Shift-share analysis

Shift/share analysis is a widely used analytical technique sometimes used for retrospectively decomposing changes, usually in employment, in a set of urban areas or regions. The analysis is meant to identify industries considered to have a comparative advantage in that particular area.

Formula

We have a study area in which employment and population are growing (or declining; the technique works the same way in either case and it saves words to make the growth assumption.) Total employment in our area is e, and that in the i^th activity is e_i . We have a larger frame reference area, usually the nation, where total employment is E, and that in the i^th activity is E_i . The shift-share model says that growth in the study area’s i^th activity employment is a function of:

• The study area’s share of national (or regional) growth.
• The mix change in activities.
• And the shift change of activities toward the study area.

This says that change in employment in the study area’s ith activity from time t to time t+n can be measured:

$e_i^{t + n} - e_i^t = share\;change + mix\;change + shift\;change$

or

$e_i^{t + n} - e_i^t = e_i^t \left[ {{{E_{}^{t + n} } \over {E_{}^t }} - 1} \right] + e_i^t \left[ {{{E_i^{t + n} } \over {E_i^t }} - {{E^{t + n} } \over {E^t }}} \right] + e_i^t \left[ {{{e_i^{t + n} } \over {e_i^t }} - {{E_i^{t + n} } \over {E_i^t }}} \right]$

As this brief discussion suggests, shift-share analysis may be viewed as adding explicit considerations to economic base analysis. Economic base analysis asks how an area shares in national growth. Shift-share goes on to look at the changing mix of activities and at whether activities are shifting toward or away from the study area.

Assumptions

Shift-share analysis makes several assumptions:

1. The larger reference area is a closed economic system
2. Each job counted in the employment of every industry is of equal weight

Application

Shift-share analysis

Criticisms

• Often reflects initial resources of an area, which is not typically indicative of comparative advantage

• Typically presents agricultural, manufacturing, and service industries as have competitive advantages as localities progress

Adjustments or Alternatives

Many scholars have begun tweaking shift-share analysis to use probabilistic models and regression analysis, rather than simple analysis of two data points.

Other forms of industry analysis, such as location quotient, econometric modeling, and input-output analysis are also used.