Location quotient (LQ) is basically a way of quantifying how concentrated a particular industry, cluster, occupation, or demographic group is in a region as compared to the nation. It can reveal what makes a particular region “unique” in comparison to the national average.
For example, if the leather products manufacturing industry accounts for 2% of jobs in your area but 1% of jobs nationally, then the area’s leather-producing industry has an LQ of 2 ÷ 1 = 2.0 in your area (as compared to the nation). So in your area, leather manufacturing accounts for a larger than average “share” of total jobs — the share is twice as big as normal, in fact. You could say the industry is “concentrated” in the area, or in other words, that it is one of your area’s “specialties.” Many economists consider an area’s industry to be concentrated if its LQ is above 1.2. LQs can also be calculated for any other regional characteristic that can be expressed as a percentage (jobs by occupation, residents by demographic group, and so on). They can also be calculated using a geographic comparison area other than the entire nation (a state, group of states, or custom region).
Practically speaking, high-LQ industries with significant numbers of total jobs are usually critical pillars of any regional economy, because they tend to generate income from non-regional sources. Here’s why: we assume that in the “average” economy, industries fulfill local economic needs first and produce just enough goods or services to meet those needs. If they produce more than that (as indicated by being larger than average in terms of jobs), then we assume they are creating a surplus that is exported to other regions. This reasoning simplifies a lot of economic realities, of course, but it remains a good rule of thumb.
For readers interested in a more technical and broad definition of LQ: Location quotient is a ratio that compares a region to a larger reference region according to some characteristic or asset. Suppose X is the amount of some asset in a region (e.g., manufacturing jobs), and Y is the total amount of assets of comparable types in the region (e.g., all jobs). X/Y is then the regional percentage share of that asset in the region among all similar assets. If X’ and Y’ are similar data points for some larger reference region (like a state or nation), then the LQ or relative concentration of that asset in the region compared to the nation is (X/Y) / (X’/Y’).