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Diversified Economies Matter

How One State Is Making It Happen

June 6, 2018 by Cara Christopher

Most professionals strive to have well-rounded experiences, education, and knowledge to develop their résumés and increase their shot at success. What if communities had this same goal? What if we told you that, just like the individual, a well-rounded, diverse community—featuring businesses with varying offerings, skills, and knowledge in a robust ecosystem—has a better shot at success?

In this article, we will:

  • Provide insight on new diverse industry benchmarks.
  • Discuss the most diversified metros, headlined by Madison, Wisconsin, and the least diversified metros, led by Elkhart, Indiana.
  • Compare more diverse economies that experienced lower unemployment rates and recovered faster than less diverse economies during the Great Recession.
  • Evaluate two New York locations with varying industries, agriculture and natural resource industry findings, and economic volatility.
  • Review Nevada—the poster child for unemployment during the Great Recession—which has changed its industry diversity portfolio, making it the national leader in private sector job growth.
  • Offer recommendations to diversify your economy:
    • Understand your regional industry and occupation diversity.
    • Develop long-term goals to diversify your economy based on data-driven decisions.
    • Create strategies that encourage innovation and entrepreneurialism, develop high potential economic engines, and generate a sustainable business support system.

A Diversified Economy Is a Resilient Economy

In May, we launched C2ER’s Diversity Index, exclusively through Emsi Developer. Economic developers can now see their region’s diversity ranking, which will be helpful in assessing a region’s strengths and weaknesses and act as a starting point for setting long-term goals.

Industry Diversity Rankings (Metro MSA)

We compared the top and bottom 10 metros during the peaks and valleys of the Great Recession and recovery (2007-2010, 2010-2017) and found the following:

  • More diverse economies had lower unemployment rates and recovered quicker than less diverse economies.
  • More diverse economies were less volatile, as measured by changes in employment and number of jobs.
  • A cluster strategy can lead to growth while a diversification strategy can lead to stability. Both strategies can be pursued concurrently for long-term benefits.

Diversity measures the number of industry and occupation types in a region and the evenness of employment across these industries and occupations. Diversity is an important topic for economic developers who are focused on economic resiliency and growth.

Top and Bottom 10 Diverse Metros

Elkhart, IN, vs. Madison, WI

Often referred to as the “RV Capital of the World,” it’s no surprise to see Elkhart, Indiana, as the lowest-ranked metro. Elkhart has a highly concentrated capital-intensive manufacturing cluster which makes up 44.6% of total employment, compared to the typical share of 4.7%.

Elkhart-Goshen, Indiana Industry Diversity

In comparison, Madison, Wisconsin, ranked at the top with an even spread of industry share. Madison Region Economic Partnership highlights how its largest employers embody its regional diversity in health care, life sciences, agriculture, advanced manufacturing, information technology, and public employment in government and education.

 

Madison, Wisconsin Industry Diversity

Same State, Different Focus

Rochester, New York, ranked in the top 10 most diverse, while Ithaca, New York, ranked at the bottom. Rochester ranked high in healthcare, higher education, capital-intensive manufacturing, and engineering-intensive manufacturing clusters. Meanwhile, Ithaca has a high concentration in its higher education cluster, making up 35.9% of total employment and far exceeding the typical share of 4.3%. With Cornell University, Ithaca College, and Tompkins-Cortland Community College located in the same small area, over 30% of the population has a bachelor’s degree or higher, making Ithaca the seventh lowest diverse metro.

Four Out Of Ten

Four of the 10 bottom metros are heavily concentrated in agriculture and natural resource extraction. This industry cluster typically makes up 1.1% of employment. Midland, Yakima, Visalia-Porterville, and Salina exceed the typical benchmark by over 20 percentage points.

Unemployment Rates

Looking at the top and bottom 10 unemployment rates during the recession and recovery, we see that the most diverse metros had a lower unemployment rate and recovered within four years. The bottom 10 metros had a higher unemployment rate and are still recovering from the shocks of the recession.

Recession Impacts on Unemployment

Volatility

Economic volatility—wild swings in employment rates and other measures of economic prosperity—can make a region unattractive to both residents, educators, and businesses. During the recession, some metro economies experienced small declines while others (e.g., Dalton, Georgia, and Elkhart) were devastated by exceptionally high unemployment rates, loss of businesses, and declines in housing values.

Each metro has enjoyed sustained growth since the recession, although the rate of growth varied dramatically, with Elkhart and Midland, Texas, experiencing the most. Overall, less diverse economies were 20% more volatile, as measured by changes in employment and number of jobs.

Volatility of Bottom 10 Metros

Nevada’s Success Story

No state recognizes the importance of diversity better than Nevada, which lost 184,400 jobs during the Great Recession (a 14% decline) and came out of the downturn determined to diversify its industrial base. In 2011, the Nevada Governor’s Office of Economic Development launched an industry diversification strategy that has resulted in:

  • A diverse industry development focus in health and medical, logistics and operations, natural resources, information technology, and manufacturing.
  • Nevada leading the nation in private sector job growth. Nevada has added 263,400 jobs since 2010, and it’s currently sitting at 1,376,000 total jobs.
Nevada’s Industry Mix

“We promote a robust, diversified and prosperous economy, enriching the quality of life for Nevada citizens.” – Nevada Governor’s Office of Economic Development Mission Statement

Nevada Governor’s Office of Economic Development established a mission-driven approach that has helped it identify high-potential industries to focus on. These strategies have led to substantial job growth since the recession and an economy that’s better prepared for recession impacts.

Bob Potts, research director for Nevada Governor’s Office of Economic Development, spoke to us on the importance of using data to drive decisions and get leadership buy-in.

“Economic developers have the ability to change the course of economic growth and can do so by developing well-informed, long-term diversification strategies,” Potts said.

New Diversity Report Rankings and Recommendations

Economic developers need to assess their diversity, develop long-term goals, and create data-driven strategies to meet those goals. By using the new diversity report, economic developers have the starting point they need to develop well-rounded communities.

We compiled recommendations for diversifying your economy:

  • Create a comprehensive program to recruit, retain, and expand a diverse range of business and industry clusters, particularly in sectors that can strengthen your regional diversity.
  • Encourage innovation and entrepreneurialism by creating business incubators or “makerspaces.”
  • Create a sustainable business support system that engages existing communities and businesses for expansion through technical assistance, supply chain connections, and critical infrastructure needs.
  • Identify economic engines that have high potential to drive growth and economic diversification based on regional strengths, businesses trends, and expertise.

Our new reports will let you dig deeper in understanding your industry and occupation diversity by county, state, and MSA. Contact cara.christopher@economicmodeling.com to request a free report! Current clients can access the diversity reports and data directly in Emsi Developer.

Cara Christopher

Reach out at cara.christopher@economicmodeling.com

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