1. Economic Base Analysis
4/17/2017
Economic Base Analysis
The Analysis of Local Employment
Wayne Foss, DBA, MAI, CRE, FRICS
Foss Consulting Group

2. Location Quotients Location Quotients Shift-Share Analysis
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 Bulletin

3. Applications Can Analyze Employment data: Analysis is applicable to:
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 place

4. Definitions 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)

5. Definitions
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 government

6. Assumptions
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 economy

7. Primary 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 MSA

8. Measurement 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 level

9. Location 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 economy

10. Location Quotient Approach
Pctg of local employment in industry x
Pctg of nat’l employment in industry x
LQ =
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 imported

11. Underlying 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 level

12. Orange County Broad Analysis

13. Detail of Manufacturing SIC

14. Allocation of Employment: Basic vs. Non-Basic

15. Allocation of Employment: Basic vs. Non-Basic

16. Refinements Equal Productivity Adjustments
need National and Regional Data on value added and employment
source: Bi-decade census of business
Equal Consumption Adjustment
need National and Regional Data on consumption by industry or commodity; data which is not generally available
Can replace consumption data with either a population or personal income ratio

17. Population and Employment Multipliers
Formulas:
Employment Multiplier: Ke = Et/Eb
Population Multiplier: Kp = P/Et
Where: Ke = Employment Multiplier
Et = Total Employment
Eb = Basic Employment
Kp = Population Multiplier
P = Total Population

18. Population and Employment Multipliers

19. Population and Employment Multipliers, An Example

20. So That’s Economic Base Analysis
Are there any Questions?
Wayne Foss, DBA, MAI, CRE, FRICS, Fullerton, CA USA