Monday, July 21, 2014

Bear River Location Quotients

Tyson Smith, Regional Economist

In the summer issue of Local Insights we discussed the value of economic diversity and the Hachman Index (a method used to measure industry diversification in the labor market)[1]. The article states that:

The Hachman Index is derived from the weighted average of the industry Location Quotients (LQ) in a region. A LQ measures the regional concentration of employment in a given industry relative to a larger geography. As a rule of thumb, an LQ of 1.2 or higher represents an industry with a relatively high concentration of regional employment, while a score of 0.8 or lower indicates sparse regional employment… Breaking the Hachman Index into individual components provides insight into the distribution of employment in a local economy.

Figure 2 in that article resembles the charts to the right, except that the data in the article was aggregated to the regional level. Combining the employment counts for all three Bear River counties obscures the concentration of employment in certain industries at the county level. This article sheds light on the relative density of employment in each county.

When examining the three charts, note the scale on the horizontal axis. In 2012, Cache County had very few location quotient outliers. Four industries were within the “normal” location quotient range, and only two industries had LQs greater than 1.2. Furthermore, the industries with above normal concentration of employment in Cache (manufacturing and educational services) registered LQs substantially lower than the highly concentrated industries in Box Elder and Rich counties.

Box Elder County had five industries in the “normal” LQ range, but three of the four high-density industries recorded LQs above 2. This means that the proportion of the workforce employed in manufacturing, transportation & warehousing and agriculture, forestry, fishing & hunting more than doubled the national percentage.

Lastly, Rich County had the lowest Hachman Index among the Bear River counties. Among the 10 industries that meet disclosure standards, only two industries had employment LQs in the “normal” range.

In Utah, there is a correlation between the size of a county’s labor force and the degree of industrial diversity in the county; in general, this means the more workers in a county the more diverse the economy of that county.  So it is not surprising that Cache County has less variance in its respective LQs compared to Box Elder and Rich counties.

Understanding the relative concentration of employment by industry lends some insight into the comparative advantages of a region. In terms of Bear River, we see that the labor economy is moderately diverse compared to other counties in the state.

[1] Article titled: Economic Diversity in Bear River