Shift Share Analysis

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Shift share analysis is a traditional tool; through a descriptive analysis of the productive structure, it allows the comparison of regional differences within a country, region or state (SIMÕES, 2004).Shift-share analysis is one way to account for the competitiveness of a region's industries and to analyze the local economic base. This analysis is primarily used to decompose employment changes within an economy over a specific period of time into mutually exclusive factors. Like other analytical economic tools, the shift-share technique is only a descriptive tool that should be used in combination with other analysis to provide a summary of a region's key employment potential industries.

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Shift Share Analysis

  1. 1. PLAN 434 Regional Planning Studio Shift Share Analysis Shift share analysis is a traditional tool; through a descriptive analysis of the productive structure, it allows the comparison of regional differences within a country, region or state (SIMÕES, 2004).Shift-share analysis is one way to account for the competitiveness of a region's industries and to analyze the local economic base. This analysis is primarily used to decompose employment changes within an economy over a specific period of time into mutually exclusive factors. Like other analytical economic tools, the shift-share technique is only a descriptive tool that should be used in combination with other analysis to provide a summary of a region's key employment potential industries. Variables The shift-share analysis divides the change in local industry employment into three components: • National Growth Share - The share of local job growth that can be attributed to growth of the national economy. Specifically, if the nation as a whole is experiencing employment growth, ("a rising tide lifts all boats"), one would expect total national growth to exert a positive growth influence on the local area. This factor describes the change that would be expected simply by virtue of the fact that the local area is part of a changing national economy. In the analysis, we first examine the national growth share, or the number of jobs lost or gained in a region if total employment in the region had changed at the same rate as overall total national employment. • Industrial Mix/Proportionality Shift - The share of local job growth that can be attributed to the region's mix of industries being analyzed. This second factor is the change in a local industry that would be attributable to the growth or decline of the industry nationally. This component isolates the fact that nationwide, some industries have grown faster or slower than others. It represents the contribution that a specific industry nationally has made to the change in the number of jobs in the region. • Local share/Regional Shift/Differential Shift - This share of local job growth describes the extent to which factors unique to the local area have caused growth or decline in regional employment of an industrial group. We observe that even during periods of general prosperity, some regions and still some industries grow faster than others do. This is usually attributed to 1|P age
  2. 2. PLAN 434 Regional Planning Studio some local comparative advantage such as natural resources, linked industries, or favorable local labor situations. The local component aids in identifying a local area's economic strengths. This element of the analysis is a representation of how a region's competitive position can contribute to regional job growth. Shift-share and the local share component in particular, can point to industries that enjoy local comparative advantage. It cannot, however identify what the actual comparative advantage is. Formula Formula of shift share analysis is SS = NS + IM + RS WhereSS = Shift-Share NS = National Share IM = Industry Mix RS = Regional Shift The equations for each component are t-1 t t-1 NS= ilocal * US /US t-1 t t-1 IM = (ilocal *iUS /iUS ) - NS t-1 t t-1 t t-1 RS =ilocal *( ilocal /ilocal - iUS /iUS ) Where ilocal t-1 ilocal t = number of local jobs in an industry (i) at the beginning of the analysis period (t-1) = number of local jobs in an industry (i) at the end of the analysis period (t) USt-1 = total number of jobs in the nation at the beginning of the analysis period (t-1) USt = total number of jobs in the nation at the end of the analysis period (t) t-1 iUS = t iUS number of jobs, nationwide, in industry (i) at the beginning of the analysis period (t-1) = number of jobs, nationwide, in industry (i) at the end of the analysis period (t) 2|P age
  3. 3. PLAN 434 Regional Planning Studio Limitations  The shift-share technique is only a descriptive tool. It should be used in combination with other analyses to determine a region's economic potential. Shift-share does not account for many factors including the impact of business cycles, identification of actual comparative advantages, and differences caused by levels of industrial detail.  The shift-share analysis cannot explain the causes of each component. Moreover, this shift-share analysis examines employment changes, not changes in income, earnings, or value-added, which are alternative measures of an industry's size and strength. While the shift-share technique can be applied to these additional measures, they are not included here.  A shift-share industrial analysis is a "snap-shot" of 2 particular time frames and may not give an entirely clear picture of the local and national economies because the results are sensitive to the period of time chosen. 3|P age
  4. 4. PLAN 434 Regional Planning Studio Article Review Title: Employment Growth in Ceara (Brazil): a Shift-Share Analysis (2000-2005) Between 2000 and 2005, formal employment grew by 33.15% in Ceara (Brazil). Hence, the main objective of this paper was to analyze which municipalities and sectors contributed the most to such growth through a shift-share analysis of employment. The results indicate a considerable dispersion among municipalities in terms of job creation according to the composition of their productive structures and specific factors that yield them (or not) differential competitive advantages. Objectives: 1. To analyze which municipalities and sectors contributed the most to such growth through a shift-share analysis of employment. 2. To analyze which factors affect the process of job creation at the municipal level Methodology  Data Collection- Formal Employment of “Ceara” State (184 Municipality)  Analysis of a Specific Municipality  Analysis of a Specific Sector  Regression Analysis to Identify Location Factor Analytical Method and Findings In this paper, shift share method is used to examine the performance of employment growth indicators in the municipalities of Ceara, and the productive sectors of each municipality. A single specific economic sector within a municipality, then the net component will be given by the difference between the actual change in employment in that sector within the municipality and the change in employment had it grown at the same rate as the state during the period in consideration; in this analysis 5 years. Then the specific municipality is analyzed, for all sectors. In terms of interpretation of the components of shift share, there are some important differences. For instance, the net component 4|P age
  5. 5. PLAN 434 Regional Planning Studio now indicates if a municipality was able or not to increase the number of jobs in all sectors faster than the State’s general average. The mix component reflects the change in employment within the municipality that can be explained by the composition of the State’s productive structure. This component, whenever positive, indicates that the municipality is specialized in high-employment-growth sectors. Finally, the share component could be understood in this case as a result of structural and locational advantages of the municipality, and such component helps to determine which sectors will be more or less dynamic in terms of employment creation therein. And from the analysis, a wide range of results is identified. It is found that 20 out of the 184 municipalities of the State presented negative growth in employment during this period, whereas nothing less than 119 of them presented a positive net component. Approximately 64.6% of Ceara’s municipalities presented a positive net component and none of them had a negative share component. This suggests that endogenous and locational advantages that a municipality has are indeed very important to yield high formal employment growth rates. This argument is strengthened by the fact that the majority of the municipalities that presented a negative net component also had a negative share component (32.6% of the total). References Lopes, Cláudio André Gondim Nogueira and Daniel A. Feitosa. (n.d.). EMPLOYMENT GROWTH IN CEARA: A SHIFT-SHARE ANALYSIS (2000-2005). Retrieved 4 20, 2011, from IPECE: www2.ipece.ce.gov.br/encontro/artigos_2008/16.pdf Geoffrey .J.D. Hewings, M. A. (2008, 9). INCORPORATING SECTORAL STRUCTURE . Retrieved 4 19, 2011, from REAL,The University of Illinois at Urbana-Champaign : www.real.uiuc.edu/. SHIFT SHARE ANALYSIS NARRATIVE . (2002, 1 25). Retrieved 4 18, 2011, from socrates.cdr.state.tx.us/iSocrates/files/ShiftShareNarrative.pdf Quintero, James Paul, " Regional Economic Development: An Economic Base Study and Shift-Share Analysis of Hays County, Texas" (2007). Applied Research Projects, Texas State University-San Marcos. Paper 259. http://ecommons.txstate.edu/arp/259 5|P age

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