Shift share is a standard regional analysis method that attempts to determine how much of regional job growth can be attributed to national trends and how much is due to unique regional factors. Shift share helps answer why employment is growing or declining in a regional industry, cluster, or occupation.
To conduct shift share analysis, we split regional job growth into three components: (1) industrial mix effect, (2) national growth effect, and (3) regional competitive effect. In addition, a time frame (start year and end year) is required to perform shift share analysis, since shift share deals with job growth over time.
For the purposes of this explanation, we will focus on shift share analysis of industries. The explanation works equally well for clusters, since they are simply aggregations of industries. For occupations, shift share analysis is primarily a workforce-oriented view of industry data, since occupational growth and decline is tied to the growth and decline of the major industries employing workers in those occupations. NOTE: You can translate industries to occupations and vice versa using staffing patterns and inverse staffing patterns in Analyst.
Shift Share Components
The Industrial Mix Effect
The industrial mix effect represents the share of regional industry growth explained by the growth of the specific industry at the national level. To arrive at this number, the national growth rate of the total economy is subtracted from the national growth rate of the specific industry, and this growth percentage is applied to the regional jobs in that industry.
The National Growth Effect
The national growth effect explains how much of the regional industry’s growth is explained by the overall growth of the national economy: if the nation’s whole economy is growing, you would generally expect to see some positive change in each industry in your local region (the proverbial “rising tide that lifts all boats” analogy).
The Expected Change
This is simply the rate of growth of the particular industry at the national level. Algebraically, the expected change is the sum of the industrial mix and the national growth effects.
The Regional Competitive Effect
The regional competitive effect is the most interesting of the three indicators. It explains how much of the change in a given industry is due to some unique competitive advantage that the region possesses, because the growth cannot be explained by national trends in that industry or the economy as whole. This effect is calculated by taking the total regional growth of the given industry and subtracting the national growth for that same industry. Note that this effect can be positive even as regional employment in the industry declines. This would indicate that regional decline is less than the national decline.
Simplified Shift Share Components and Graph
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Our shift share graph shows the four simplified shift share components: industrial mix effect, national growth effect, expected change, and competitiveness effect. For our purposes, the competitiveness effect is the most important and equals actual change minus expected change.
A positive competitive effect for an industry (e.g., mining and construction sectors from our table) indicates the regional industry is outperforming national trends (both overall national trends and national trends in that specific industry). A negative effect (health care) means that the industry is underperforming compared to national trends.
Using Shift Share Analysis
Shift share is similar to location quotient in that it highlights the uniqueness of a regional economy, but it does so in terms of job growth rather than total jobs in an industry. Industries with high regional competitiveness effects highlight the region’s competitive advantages or disadvantages. Shift share does not indicate why these industries are competitive — that is the job of analysts who have knowledge of local conditions. Shift share merely shows the sectors in which the region is outcompeting or undercompeting the nation. Shift share is thus useful in identifying investment targets so that regional planners can help high-performing regional industries either continue to outperform national trends or else “catch up” with national trends so that the regional economy is not left behind in those sectors.
The basic use of shift share is to prevent a hasty and inaccurate interpretation of raw job growth numbers.
- An industry may be booming in a region, but shift share reveals that the industry is actually growing even faster at the national level, showing that regional factors probably have little influence on the regional boom. Or, shift share may reveal a national decline in that industry, showing a unique regional advantage in that industry that ought to be identified and fostered.
- An industry may be declining in a region, but shift share reveals that it is declining even faster at the national level — and thus the regional industry is actually outperforming the nation by stemming job loss. Or, the industry may be growing nationally, indicating that the region faces some disadvantage that is causing localized job loss in a nationally growing industry. If it is significant, this disadvantage should be investigated further.
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