To understand regional economic trends it is important to have the right data, and to contextualize the data so you can “see the story” the data is telling. While many can get the data, few can get at the story.
A relatively straightforward way to get at “the story” for a region is through shift share. Shift share is a traditional analysis method for determining how much of regional job growth is attributable to national trends versus local trends. Shift share helps answer the question: “Why is industry X growing (or declining) in our region?”
Now shift share can be difficult to grasp and conduct. However, outfitted with some actual data, and some clever animation, shift share comes alive and provides a glimpse of local trends not available from simple examination of the data alone. To illustrate, we took some of our employment data and loaded it into a Google Docs spreadsheet so you can see how it works and why it’s so useful.
First, let us start with the bubble chart we put together for an analysis we conducted for the Washington DC metro area. The two directions we want to pay attention to are “upward and right” (which indicates a sector is becoming more competitive regionally and nationally) and “downward and right” (indicating a sector becoming less competitive nationally but more competitive regionally).
Mouse over the different bubbles to see how some are becoming more competitive while others are becoming less competitive. What are some of your initial observations?
Note: A bug on Google’s end requires that you be signed into a Google account to view the bubble chart. However, the chart in its most basic form can be seen here. Under “Color,” add “Unique colors,” and remember that the vertical axis should be “mix” and the horizontal axis should be “shift.”
How to read the chart
The chart is built on historical and projected 2-digit industry data from 2007-2012.
• The X-axis: Industrial Mix Effect — shows the share of growth explained by growth of the sector at the national level. Movement to the right indicates sectors that are becoming more important in the national economy.
• The Y-axis: Regional Competitive Effect — shows the share of growth explained by growth beyond the national level of growth. It captures growth reflecting an increased competitive advantage of the sector in region.
DC: A Tale of Two Sectors
Like other metro areas, Washington DC’s economy has changed a lot during the recession. But how has DC’s change differed from other metros? While unemployment in other major MSAs has ballooned, at 6.2% the DC metro area has the second-lowest unemployment rate among major cities. It’s also home to an increasingly larger segment of young, wealthy workers.
With this in mind we can try to discern which sectors are the competitive forces behind this growth. We can also see the sectors that lag behind. The industry sectors of greatest note are Government and Professional and technical services. They employ the most, and both are experiencing some impressive trends.
- Government — includes federal, state, and city government and has shown considerable growth in the city. However, the growth in the Government sector nationally is actually outpacing the growth in Government in DC. Is that something you knew?
- Professional and technical services — includes consulting firms, contractors, etc. and has been the true star of the DC economy and is projected to remain very competitive. The sector grew 24% from 2002 to 2009 in Washington, and when you include shift share figures, it’s clear that it is outperforming the sector on the national level. A lot of this has to do with the fact that these consulting firms and contractors are capturing government spending.
What other trends can you see?
Putting shift share analysis together:
• First, keep in mind that shift share analysis can be applied to almost any labor market characteristic. This means with shift share we can look at industry clusters (e.g., Biotech), a specific industry sector (e.g., manufacturing), occupation clusters (e.g., “green” construction jobs), and specific occupations (e.g., Welder).
• To do this shift share makes regional change a function of three related factors:
- Growth or decline of the national economy,
- The growth or decline of the particular industry sector or occupation, and
- The regional change for that industry sector or occupation.
• Once we have these numbers we can begin to understand if the growth or decline in the region (the share) has more to do with what’s happening regionally, or if it’s more dependent on national changes (the shift).
For more information, or to perform this analysis for your area, please contact us.