A region with a diverse set of industries isn’t automatically set up for economic good fortune. Yet diversity is a worthy economic development goal — for a simple reason. “Other things being equal,” write the authors of a comprehensive new report commissioned by the Appalachian Regional Commission, “diverse economies tend to be more stable because they are less dependent on single industries or firms.”
The data-rich analysis of economic diversity in Appalachia and the rest of the United States was conducted by the Center for Regional Economic Competitiveness, an EMSI client, and the University of Illinois at Urbana-Champaign’s Regional Economics Applications Laboratory. The RUPRI Center for Rural Entrepreneurship and EntreWorks Consulting also contributed to the report.
The study, released in mid-March, includes an extensive report (PDF), case studies in economic diversification, and a web tool that provides economic and demographic data for all 3,100-plus U.S. counties. The report and web tool feature EMSI’s complete employment and earnings data for every county.
The analysis measured industrial diversity using EMSI data on 1,100 detailed industries for 2009 and 2012 plus unsuppressed County Business Patterns data for 1999, occupational diversity for 96 occupational categories, and functional and knowledge diversity by looking at relevant industry and occupation clusters.
The U.S. county with the lowest industrial diversity in 2012 was Chattahoochee County, Georgia (which measured 23% below the average level). The highest was Orange County, California (nearly 25% above average). The map we’ve included above puts every county in one of six diversity categories, ranging from very high to very low.
The researchers found that broadly speaking, urban counties are more economically diverse than rural counties. “On average, counties in the U.S. Northeast tend to be more diverse, reflecting the higher overall urban density of that region of the country,” they write. “The least diverse counties in the U.S. tend to be found in the nation’s highly agricultural and rural mid-section, the Great Plains, central Appalachia, and selected mountain and southwestern states.”
In a webinar presentation on the report and web tool, available at the ARC website, Mark White of CREC and Troy Mix of the University of Illinois noted that the average population of high-diversity counties was approximately 425,000, while the average population of low-diversity counties was around 7,700.
In Appalachia, a region that stretches from southern New York to northern Mississippi (following the Appalachian Mountains), economic diversity is above the U.S. average. That might come as a surprise since many rural Appalachian areas have long been dominated by major industries such as mining, manufacturing, and agriculture. And further, the urban areas in the region (e.g., Pittsburgh and Youngstown, Ohio) have relied on industries like steel manufacturing. However, economic diversity in the expansive region largely depends on which sub-region you’re looking at; most counties in the central part of Appalachia are below average, for example.
The authors argue that for local economic development professionals who are charged with “identifying, advocating, and implementing strategies and programs to support local job and wealth creation,” determining what economic diversity means is more complex than it is for the traditional researcher. Here they provide a helpful rundown of the what, how, why (and later on, where) of an economically diverse region.
In fact, economic diversity is best understood as a multidimensional concept: as a varied mix in what a place makes (its private sector firms and other employers); as a varied mix in what a place does (the skills and capabilities of its workforce); and as a varied mix in the reasons there is demand for—and supply of—the goods and services that a community’s employers and workers produce. Goods and services are what a local economy produces; the nature of the human capital in a place shapes how a local economy is able to produce; and the sources of demand and reasons for supply of goods and services reveal why a local economy is able to compete in the global marketplace.
Some places are a better fit for certain economic activities than other places. This notion of comparative advantage has long been part of economists’ toolbox for explaining regional differences and the essential lessons can contribute to understanding regional economic diversity. The advantage of a place for particular industries might come from the presence of certain natural resources, the existence of a workforce with the requisite skills to perform a particular activity, or the presence of a finance and business support services network that has long catered to the needs of a particular industry sector. In addition to benefitting incumbent firms, existing industry specializations may grow as those advantages attract new, related firms to the region. Approaching economic diversity from the point of view of development practice often means investigating the factors that make a region attractive or unattractive to particular industries and then analyzing the demand, workforce, technology, and locational characteristics of its economic specializations.
Just having a generic mix of industries shouldn’t be the goal. Rather, economic development professionals should strive to have a strong group of specialized industries or industry clusters — those that are unique to their region and can serve as the “multi-legged foundation for the local economy,” the report states.
In other words, “a good diversification strategy is a matter of implementing many successful specialization strategies simultaneously.”
Tips for Economic Developers
Any good economic development strategy should be based on a strong understanding of the local region. This is where data comes into play — data on the economic base of the region and the detailed industries that compose the local economy.
As White and Mix noted in their March webinar, achieving diversity requires sound economic development practice. They outlined a few principles:
- Establishing a process that enables the pursuit of a long-term vision
- Thinking and operating regionally
- Working across silos
- Possessing strong regional leadership
- Being data-driven (their emphasis)
To help local practitioners be data-informed, ARC developed a web tool that gives data on the industrial, functional, and occupational diversity for any county. You can explore the tool and read more about the report at economicdiversityinappalachia.creconline.org.
For the full report and all the materials in one PDF, click here. For more on EMSI’s employment data — available at the county, MSA, and ZIP code level — email Josh Wright. Follow EMSI on Twitter (@DesktopEcon) or check us out on LinkedIn and Facebook.