By the Numbers or Why the Numbers?

Mar 28, 2013 by

Barnstable Patriot Article
March 21st 2013
Written By: David Augustinho

From time to time I joke with my editors about the charts that I like to use in my articles. The truth is that a lot of my work depends on an analysis of local economy, usually an analysis of the jobs in our economy.

The following chart provides a lot of data for a workforce development professional. It is one of the most basic snapshots that we use of the employment situation. Some of the column headings may not be familiar to you. I am going to explain the columns on this chart, and extrapolate some of the meaning that applies to my work.

First of all, this chart is a look at all of the wage earning jobs in the Cape and Islands Workforce Area. So, right away we know that not all of the jobs are listed here. Business owners who do not receive a wage, and self-employed individuals, are not included in this data. But, for our purposes, it is an excellent tool to use as we look at the structure of our economy.

The first column is the NAICS Codes. NAICS is an acronym for the North American Industrial Classification System. We have been using NAICS codes since 1997 (updated in 2012) when they replaced SIC (Standard Industrial Classification) codes. It is still occasionally necessary to compare the old SIC system to NAICS codes, especially when doing historical/longitudinal analysis of  data.

In this chart we are looking at the broadest (2 digit) definition of the industries. We could look at a more detailed breakdown of the sectors.

For instance, in the first NAICS category of Accommodations and Food Service, if we looked at the 4 digit data we could factor out limited–service (fast food) restaurants from full-service restaurants, and see information about each. In retail we could look at department stores, men’s stores, gift shops, etc..  Sometimes this extra level of detail is needed.

The Description column is a brief description of what sector of the economy is contained in the NAICS code we are examining. So in NAICS Codes starting with 72 we will have accommodations and food service companies listed.

We have ranked the industries by the number of 2012 jobs in the industry. The 2012 and 2013 jobs allow us the ability to look at employment over time. We could have selected 2012 to 2017 and looked at the projected growth in the different sectors. To keep this chart brief we are only comparing one year of growth, which shows up in the next column, the change in the number of jobs from one year to the next.

The Location Quotients (LQ’s) compare the share of a sector in our economy to the share of that same sector in the state or national economy. This is a very important statistic for economic development practitioners because it is a way to really see what an economy looks like compared to other regions, or the nation as a whole. This information allows us to look at strengths and weaknesses in our economy. It also gives us a way to see what is missing from our economy. More on the LQ’s in a minute.

The average wage and number of establishments are pretty self-explanatory as stand-alone statistics, but we can apply them in a couple of different ways. For example, we can see that in Health Care and Social Assistance a relatively small number of companies generate a lot of employment, especially when compared to the hospitality or retail sectors.

As an economic developer looking at that statistic I know that if I can attract heath care employers from outside our economy, or grow the existing companies, I can increase jobs with fewer inputs. Also I can see that the average wages are higher than other sectors so I will be adding more to the economy’s GDP with each additional job.

OK let’s look at the Location Quotients and what they mean to a workforce or economic development professional.

An LQ of 1 equals the average employment in a sector in a region. So in our chart if you look at the employment in NAICS Code 53, Real Estate and Rental and Leasing you can see that we have just about the same employment in that sector as the nation (1.03) and a bit more than the state (1.22). But if you look at Accommodation and Food Service, NAICS Code 72 you see that we have twice as much employment as the state (2.01) and nearly double the average employment (1.95) as the nation.

When you combine the LQ data with average wages for the industry you find statistical proof for what you know intuitively, that the Cape and Islands wage structure, for it’s largest employment sector, is not conducive to a booming economy. But…our NAICS Code 72 is indicative of a strong tourism/hospitality sector that does bring in significant spending from outside the area, which has a high multiplier effect throughout the economy.

Given the numbers in the chart it would make sense to try and increase the number of Professional, Scientific, and Technical jobs, NAICS Code 54. With an LQ that shows that we only have about 75% of the employment in that sector as the rest of the country, and the fact that the sector has a very high average wage, providing incentives to existing businesses and trying to attract new businesses would make a lot of sense.

I hope that this information provides you with some insight into some of the statistical tools that we apply when designing workforce development programs. If you go to our website, you can see how we use the data in our strategic planning documents.

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