Location Quotient Calculation Shows Local Economic Strengths

The location quotient is the most typical indicator used to describe a community's economic base. If you don't understand the term, visit the economic base page first.

In brief, the economic base consists of those activities that bring net community income. More of a good or service is produced in your community than is consumed locally.

Despite common usage, selling to outsiders is what economic development is all about. So it becomes important to understand what your economic base is.

The goal of this exercise is to find the economic sectors where the percentage of your total employment in a particular category exceeds your state's percentage or the national percentage in that category. Employment is used as an indicator of the entire economy.

Where you are under the average may show opportunity, especially if it's a retail category, but it doesn't count toward the economic base.

If you remember from school, the word quotient simply means the result of a division problem. Your economic base consists of those sectors that have a location quotient of greater than 1.0. This means that your county's percentage of employment in that economic sector was greater than the percentage of employment in that sector in the comparison economy, either the state or nation.

On the Internet, go to something called the location quotient calculator on the Bureau of Labor Statistics website. There you can select your county and then choose to compare it to your state or the national economy. You also can compare your county at any level of economic sector detail you want. The most general level you would want to consider is two digits, and the most detailed level available is five digits. After you've made a few selections, the website pops up with a chart that shows quotients both greater than 1 and less than 1.

Most communities where I've done these studies obtain the greatest insights through comparisons to their state.

However, sometimes people overlook the obvious, so if you're in a touristy state such as Florida, you might want to compare yourself to the U.S. to understand the full import of your tourism industry.

But if you want to see if you're the most touristy in Florida, compare yourself just to Florida. Think about this example and you'll see the difference.

Where you see a higher percentage of employment in a particular sector in your county than in the nation or state, that's your economic base. Not the latest taco stand.

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