Shift share is similar to location quotient in that it highlights the uniqueness of a regional economy, but it does so in terms of job growth rather than total jobs in an industry. Industries with high regional competitiveness effects highlight the region’s competitive advantages or disadvantages. Shift share does not indicate why these industries are competitive—that is the job of analysts who have knowledge of local conditions. Shift share merely shows the sectors in which the region is out-competing or under-competing the nation. Shift share is thus useful in identifying investment targets so that local stakeholders can help high-performing regional industries either continue to outperform national trends or else “catch up” with national trends so that the regional economy is not left behind in those sectors.
The basic use of shift share is to prevent a hasty and inaccurate interpretation of raw job growth or decline numbers:
- An industry may be booming in a region, but shift share reveals that the industry is actually growing even faster at the national level, showing that regional factors probably have little influence on the regional boom. Or, shift share may reveal a national decline in that industry, showing a unique regional advantage in that industry that ought to be identified and fostered.
- An industry may be declining in a region, but shift share reveals that it is declining even faster at the national level—and thus the regional industry is actually outperforming the nation by stemming job loss. Or, the industry may be growing nationally, indicating that the region faces some disadvantage that is causing localised job loss in a nationally growing industry. If it is significant, this disadvantage should be investigated further.
Analyst primarily uses shift share as a way of estimating “regional competitiveness” in terms of an industry or occupation. If the region’s industry X is outperforming national trends in all industries and industry X in particular, this indicates some competitive advantage in the region that is helping industry X to flourish.
One practical application of shift share is in the context of a workforce training grants. Suppose a community’s health care sector has a high regional competitiveness effect, meaning that it is experiencing an above-average growth rate. They might use this as an argument for additional government funding for health care workforce training/education programs.
Another example: in economic development, shift share can help business recruiters identify and strengthen the region’s competitive advantages. For example, a shift share analysis might reveal that the aerospace parts manufacturing industry in the region, though small, has a high competitive effect. This is a clue that the region is friendly to this type of industry. After further research into the reasons for this competitive advantage, researchers would be equipped to cultivate this advantage and create focused campaigns to attract more businesses of that type.
A final example: a negative competitive effect can indicate that a business is a flight risk for the region. Because shift share describes growth or decline using the context of national performance, it’s likely that the business with low competitiveness in your region could do better elsewhere. Identifying those businesses and addressing their problems early on can aid in retention efforts.
Also see What is Shift Share?