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in this session we're going to learn how to calculate location quotients to give us an idea of industrial employment specialization in your region of analysis what we mean by industrial specialization is that we have an area or a part of your economy that is more competitive just by virtue of employment than would be the national average so Iowa for example this is easy Iowa is has a competitive advantage in farming we just have significantly more farmers when we look at the composition of our workforce than the national average would have the same could be true for manufacturing if you know anything about Iowa's economy you know that manufacturing is very strong and that we also have a competitive advantage in manufacturing well we find a measure of specialization there are several measures but one that we use is called a location quotient and that's what we're going to look at today it is simply the percentage of local jobs in an industry divided by that same percentage at the national level so for example it would be Iowa's percentage of farmers divided by the national percentage of farmers and that ratio tells us our location quotient so here is the example that I've used in a previous video Iowa let's say Iowa has 10 percent of its employment in an industry and we're going to assume this is a major industry that that is producing for export sales and and that it's very very important so industry I and we have 10 percent and the US average is 2.5 percent so the location quotient is simply Iowa's percent 10 percent divided by the national percent 2.5 equals 4 now that location quotient a 1 would mean that we had the same percentage as the national average which would mean that we didn't have a any any evidence of specialization but a 4 means that we have 4 times more employment than the national average would have suggested in this industry so this means that as I just said we have four times as many jobs and we are therefore specialized and therefore likely producing for export sales meaning we have way more jobs in this industry than would be needed to simply satisfy local demand for the goods and services that were produced in industry I if a location quotient is less than one we're not self-sufficient that means that all things being equal we have a comparative deficit in employment in that particular industry if a location quotient is greater than one and especially if it's over 1.25 or so then we can start to conclude that we're producing for export if we are producing for export we can apportion the jobs in an industry between those that are producing for local demand and those that are producing for external markets our export jobs and the formula for that very simply is is displayed on the screen export jobs are going to be one minus one over the location quotient times the jobs in the industry that we're studying we'll work our way through a very simple example if the location quotient is 4 and there when there are 1000 jobs and industry I then we do the formula 1 minus 1 over the location quotient of four times the 1000 jobs would yield 750 export or basic jobs jobs producing for export or external markets and and this is important 250 of those jobs are producing for local needs I'm going to demonstrate how to calculate location quotients and we're I'm going to compare this is some older data but it's it's set up appropriately for us to make a comparison I'm going to compare the United States with Minnesota and usually you use the United States as your foundation for determining specialization but you could use for example the Midwest or the plain States or some logical combination of an economy that is significantly larger than yours and if I were calculating a location quotient for a particular county in Iowa it would be perfectly okay to compare that county to the state's characteristics to find out whether the county has unique specialization qualities distinct from the state average in this case though we're only going to compare state of Minnesota employment by very broad category these are very very broad industrial categories and that's another thing that we pay attention to when we do location quotient and Allis especially when we're trying to estimate what I just talked about the number of export jobs that might be associated with an industry we normally don't although I will calculate export jobs with this high level of aggregation normally what we would do is we would use highly disaggregated data very very finely disaggregated data to get an idea of the potential number of export jobs but for the purposes of this demonstration we're going to do both we're going to calculate Minnesota's location quotients by very broad category and we'll go through the process of calculating the export jobs so remember the location quotient for any industry I is simply the percentage of jobs in that industry compared to the national average we're going to divide farm employment in Minnesota by the total amount of employment in Minnesota and I'm going to put a dollar sign in front of that too because I'm always going to be dividing by that total now we're going to divide that entire ratio by the same percentage at the national level farm employment at the national level divided by total employment at the national level and again I'm going to put a dollar sign in front of that and I'm going to close that parentheses and when I get an answer it's going to be 1.71 remember location quotient in excess of one indicates specialization so with regard to farm employment relative to total employment and relative to the same percentage at the national level Minnesota is specialized in farm employment we can just copy this formula down to the bottom and we can look at the industries where it is obvious Minnesota has a comparative advantage it has a minor comparative advantage in utilities it has a more moderate advantage in manufacturing in wholesale trade which may be linked by the way to farming and manufacturing because both of those industries are heavily dependent on both specialized and and widely distributed wholesale systems they have demonstrated a specialization and finance and insurance since banking banking and insurance companies they have a specialization in the management of companies and enterprises this usually means that they have some headquarters in that state that are important there's Cargill there's Pillsbury 3m so they have some major corporations in Minnesota so that that that shows that there is specialized in that health care and social assistance we would expect that Minnesota is where the Mayo Clinic is it's one of the nation's premier institutions for health care delivery and it provides health care all across to people all across the world and perhaps a minor specialization in arts entertainment and Recreation so we see that the the the areas in Minnesota that have specialization and those categories that are less than one they don't have specialization for the most part though in areas where they don't have any kind of competitive advantage it's not that much lower than one now I'm going to go through the process of estimating the export jobs if you remember the formula on the previous page the export jobs are going to be one one over the location quotient times the number of jobs in that industry so I'm going to do this but I'm going to put a conditional on this first because I'm only going to calculate the export jobs if the value in the Minnesota location quotient column is greater than one so we're going to start a formula with an equal sign and say if this value is greater than one point zero then do this formula one minus one over the location quotient times the amount of employment in that industry and I have to put one more parenthesis and then hit enter so what that says is that 41,000 of the jobs in Minnesota are producing for export sales and the difference between 99 thousand and 41,000 I'll do that right here I'll just subtract these two 58,000 the equivalent of fifty eight thousand five hundred and sixty-seven are producing for Minnesota demand these jobs are producing for export these jobs are required to satisfy the Minnesota population now we can copy this formula down and what it's going to do let me amend this formula I'm going to tell it to do that answer and that if the value isn't greater than one I want it to put a zero in there so we'll do that okay and I will copy this down and what we'll get are blank or zeros for those those industries with of a location quotient less than one and a positive value of course for industries with a location quotient greater than one if we and this and if we were looking at a very highly detailed list of industries we could sum all of these export jobs and compare that total of export jobs to the total employment in the state or the entity that we're studying to come up with a basic jobs multiplier but here's a caution we do not calculate a multiplier at this level of aggregation we need much higher disaggregation to come up with an estimate of what truly constitutes in this case Minnesota's export employment