Location Quotients

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  1. 1. Location Quotients It seems to me that almost every stripmall has a nail shop in it. It makes me wonderhow many of these shops do we need? How many is too many?!? One way to measure this idea is using location quotients. A location quotient measures how well represented an industry is in a particular area. Click to see an example!
  2. 2. Lets apply the concept of a location quotient in a beach town A location quotient (LQ) is a measure of how concentrated an industry is in a particular geographic area For example, ice cream stores are heavily concentrated in ocean front communities! Can you think of another industry that is heavily concentrated in ocean front communities? I bet you guessed hotels, restaurants, or maybe even Salt Water Taffy stores!
  3. 3. Lets explore location quotients In this unit, youll learn what a location quotient is, how to calculate it, and (most importantly) how it can be used. Keep in mind that location quotients can be calculated for a small area like a county or a larger area like a region. So before we begin, lets define a region
  4. 4. First of all, what is a region? A region is a geographic area that is connected economically. The U.S. government refers to regions as Metropolitan Statistical Areas or MSAs. A Metropolitan Statistical Area contains a core urban area of 50,000 people and can contain nearby counties. They also include adjacent counties that have a high degree of social and economic integration (as measured by commuting patterns). This is an image of the future Dubai City and its tallest building in the world. It will be almost 2,000 feet tall, surpassing the Sears Tower by 260 feet. Clearly this is a core urban area.
  5. 5. There are about 330 MSAs in the U.S. The nations 330 MSAs can be seen on this map. Each is shaded a different color. Some include one county, others include several counties. Not every county is in an MSAbut then again, not every county has 50,000 people in it. In fact, most of these counties do not.
  6. 6. Where do we live? Our region is nicknamed Hampton Roads or Tidewater but is technically known as the Virginia Beach-Norfolk-Newport News MSA It includes about 1.6 million people living in these cities and counties. Our population is about 0.6% of the U.S. population.
  7. 7. Why do we study regional economics? Because regions (i.e. MSAs) are the heart of our economy. Regions are the source of much of our culture. Regions are our economic centers. Economically, regions are quite important. Only about 25% of U.S. counties are in an MSA, yet those counties hold 85% or our jobs and 83% of our population!
  8. 8. Lets use location quotients to analyze a region In the next few slides we will: Compare incomes in all MSAs Determine that the Bridgeport-Stanford-Norwalk MSA has the highest income Calculate LQs for the Bridgeport-Stanford- Norwalk MSA Calculate LQs for Hampton Roads (Virginia Beach-Norfolk-Newport News MSA)
  9. 9. One economic measure of a region is its incomes per person Hampton Roads is ranked 108th Note that Bridgeport-Stamford-Norwalk had the nations highest income in 2004
  10. 10. Bridgeport-Stamford-Norwalk, CT So where is Bridgeport- Stamford-Norwalk? And what is going on there to make incomes so high? Their region includes 0.3% of the U.S. population and employment but has incomes and earnings that are well above the national average. Just to give you geographic perspectiveThis area is very close to New York City. Lets use LQs to figure out why their income is so high!
  11. 11. Employment in Bridgeport, CT So what kind of jobs do they have there? But how can I compare that with the nation? Looks like they are big on health care and retail.
  12. 12. Comparing Bridgeport to the U.S. First, we can compare total employment in each industry in Bridgeport- Stamford- Norwalk with the U.S. Obviously, the number will be smaller. Note the D for Mining and Construction. D stands for disclosure which means there werent enough firms to disclose the information. If there are only two firms and I own one, then I can figure out what the other is doing given this information. To protect privacy, the data arent released. This point is unimportant for our work.
  13. 13. Calculating share of employment in each industry Then shares of total employment can be calculated for each industry. These shares can be used to calculate location quotients. Well practice calculating an LQ on the next slide. Here we see that only 0.1% of people in the Bridgeport- Stanford- Norwalk MSA work in Forestry & fishing. That is less than the national average (0.6%) but that shouldnt surprise usBridgeport is urban 0.1% was calculated by dividing 381 by total employment in the MSA, which is 547,097. 381/547,097=0.1% when rounded.
  14. 14. Imagine Anytown has 500 employees in ice cream shops and 2,000 employees total. Calculating Location Quotients Here is a hypothetical example: In other words, Ice cream stores are 5 times more concentrated in Anytown than the rest of the nation! In other words, 25% of employment in Anytown is in an ice cream shop. Now imagine that in the entire country, there are 10,000 people working in ice cream shops and 200,000 people working in total. In other words, the share of people working in ice cream shops in the country is 5% (which is 10,000 divided by 200,000) To get Anytowns Location Quotient for ice cream shops, simply put 25% over 5%...which is 5!
  15. 15. Interpreting the Location Quotient LQ= 0 LQ= 0.5 LQ= 1.0 LQ= 1.5 LQ= 2.0 LQ= 2.0+ Industry is UNDER represented in my area Industry is OVER represented in my area The industry is nonexistent in my area Industry is half as concentrated in my area than in the nation. The local concentration is the same as the nations. Industry is 50% more concentrated locally than it is nationally. Industry is substantially more concentrated locally than it is nationally. In other words, there arent many businesses competing in this areacould be an opportunity for me! In other words, the field is crowdedId better make sure I know what I am getting into if I want to survive as a business.
  16. 16. Lets return to Bridgeport- Stamford-Norwalk Make sure you understand how the last column is calculated! With an LQ of less than one, clearly, forestry & fishing is underrepresented in Bridgeport. With an LQ of 2.46, we see that Bridgeport specializes in management.
  17. 17. It is now easy to see why the incomes in Bridgeport are high! Note that employment in Bridgeport is concentrated in high wage industries. No wonder their per capita income is so high!!
  18. 18. Individual exercise Try to determine what you think will be the Hampton Roads regions top three leading industries are (as measured by the location quotient).
  19. 19. If you guessed Military, you are correct! Calculating location quotients Here are the areas of strength for Hampton Roads
  20. 20. Try this exercise to make sure you understand! Click to see the answers. What do you think this town might look like?
  21. 21. How can you use this information Determine an areas strategic strengths An industry may perform better in certain areas Determine if an industry is underrepresented If your area has a low LQ, the area may need more firms in that industry Determine if an industry is overrepresented If you open a business in an area with a high LQ, your business will face a lot of competition and may fail
  22. 22. OKso how do I determine a location quotient ? Step 1: Select the geography Go to: http://www.census.gov/econ/cbp/index.html Use this box to change geography. That will allow you to collect employment data for your local MSA. You can select any area in the U.S. You might also select a county if you want better detail.
  23. 23. Determining location quotients for your business proposal (continued) Step 2: Collect the employment data Go to: http://www.census.gov/econ/cbp/index.html The is total Employment in the area for 2008 Use the detail button to Drill Down on your employment data using your NAICS Code
  24. 24. Determining location quotients for your business proposal (cont.) Step 3: Select the geography Go to: http://www.census.gov/econ/cbp/index.html Use this box to collect data for the US. Youll see total employment at the top of that table and have to click detail next to your NAICS code to get industry data.
  25. 25. Determining my LQ 636,795 120,903,551 378 56,159 LQ = 1.16 Here is the actual data for pet sitting (NAICS 812910), assuming I am consider opening a business in the Virginia Beach-Norfolk Newport News MSA: There were 378 pet sitters in Hampton Roads in 2008. There were 636,795 employees in Hampton Roads in 2008. There were 56,159 pet sitters in the U.S. in 2008. There were 120,903,551 employees in the U.S. in 2008. It is up to you to interpret this number!!!
  26. 26. Keep this in mind! Navigating these databases can be difficult and frustrating. If you think you gave it your best shot and want some helpemail or call. slacroix@tcc.edu . 757-771-8009