Economic Base AnalysisLocation QuotientsApplicationsDefinitionsSlide 5AssumptionsPrimary ConsiderationsMeasurement UnitsLocation Quotient ApproachSlide 10Underlying AssumptionsOrange County Broad AnalysisDetail of Manufacturing SICAllocation of Employment: Basic vs. Non-BasicSlide 15RefinementsPopulation and Employment MultipliersSlide 18Population and Employment Multipliers, An ExampleSo That’s Economic Base Analysis1 Economic Base AnalysisThe Analysis of Local EmploymentWayne Foss, DBA, MAI, CRE, FRICSFoss Consulting GroupEmail: [email protected] QuotientsLocation QuotientsUsed to identify the local economic baseShift-Share AnalysisUsed to identify changes in the local economic baseData RequirementsEmployment DataCensus DataU.S. Department of Labor (stats.bls.gov)Employment and EarningsCalifornia Employment Development Dept.California Labor Market Bulletin3ApplicationsCan Analyze Employment data:at 2-digit level for broad analysisat 5-digit level for greater clarityAnalysis is applicable to:StateRegionalMetropolitanCountyUse: to determine the concentration of an industry in a given place4DefinitionsBasic or Non-Local:firms that export goods and/or services out of an area, brings in money to an areaExamples: auto assembly (manufacturing)In General they are firms that:manufactureminingfarmsfederal and state government officestourist related industries (Disneyland)5DefinitionsLocal:Firms or parts of firms whose activities are largely dependent on local economic conditionsIn general they are firms that:provide goods and services to community residentsincludes local government6AssumptionsSimple model that assumes that the basic sector is the prime cause of local growthEconomic base technique is generally used to determine the impact of local economic changes Used to project future state of the local economy7Primary ConsiderationsIdentifying the Study Areacan be conducted for any size area for which data can be obtainedData Constraintsmake county or multi-county regions the most widely used analysis unitsstudies for urban areas generally adopt the boundaries of the MSA8Measurement UnitsEmployment (or number of jobs) is most widely used unit of measurementPayrollcan be distorted by strikes, extended layoffs or heavy overtime employmentSales & Value Addedeliminates double countingrarely used because data is very difficult to obtain at the local level9Location Quotient ApproachMost widely usedEasily computedDefined as the ratio of an industries share of the local economy to the industries share of the national economy10Location Quotient ApproachPctg of local employment in industry xPctg of nat’l employment in industry xLQ =Where:• LQ = 1 local industry is producing just enough output to satisfy local consumption• LQ > 1 local industry is producing an excess for export (excess over 1.0 represents basic industry• LQ < 1 local industry not producing surplus for export, and the goods or services must be imported11Underlying AssumptionsProduction for export does not begin until local demand has been satisfiedConsumption is Uniform from area to areaProductivity or output per worker is uniform from area to areaConsumption of goods and services is directly proportional to employmentNational production in all industries equals consumption in all industriesie: no net national exports by any industry at the national level12Orange County Broad AnalysisEmployment (000's)OC Nat'l OC Nat'l LQ LQIndustry Group NAICS 2005 2000Mining10 0.7 625.0 0.6 599.0 0.10 0.10Construction20 99.3 7,277.0 77.0 6,787.0 1.22 1.08Manufacturing 30 182.7 14,232.0 216.7 17,263.0 1.15 1.19Trade, Transportation, Utilities40 268.9 25,909.0 259.1 26,225.0 0.93 0.94Information50 32.8 3,066.0 41.5 3,631.0 0.96 1.08Professional & Business Services60 267.0 16,882.0 248.8 16,666.0 1.42 1.42Leisure & Hospitality70 164.4 12,802.0 140.7 11,862.0 1.15 1.13Other Services80 48.2 5,386.0 44.2 5,168.0 0.80 0.81Gorvernment90 155.3 21,803.0 146.6 20,790.0 0.64 0.67Total - NonFarm1,490.9 133,463.0 1,388.9 131,785.0Locational Quotients (LQs) for Orange County, California MSAAnnual2005200013Detail of Manufacturing SICOC Nat'l OC Nat'l LQ LQPctg. Chg.Industry Group NAICS 2005 2000 2005 2000 OC Nat'lManufacturing 30 182.7 14,232.0 216.7 17,263.0 -17.56% Durable 31 128.0 8,953.0 153.4 10,876.0 -17.68% Fabricated Metal Product 31332000 22.8 1,519.0 25.0 1,752.6 1.17 1.14 -8.80% -13.33% Machinery Mfg. 31333000 11.0 1,161.8 13.5 1,454.7 0.74 0.74 -18.52% -20.13% Computer & Electronic 31334000 42.5 1,320.4 50.7 1,820.0 2.51 2.22 -16.17% -27.45% Semi Conductor & Other Elec. 31334400 14.3 451.1 20.1 676.3 2.47 2.37 -28.86% -33.30% Navigational, Measuring Instruments31334500 18.1 438.1 16.6 478.6 3.22 2.76 9.04% -8.46% Transp. Equip. 31336000 17.0 1,772.3 20.8 2,055.8 0.75 0.81 -18.27% -13.79% AeroSpace Product 31336400 11.3 455.5 14.3 516.7 1.93 2.20 -20.98% -11.84% Non-Durable 32 54.7 5,278.0 63.3 6,388.0 -17.38% Textile 32310035 12.6 217.9 15.4 378.2 4.50 3.24 -18.18% -42.38% Food 32311000 7.6 1,472.0 8.0 1,553.1 0.40 0.41 -5.00% -5.22% Paper 32322000 3.6 484.4 4.5 604.7 0.58 0.59 -20.00% -19.89% Printing & related support 32323000 9.1 648.1 11.0 806.8 1.09 1.09 -17.27% -19.67%Locational Quotients (LQs) for Orange County, California MSAManufacturing Industry Group, 2000/2005Employment (000's)14Allocation of Employment:Basic vs. Non-BasicIndustry Group NAICS LQ Total Basic NonbasicMining10 0.10 0.7 0.7Construction20 1.22 99.3 99.3Manufacturing 30 1.15 182.7 182.7Trade, Transportation, Utilities40 0.93 268.9 268.9Information50 0.96 32.8 32.8Professional & Business Services60 1.42 267.0 267.0Leisure & Hospitality70 1.15 164.4 164.4Other Services80 0.80 48.2 48.2Gorvernment90 0.64 155.3 155.3Total - NonFarm1,490.9 338.7 880.6Basic and Nonbasic Employment Estimates, 2005Orange County, California MSAAssumption ApproachEmployment (000's)15Allocation of Employment:Basic vs. Non-BasicIndustry Group NAICS LQ Total Basic NonbasicMining10 0.10 0.7 0.7Construction20 1.22 99.3 99.3Manufacturing 30 1.15 182.7 23.7 159.0Trade, Transportation, Utilities40 0.93 268.9 268.9Information50 0.96 32.8 32.8Professional & Business Services60 1.42 267.0 267.0Leisure & Hospitality70 1.15 164.4 164.4Other Services80 0.80 48.2 48.2Gorvernment90 0.64 155.3