialization is much higher, but still below 0.50 in 1997.
Although most chemicals and allied products manufacturers in Washington service regional and domestic markets, an increasing share of production is being exported to foreign customers. In 1998, chemical foreign exports from Washington totaled $500 million. Approximately one-fourth of all chemical and allied products workers are supported by foreign exports.

Figure 5
Index of Specialization for Washington Chemical & Allied Products Industry, 1977-1997
Source: U.S. Bureau of Economic Analysis, Gross State Product series.
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
Chemicals and allied products industry has underperformed the state economy during this decade.
Employment in chemicals and allied products has risen at a lackluster 2.3 percent average annual pace since 1991, significantly less than total nonfarm employment (3.6 percent). Domestic and foreign enduse markets for chemicals and allied products are expected to remain moderate for the next twenty-five years. The Chemical Manufacturers Association has forecast that between 1999 and 2001, global sales of chemicals will increase between 3-5 percent a year. The result of this outlook is modest expansion within the Washington chemicals and allied products. By the year 2020, chemicals and allied products manufacturers are forecast to employ 6,460 workers, an average annual growth rate (2000-2020) of 0.3 percent. The bright sector in chemicals and allied products is drugs and pharmaceuticals. As elsewhere, employment in this Washington subsector is forecast to grow at an annual rate of 2.0 percent.

Figure 6
Washington Chemicals & Allied Products Wage & Salary Employment Forecast, 2000-2020
Sources: Washington Office of Financial Management, Washington Employment Security Department
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1995 2000 2005 2010 2015
Drugs Industrial Inorganic Chemicals Other chemicals
2020