Shift-share analysis offers a unique way to evaluate industry competitiveness in a region relative to the US. The process splits growth into its component parts to reveal how local industry performance compares to national trends. The three components of growth are:
- U.S. Economy Share: The share of a local industry’s growth in the local economy resulting from overall growth in the U.S. economy.
- U.S. Industry Share: The share of a local industry’s growth in the local economy resulting from industry growth at the national level above and beyond overall national growth.
- Local Industry Share: The growth portion of a local industry above and beyond national trends (the previous two components). Local Industry Share is the component that highlights a local industry’s competitiveness.
Shift-share is best used to monitor the change in Industry share. When this line is positive, the local industry is improving its competitiveness.
A Hypothetical Example
A hypothetical example reveals how shift-share numbers are calculated: Assume that employment in the local construction industry grew 6%, while the overall U.S. economy grew 2%, and the national construction industry grew 3%. In this situation, the U.S. Economy Share would be 2% (the actual rate); the U.S. Industry Share would be 1% (the portion above the 2% overall U.S. Economy growth); and the Local Industry Share would be 3% (the difference).
The Local Industry Share indicates relative performance of a local industry, revealing whether the local industry has been advancing or declining relative to national trends. These Share percentages can then be translated into actual jobs created to demonstrate the number of new jobs attributable to improvements in local competitiveness. In the shift-share charts on the following page, each industry’s net employment gain is broken into the three components. These components are additive, i.e. they show how many jobs were created for each factor (US Economy, US Industry, Local Industry), and when added together, they equal the net new job creation total for the industry.
For example, the US Economy Share of manufacturing may result in the loss of -200 jobs (i.e. the effects of the overall national economy led to the loss of manufacturing jobs in a community); the US Industry Share may equate to a loss of -100 jobs (i.e. the effects of the overall manufacturing industry led to a loss of manufacturing jobs in a community); and the Local Industry Share may account for a gain of +200 jobs (i.e. the local manufacturing industry led to the creation of manufacturing jobs in a community). These three components combine for a net job creation of -100 in the local manufacturing industry, but the Local Industry Share had a positive job creation effect, despite net job losses.
(c) Avalanche Consulting, Inc.