As we stated in Part 1, industry clusters are a helpful way of viewing a region’s sectors, because analysing 49 related groups is always going to be much simpler than trying to pick your way through 569 Standard Industry Classifications, most of which are unrelated. But once we have identified a particular cluster of interest, because it is really just a grouping of 4-Digit SIC industries, we can then dig into those underlying industries to gain some insight that will be highly useful in building an evidence-based local growth strategy.
Regional and National Comparison
Taking the Professional Services sector in Reading as our example (see Part 1), we can begin by comparing projected growth for the cluster in the area, with projected growth for the South East and nation as a whole:
These figures show a projection for healthy growth over the next few years at all three geographic levels. And since Reading already has a slight comparative advantage in the sector, what this indicates is that there may well be opportunities to exploit and grow this advantage still further.
Identifying the Underlying Industries
The Professional Services cluster comprises five 4-Digit SIC industries, and having grouped them into the cluster to simplify the process of identifying opportunities, we can “ungroup” them to look at those underlying sectors:
There are a number of interesting things about the data in the table. Firstly, the total number of jobs in the cluster in 2017 (3,313), is overwhelmingly made up from Business and other management consultancy activities (74% of the cluster). Secondly, with the exception of Other professional, scientific and technical activities, each of the sectors is projected to see significant growth in the Reading area between 2017 and 2020. Thirdly, with the exception of Business and other management consultancy activities, none of the sectors enjoys a comparative advantage over other areas of the country, with each of them having a Location Quotient below 1.
Since projected job growth is healthy, and since there is clearly room to increase the comparative advantage that the region enjoys in all five of the underlying sectors, what the data suggests is that there is significant room to grow the cluster.
Calculating the Ripple Effect of Job Creation in a Cluster
Whenever jobs are added in an industry, it doesn’t just affect that sector, but creates a ripple effect throughout the local economy. In the first instance, it has an effect on the industry itself (Direct Effect). Secondly, it effects other industries in its supply chain, as those sectors will need to adjust to increase their supply to meet the higher demand (Indirect Effects). And thirdly, the increased wages brought about by the new jobs means more money spent in the local economy on goods and services (Induced Effects).
We are able to calculate this “multiplier effect” both for the 569 SIC industries, and for the 49 clusters as a whole. In the graphic below, we have done this for the Professional Services cluster in Reading, including both the Jobs Multiplier and Wages Multiplier, along with the average wage for all the added jobs. As you can see, increasing jobs by just 100 in the cluster causes a significant “ripple effect” throughout the Reading economy, and this insight can be massively useful in terms of planning a strategy around which sectors to intervene in.
Understanding the Occupational Mix in the Cluster
For any business thinking of where to locate a new establishment or relocate an existing one, one of the most important factors is whether that area has a workforce with the kinds of skills they are looking for. Because of the way our data is modelled, we can run a Staffing Pattern to identify the occupational make up of any 4-Digit SIC industry and any industry cluster. The table below shows the Top 10 occupations for the Professional Services cluster in Reading, including job numbers and the proportion each occupation makes up of total jobs in the cluster:
The insight presented above is interesting in terms of digging into a cluster of interest. But the real value in it is in terms of the applications it presents for building a solid growth strategy. It is to this we will turn in the final part.
We’d love to hear about how you are attempting to build a strategy for growing your local economy, and whether our insight might be able to help.