Baker County Industry Concentration, More or Less?May 18, 2017 When studying a local economy, it’s common practice to compare the smaller economy with a larger one: a reference economy like the state or nation. Comparisons can help to highlight areas of specialization, opportunity, or need within the local economy. One way to highlight these areas is by measuring the relative concentration of employment in an industry. A good tool for this measurement is the Location Quotient (LQ). The LQ is used to quantify the concentration and provide a user-friendly gauge. Since the reference economy becomes the standard, an LQ of 1.00 signals that the two economies have the same concentration of industry employment. An LQ less than 0.80 signals a low concentration while an LQ greater than 1.20 signals a high concentration. In this analysis of Baker County, the reference economy is Oregon.
Baker County has much in common with Oregon when it comes to industry employment. Roughly half of Baker’s broad industry sectors had an LQ close to 1.00 in 2016. Most of those above 1.00 skirted the 1.20 fringe. Only two sectors had clearly high concentrations: state government (1.61) and federal government (2.58). Four sectors had low concentrations: wholesale trade (0.41), information (0.52), financial activities (0.61), and professional and business services (0.52).
High Location Quotient
State government had an LQ of 1.61 in 2016, but the sector had an average LQ of 1.15 from 2006 to 2014 (this analysis covers 2006 to 2016). The increase in Baker’s state government LQ reflects the reclassification of public university employment from state to local government that took place in 2014 and 2015. The reclassification changed the actual concentration of state government employment for the reference economy (Oregon) while Baker’s actual concentration of state government employment went unchanged. Baker’s LQ increased in 2015, reflecting the new relative concentration. Differences in the sector are found primarily in the higher concentration of social assistance and public administration workers in Baker County.
Federal government employment in Baker County had a concentration 2.58 times that of Oregon. About 19 percent of the state’s federal government employment came from the Forest Service and the Bureau of Land Management. For Baker County, 72 percent of federal government employment came from the Forest Service and the Bureau of Land Management. This translates to higher concentrations of federal employment in both forestry and logging, and in administration of environmental programs, which accounts for Baker’s elevated federal government LQ.
Low Location Quotient
Wholesale trade had low LQs in each of its three industry subsectors. Durable goods (0.43), nondurable goods (0.37), and electronic markets and agents/brokers (0.29) were all well below Oregon’s employment concentrations. At least two factors (infrastructure and demand) contribute to the low LQs in Baker County. First, distance from major shipping ports, limited shipping lanes, and winter road closures create difficulty scheduling and receiving freight shipments. Second, since wholesale firms cater to other firms, fewer firms in specific industries translates to fewer potential wholesale customers. This could make operation in certain wholesale markets within the county unprofitable. The bulk of Baker’s wholesale firms are in the farm supplies, farm and garden machinery and equipment, and trade agents and brokers industries. Brokers and agents do not directly sell goods, but instead act as middle agents to connect wholesale buyers with wholesale sellers.
The information sector has limited diversity in Baker County. There were eight firms in the county’s information sector in 2016: three newspaper publishers and a small software company in the publishing industry, a movie theater in the motion picture and sound recording industry, and three firms in the telecommunications industry. In comparison, Oregon had more than 3,200 firms operating in 26 information industries.
The financial activities sector had low employment concentrations in two industry subsectors. The insurance carriers industry and the real estate, rental, and leasing industry had concentrations roughly half that of the state. Baker’s insurance carrier industry is comprised almost entirely of insurance agents and brokers. Agents and brokers are engaged in selling policies. At the state level, direct carriers, as well as agents and brokers account for a sizeable chunk of the insurance carrier industry. Direct carriers are engaged in underwriting (assuming the risk) and the majority are on the west side of the state; there are none in Baker. The real estate, rental, and leasing subsector has four industries that account for roughly 27 percent of the subsector’s employment at the state level. Two of these industries are in real estate (lessors of residential and non-residential buildings), and two are in rental and leasing (passenger car, and truck, trailer and RV rental). Firms in these industries are almost nonexistent in Baker County.
The largest differences in the professional and business services sector are in the management of companies and enterprises industry, and the administrative and waste services industry. Only four of Oregon’s 1,300 management firms and 17 of Oregon’s 7,500 administrative and waste services firms call Baker home.
Baker County and Oregon have many similar industry concentrations. Location quotients help to highlight areas of interest. Further research provides a better understanding, uncovers potential barriers to entry, and may just reveal possible opportunities.