Further Exploring Location Quotient

What industry sectors represent a region’s particular strengths, relative to to the rest of the country?  In what industries is growth or decline outpacing the larger economy? As you already know, this course addresses economic strengths through a regional lens–applying U.S. statistics for benchmarking. But to better understand what regional industry “outperformers” look like at the national level, the heat map below offers a helpful perspective.

The graphic shows a 2019 (pre-COVID-19) LQ map of top metro regions in the hospitality and leisure industry.  Note that the LQ metric makes it easy to spot and rank industry outliers at the national level.

Performing an LQ analysis results in a ratio that compares an industry’s share of the local economy to its share in a larger economy. The reference area used is typically the U.S., based on the assumption that the nation as a whole offers the best available proxy for economic self-sufficiency.  In some cases, however, researchers may choose to reference their state’s economy in analyzing local Location Quotients.

To summarize the Location Quotient metric:

• An LQ greater than 1: The employment in that industry sector or occupational group is more concentrated than the reference area, and that industry sector or occupational group is likely to be a “Basic” sector, exporting its products or services outside the region
  • Example: In the graphic above, regions that are yellow or red represent metropolitan areas with LQs significantly greater than 1. In 2019, these outperforming regions were “exporting” their hospitality and leisure services well beyond their own area.
• An LQ less than or equal to 1 — The employment in that industry sector or occupational group is less concentrated than the reference area, and that industry sector or occupational group is likely to be a “Non-Basic” sector, serving only regional demand. The products or services in this industry sector or occupational group may have to be imported into the regional economy to meet demand.
  • Example: In the graphic above, regions that are blue or green represent metropolitan areas with LQ’s less than or approximately equal to 1.j In 2019, these regions were, for the most part, not serving populations outside their own geographical area.

In the next module, you’ll have the opportunity to practice with Location Quotient. You’ll use available data to calculate and interpret LQ for several industries in an Ohio region.