Jobs, Local Economies and Opportunity

Why do we live where we do? For most of us, where we live is determined by an array of lifestyle choices coupled heavily with the location our job. According to the Census Bureau, the average American spends around 26 minutes commuting to work. While the data shows that we no longer live where we work the paradox is, where we live is determined by the work we do and its local availability. Let me explain.

Not all jobs are equal

People move to specific areas that offer better opportunities and quality of life than their current home or place of work. Teleworking, flex-hours and overall improvements in work flexibility have erased the strict 9-5 day, but traffic congestion and commuting distance have also increased over the last 2 decades, pushing up average travel time to work. Alongside this, we’ve seen major shifts in national, regional and local job markets and this makes a huge difference to a community’s competitiveness and ability to attract jobs.

In 2015, Florida known as the Sunshine State became the Magnet State growing by more than 1,000 people a day.  It grew faster than California and surpassed the 20 million population mark for the first time in its history. But there’s more to the story of population migration and the changes in economic opportunities than simplistic headlines. People don’t just move to a state; they move to a job or the promise of economic opportunity. Those jobs are created by communities and businesses at the local level and not all communities or jobs are equal.

Understanding Employment Dynamics with Shift Share

If you’re in real estate you can’t afford to miss the dramatic changes in employment your local market has faced in the past decade. If you aren’t measuring and analyzing those changes then you are missing out on a lot of business insight that can differentiate you over your competition.

There are two types of jobs; Basic jobs are in industries that export products or raw materials out of that area, which includes obviously, industries like manufacturing. Any industry that is more locally concentrated, in other words has a greater share of its total employment concentrated in that industry compared to the national economy, is a basic job. The community produces more “output” than is needed locally so it’s exported to meet demands at other locations. Those jobs are the core of the community’s economic base. Non-basic jobs provide services and support to the basic industries and include banks, schools, shops, restaurants, education, etc.

In simple terms, basic jobs create non-basic jobs because they create competitive opportunity and the income they generate or earn will be spent within the local community. The ratio of basic to non-basic employment is known as the Economic Base Multiplier (EBM). The EBM and a community’s industry mix are direct measures of its economic well-being and therefore the viability and vitality of its real estate markets.  

Data-driven Decisions – Maximizing Competitive Advantage

EBM and employment mix change. How those change over time and at what pace, are determined by national, industry-level and local changes. Esri has made it easy for real estate professionals to identify what changes have occurred within a time period using a three-step Shift Share analysis calculator. This calculator measures job growth or losses across different industries and quantifies the degree of local competitive advantage by summarizing the data in a table as well as on an interactive map.

For example, from 2010 to 2014 Los Angeles County added more than 296,708 jobs, a combination of national growth, industry change and local competitiveness as shown in the table below. During this time the national economy grew. Shift share analysis shows us that national growth alone accounted for 294,832 of those jobs. It also highlights a major shift in employment fundamentals; a dramatic growth in administration of waste services and accommodation and food service and decline in other services, educational services and information industries. Overall there was a net loss of 36,469 jobs in the industry make up compared to the national performance.

Los Angeles County Jobs Growth 2010-2014

Local competitive and attractiveness generated just under 40,000 additional jobs. This is a measure of how attractive Los Angeles is compared to other counties in its regional economy, California or the nation as a whole. While healthy, analysis of the local patterns of industry level job gains and losses shows us just how different Los Angeles County is to the national as a whole.

Health care and social assistance exploded, with jobs growth of 152,881, 4 times higher than the national contribution at 36,412. Other Manufacturing and other service, excluding public administration jobs under performed, losing more than 137,000 jobs locally. These high numbers suggest many companies relocated elsewhere or went out of business.

Turning Analytics into Action

What does all this mean? How does it help me? Firstly, think about the impact 137,000job losses would have on the demand for offices and industrial properties. There will be increased vacancy and supply which will impact rents. Tenants can move to better premises with cheaper rent, so they may be looking to break leases or renegotiate existing contracts. In manufacturing, older properties will be less competitive and but there might be opportunities to find new or larger properties for your tenants who are expanding or want to move.

You now have quantitative insights into the local market that many of your competitors don’t. When you measure the medium and long term drivers, you can capitalize on this understanding and be ahead of the curve with deals.

Shift share provides a holistic understanding of local communities and market forces behind changes in supply and demand. It enables better strategic and tactical decision making because gives more clarity to absorption and can optimize the timing of deals. Whether you’re at the executive or operational level, shift share should be a key part of how you analyze markets, evaluate strategy and determine the right mix and timing for success. Analysis proceeds action, so isn’t it time you made shift share an active part of your analysis strategy?

Boost your insight! Access our shift-share analysis app for the whole of the United States.