Feb 10: Shift-Share and the Analysis of Industrial Mix note: readings revised

Feb 10: Shift-Share and the Analysis of Industrial Mix note: readings revised

Edgar M. Hoover and Frank Giarratani, An Introduction to Regional Economics [a classic text, updated]. see Appendix 12-1 The Shift-Share Analysis of Components of Regional Activity Growth. (The Web Book of Regional Science, Regional Research Institute, West Virginia University).

Günter Krumme's useful web site on shift-share analysis

Using Employment Data toBetter Understand YourLocal Economy: Tool 4. Shift-Share Analysis Helps Identify Local Growth Engines (College of Agricultural Sciences, Agricultural Research and Cooperative Extension, Penn State)

see also:Loveridge, Scott. "A Practical Approach to Shift-Share Analysis" Journal of Community Development Society (26, 1) 1995, pp. 111-124 [c-tools "Resource" section]"Shift Share Analysis" (NYEcon)SHIFT-SHARE TECHNIQUE (Florida State)Scranton, Philip "Beyond Anecdotes and Aggregates: The Pattern of Industrial Decline in Philadelphia Textiles, 1916-1931" Antipode 18: 3 (1986) [c-tools]Kingsley E. Haynes, Mustafa Dinc, Productivity change in manufacturing regions: a multifactor/shift-share approach. Growth and Change, Spring 1997 v28 n2 p201-221. [c-tools "Resource" section]Banasick, Shawn and Hanham, Robert (2008), Regional Decline of Manufacturing Employment in Japan during an Era of Prolonged Stagnation, Regional Studies,42:4,489-503. [c-tools "Resource" section]

“Shift-share analysis”

How can we explain the shift in regional employment due to the region’s share of various fast and slow growing sectors?



National growth rates (by sector)

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3 steps:1.How much of the regional employment can be explained by changes in national employment?(e.g., the region is simply following the aggregate national trend)2.How much can be explained by the industry mix (share)?3.What remains “unexplained” by #1 and #2 (the residual)? Call this the regional effect / the “competitiveness” (or uncompetitiveness) of the regional sectors.

1. National share ≈ national employment

1. industry mix ≈ industry share

1. Regional share (regional shares of total national employment in each industry) ≈ residual change ≈ local effect ≈ regional effect ≈ competitiveness ≈ region-specific factors

Many terms same concepts: shift-share ≈ “mix-and-share” ≈ “relative regional industrial-composition analysis”

€

LQ =

eieE iE

ei = local employment in sector ie = total local employmentEi = national employment in sector iE = total national employment

Summary: 3 effects on local/regional employment:

1.National employment changes

2.Industrial mix of the region

3.Residual (everything else) ≈ local factors (e.g., competitiveness)

e.g.,

R = N + M + S

∆ regional employment = National Growth + Industry Mix + Regional Shares Effect

Employment Cittàgazze (city) Change change %1998 2008

wine 200 160 -40 -20%bread 100 120 20 20%total 300 280 -20 -7%

Svalbart (nation) Change change %1998 2008

wine 1000 900 -100 -10%bread 1000 1500 500 50%total 2000 2400 400 20%

Each cell = 50 jobs(2000 total jobs)CITTAGAZZE

What are the implications of Cittagazze’s high concentration in the wine sector, and how much does that explain its differential employment growth rate?

CITTAGAZZE (city) and Svalbart (nation)Imagine a 2 sector economy: wine & bread

Employment Cittàgazze (city) Change change %1998 2008

wine 200 160 -40 -20%bread 100 120 20 20%total 300 280 -20 -7%

Svalbart (nation) Change change %1998 2008

wine 1000 900 -100 -10%bread 1000 1500 500 50%total 2000 2400 400 20%

Question: why did Cittàgazze lose 7 percent of its employment over the ten year period?1.How much of the regional employment shift can be explained by changes in national employment? ANSWER: had the city simply followed the aggregate national trend (+20%), it would have GAINED 300 * 20% = 60 new jobs. But it LOST 20 jobs. (For a total unexplained gap of 80 jobs). 2.How much of the regional employment shift can be explained by its industrial mix?Answer: had Cittagazze sectors followed national trends, its wine sector would have lost 10% (200 * -10% = -20 jobs) and its bread sector gained 50% (100 * 50% = +50 jobs). In fact, the wine sector lost 40 jobs and the bread sector gained only 20 jobs.3.How do we interpret these residuals? (20 less wine jobs than expected, and 30 less bread jobs) Answer: it may be something about the local factors, e.g., they are less competitive than sectors in the nation as a whole.

Question: why did Cittàgazze lose 7 percent of its employment over the ten year period?1.How much of the regional employment shift can be explained by changes in national employment? ANSWER: had the city simply followed the aggregate national trend (+20%), it would have GAINED 300 * 20% = 60 new jobs. But it LOST 20 jobs. (For a total unexplained gap of 80 jobs). 2.How much of the regional employment shift can be explained by its industrial mix?Answer: had Cittagazze sectors followed national trends, its wine sector would have lost 10% (200 * -10% = -10 jobs) and its bread sector gained 50% (100 * 50% = +50 jobs). In fact, the wine sector lost 20 jobs and the bread sector gained only 20 jobs3.How do we interpret these residuals? (10 less wine jobs than expected, and 30 less bread jobs) Answer: it may be something about the local factors, e.g., they are less competitive than sectors in the nation as a whole.

>

>

Industrial Mix (share)

Residual / regional effects / competitiveness

implications

Same same Region mirrors nation – they have the same employment growth rates

Different same “pure mix effect” – either favorable or unfavorable mix

Same different “pure competitive effect” – location quotients = 1, but within sectors, either more or less competitive.

different different A common situation, differences arise from a combination of industrial mix and competitiveness

Question: Same or different as the nation as a whole?

Industrial Mix (share)

Residual / regional effects / competitiveness

implications

Same same Region mirrors nation – they have the same employment growth rates

Different same “pure mix effect” – either favorable or unfavorable mix

Same different “pure competitive effect” – location quotients = 1, but within sectors, either more or less competitive.

different different A common situation, differences arise from a combination of industrial mix and competitiveness

Question: Same or different as the nation as a whole?

>

>

Competitiveness or mix? E.g., why does one wine region growfaster than another? If we further disaggregate (e.g., white vs. red, or by grape, etc., does mix in fact explain the difference?

>

>

Finally: the shortcomings of shift-share analysis (e.g., simplistic assumptions) and various strategies to improve the model.

•Doesn’t deal well with changes (e.g., in employment) due to demographic changes, changes in the labor force (e.g., labor force participation rates), differentiating between output and productivity changes, etc.

•See, for example:•Kingsley E. Haynes, Mustafa Dinc, Productivity change in manufacturing regions: a multifactor/shift-share approach. Growth and Change, Spring 1997 v28 n2 p201-221.

Documents

Feb 10: Shift-Share and the Analysis of Industrial Mix note: readings revised