Location Quotients

It seems to me that almost every

stripmall has a nail shop in it.

It makes me wonder…how 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!

Let’s 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”!

Let’s explore location quotients

In this unit, you’ll 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, let’s define a region…

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”.

There are about 330 MSAs in the U.S.

The nation’s 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 MSA…but then again, not every county has 50,000 people in it. In fact, most of these counties do not.

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.

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!

Let’s 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)

One economic measure of a region is its incomes per person

Hampton Roads is ranked 108th

Note that Bridgeport-Stamford-Norwalk had the nation’s highest income in 2004

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

perspective…This area is very close to New

York City.

Let’s use LQs to figure out why their income is so high!

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.

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 weren’t 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 aren’t released. This point is unimportant for our work.

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.

We’ll 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

shouldn’t surprise us…Bridgeport 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.

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 Anytown’s Location Quotient for ice cream shops, simply put 25% over

5%...which is 5!

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 nation’s.

Industry is 50% more

concentrated locally than it is

nationally.

Industry is substantially more

concentrated locally than it is

nationally.

In other words, there aren’t many businesses competing in this

area…could be an opportunity for me!

In other words, the field is crowded…I’d better make sure I know what I am getting into if I want to survive as a business.

Let’s 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.

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!!

Individual exercise

• Try to determine what you think will be the Hampton Roads region’s top three leading industries are (as measured by the location quotient).

If you guessed Military, you are correct!

Calculating location quotients

Here are the areas of strength for Hampton Roads

Try this exercise to make sure you understand!

Click to see the answers.What do you think this town

might look like?

How can you use this information

• Determine an area’s 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

OK…so how do I determine a location quotient ?

Step 1: Select the geographyGo 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.

Determining location quotients for your business proposal (continued)

Step 2: Collect the employment dataGo 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

Determining location quotients for your business proposal (cont.)

Step 3: Select the geographyGo to: http://www.census.gov/econ/cbp/index.html

Use this box to collect data for the US. You’ll

see total employment at the top of that table and

have to click “detail” next to your NAICS code to get industry

data.

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!!!

Keep this in mind!

Navigating these databases can be difficult and frustrating.

If you think you gave it your best shot and want some help…email or call.

slacroix@tcc.edu …. 757-771-8009